US & World Daily Markets Financial Briefing 06-07-2006

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Dow, Nasdaq advance in early trading

NEW YORK - Stocks rebounded in early trading Thursday as lower oil prices and mild June retail sales helped Wall Street steady itself from steep losses in the prior session.
   
Retailers saw slower same-store sales last month, a sign that high gasoline prices and rising interest rates were beginning to strain consumer spending and slow the economy. The results fed optimism on Wall Street that the moderating economy will prompt the Federal Reserve to halt its string of rate increases.
   
Investors showed little reaction to a slight dip in weekly unemployment claims, but they were also waiting for the Institute for Supply Management's services index for a better read on whether the economy has further slowed. Service sector growth is expected to slip 1.1 points to 59.
   
Crude futures eased after reaching a new intraday high the day before, propelled by nervousness about political tension with North Korea and gasoline supplies. A barrel of light crude lost 35 cents to $74.84 on the New York Mercantile Exchange.
   
In the first hour of trading, the Dow Jones industrial average gained 32.02, or 0.29 percent, to 11,183.84. The Dow slumped more than 76 points Wednesday.
   
Broader stock indicators also rose. The Standard & Poor's 500 index was up 1.87, or 0.15 percent, at 1,272.78, and the Nasdaq composite index added 4.83, or 0.22 percent, to 2,158.17.

The Russell 2000 index of smaller companies rose 2.89, or 0.4 percent, to 722.74.
   
Bonds were flat, with the yield on the 10-year Treasury note steady at 5.22 percent from late Wednesday. The U.S. dollar fell against the Japanese yen, and gold prices were slightly lower at about $630 an ounce.
   
Stocks in focus

Weak retail sales dragged on some stocks. Dow component Wal-Mart Stores Inc., whose low-income customers are most vulnerable to high energy costs, said its sales rose 1.2 percent in June, below estimates of 2 percent. Wal-Mart dropped 55 cents to $47.02.
   
JCPenney Co., however, saw a 4.3 percent rise in same-store sales, easily beating forecasts of 2.8 percent. Penney nonetheless sank 67 cents to $66.71.

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Shares of teen retailers were mixed in early trading on Thursday, as surprisingly strong June same-store sales from mall-based leaders like Aeropostale Inc. offset weaker than expected results from Abercrombie & Fitch Co. and Gap Inc.
   
"The biggest surprises came in the teen and specialty sector," Thomson Financial wrote in a note, with children's stores and maternity-related merchandise posting the strongest monthly sales. Youth clothing chains Aeropostale Inc. and American Eagle Outfitters Inc. reported the biggest upside surprises for June, Thomson Financial said.
   
Aeropostale reported a 5.3 percent rise in June same-store sales, easily beating Wall Street's estimated 0.8 percent increase. American Eagle Outfitters said its June same-store sales jumped 11 percent, versus analysts' estimated 6.5 percent rise.
   
Aeropostale shares rose 98 cents, or 3.4 percent, to $30.15 in morning trading, while those of American Eagle added 75 cents, or over 2 percent, at $34.52.
   
Not all youth retailers beat expectations, however. Abercrombie & Fitch, which sells high-end casual clothing to young people, said its same-store sales dropped 4 percent in June, worse than analysts' expected 0.3 percent decline. Abercrombie fell $1.27, or more than 2 percent, to $52.60
   
Pacific Sunwear, operator of PacSun and other surf-inspired clothing chains, reported June same-store sales fell 2.7 percent, and cut its second-quarter financial forecast. Shares fell 20 cents to $17.20 on the Nasdaq.
   
Gap, which has been struggling to reverse flagging sales and traffic for more than a year, continued to slip. The nation's largest specialty clothing retailer said June same-store sales fell 6 percent, worse than analysts' anticipated 5.1 percent decline. Gap shares fell 12 cents to $16.91.

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The European Markets at 12.00 BST

London - UK blue chips remained higher midday unfazed by news the Bank of England left benchmark lending rates unchanged, with oil heavyweights buoyed by record crude prices, while Shire and Rentokil benefited from resurgence of bid talk, dealers said.
   
At 12.10 pm, the FTSE 100 was 49.1 points firmer at 5,875.7 with the broader indices all racking up gains.

Frankfurt - Shares were higher in midday trade as Wall Street pointed to positive opening and concerns over North Korea's missile tests dissipated but trading still showed some cautiousness ahead of the ECB's rate decision today, dealers said.
   
At 12.25 am, the DAX 30 index was 38.96 points or 0.69 pct higher at 5,664.59, having moved between 5,676.46 and 5,835.27 so far this session.

Paris - Paris shares were higher in midsession trade on a rebound from yesterday's sharp drop on geopolitical concerns while cautious investors awaited the outcome of the ECB meeting this afternoon for indications on the future direction of its interest rate policy, dealers said.
   
At 12.53 pm, the main CAC-40 index was trading 29.01 points or 0.59 pct higher at 4,950.31, on trading volume of 1.78 bln eur.

Amsterdam - Shares were slightly higher in early afternoon trade, recovering from yesterday's sell-off, ahead of an expected higher opening on Wall Street, dealers said.
   
At 1.50 pm, the AEX was up 3.22 points or 0.73 pct to 442.37, after opening at 440.18 and trading in a range of 439.67-443.13.

Brussels - Shares were higher in midday trade, as steel wire and cord manufacturer Bekaert led blue-chip risers.
   
At 1.51 pm, the Bel 20 was up 35.27 points or 0.96 pct at 3,718.60

Milan - Share prices were higher at midday, with oil plays leading the advance as crude prices rose sharply after North Korea's missiles test, while Bulgari was boosted by renewed takeover speculation, dealers said.
   
At 11.45 am, the Mibtel index rose 0.81 pct to 27,987 points and the S&P/Mib was up 0.86 pct at 36,518, while volumes stood at 1.10 bln eur.

Madrid - Share prices were higher in cautious mid-session trade ahead of the ECB meeting later today, with Repsol YPF leading the blue chips gainers, dealers said.
   
At 1.00 pm, the IBEX-35 index was up 58.2 points at 11,579.4, after trading in a range of 11,505-11,602, on turnover of 1.888 bln eur.

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Asian shares close mixed; Tokyo, Seoul lower on NKorean missile tests

HONG KONG - Shares across the Asia-Pacific region closed mixed, with Tokyo and Seoul falling in response to North Korea's missile tests and falls on Wall Street overnight, dealers said.
   
Tokyo share prices ended lower as caution reigned amid growing tension in the region following the missile launches yesterday.
   
The Nikkei 225 Stock Average closed down 202.54 points or 1.3 pct at 15,321.40, off a low of 15,278.18.
   
The broader TOPIX index of all first-section issues settled down 17.68 points or 1.1 pct at 1,572.29, after touching a low of 1,567.87.
   
Ryuta Otsuka, a strategist at Toyo Securities, said the market's mood was dampened by Wall Street's weakness overnight, with investors on edge after Pyongyang fired seven missiles. "There are some lingering anxieties over the current situation," Otsuka said.
   
North Korea's action helped push up crude oil futures to a new intra-day high of 75.40 usd a barrel on the New York Mercantile Exchange last night, another reason why investors unloaded Japanese stocks, analysts said.
   
Investors were also hesitant to take aggressive positions before the release of jobs data for June in the US tomorrow, which may provide clues on whether the Federal Reserve will raise interest rates further, said Otsuka.
   
Australian shares closed higher as mergers and acquisitions activity held investor interest and bank and resource stocks were generally firmer.
   
Sentiment remained resilient even with Wall Street ending weaker on North Korean missile fears and after oil prices hit a record, dealers said.
   
The S&P/ASX 200 rose 23.4 points or 0.46 pct to close at 5,120.3. The benchmark indicator closed off a high of 5,120.7 and above a low of 5,053.5.
   
Hong Kong shares were higher in afternoon trade led by gains in some blue chips and China-related shares following their recent correction.
   
But trade was cautious after Wall Street's falls and the surge in oil prices overnight.
   
At 3.27 pm, the Hang Seng Index was up 97.02 points or 0.60 pct at 16,364.20.
   
In mainland China, A-shares in Shanghai and Shenzhen finished higher, with Shanghai rising as investors hunted for bargains and telecom companies and property developers gaining ground.
   
The Shanghai A-share Index rose 23.98 points or 1.33 pct to 1,831.31 and the Shenzhen A-share Index was up 9.45 points or 2.09 pct at 461.68.
   
Seoul shares closed lower as the North Korean missile tests triggered foreign futures selling, which spilled over into heavy program selling.
   
Weak consumer confidence data for June also restrained sentiment, adding to caution ahead of a rate decision by the Bank of Korea and the corporate earnings season.
   
The Bank of Korea is expected tomorrow to keep its call rate target for July unchanged at 4.25 pct in the face of the North Korean security concerns and fears of an economic slowdown.
   
The KOSPI index closed down 15.89 points or 1.24 pct at 1,263.96, off a high of 1,277.32 and a low of 1,255.02.

Asian Bourse Round-Up

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Gold edges lower as oil eases, dollar gains

LONDON - Gold prices edged lower, reversing yesterday's surge to 4 week highs, as oil prices eased while the dollar gained across the board amid speculation the crucial US labour market report due Friday will come in strong.
   
At 1.00 pm, spot gold, which earlier hit a low of 622.10, was quoted at 624.55 usd against 627.30 usd at the time of the COMEX market close. Other precious metals were also weak.
   
Spot silver was down at 11.34 usd against 11.40 usd, platinum was lower at 1,227.00 usd from 1,232.00 usd and palladium was down at 319.00 usd against 320.00 usd.
   
Gold surged to a 4-week high of 630.75 usd yesterday after news North Korea had test fired several missiles including a long range Taepodong-2 capable of reaching US soil sparked safe haven buying.
   
The Asian session was subdued today, however, with dealers unwilling take positions amid volatile market conditions, although selling emerged by the Tocom close to push gold down to 624 usd.
   
"The last 24 hours trading has shown that investors and speculators still see the metals higher from here; however, sentiment remains very sensitive to US data releases that show either too-fast or two-slow growth," said UBS Investment Bank analyst John Reade.
   
'Too-fast' US economic growth supports the dollar as it increases expectations the Federal Reserve will continue raising interest rates in a bid to curb inflation.
   
As gold tends to trade counter to the dollar, it is sensitive to US data and, with the dollar ticking higher today on forecasts for a robust US employment report tomorrow, the metal is under pressure.
   
Longer term, however, analyst remain upbeat about prospects for gold.
   
TheBullionDesk.com analyst James Moore said "with global tensions still high and oil prices marking fresh records gold will continue to draw interest from investors and speculators looking for a safe haven/anti-inflation hedge".

Base metals firm, supported by stockpile draws, supply woes

Base metals were firm, reversing yesterdays weak close, supported by stockpile draws and continued supply woes, but gains were limited by a strong dollar - boosted by speculation tomorrow's US labour market report will come in strong.
   
At 2.19 pm, LME copper for 3-month delivery was up at 7,475.00 usd a tonne against 7,370.00 yesterday, while nickel was up at 22,850.00 usd from 22,750.00.
   
Zinc edged to 3,350.00 usd against 3,260.00 while aluminium was up at 2,545.00 usd against 2,480.00.

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