US & World Daily Markets Financial Briefing 11-10-2006

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Wall Street opens lower

NEW YORK - Stocks opened lower Wednesday as investors cringed at the first batch of quarterly earnings reports, which included weaker-than-expected results from aluminum producer Alcoa Inc.
   
While earnings news loomed large on Wall Street, investors were also waiting to get a clearer picture of where the Federal Reserve stands on interest rates and the threat of inflation. On Wednesday afternoon, the central bank is expected to release minutes from its last meeting.
   
The notion that the economy is slowing adequately to allow the Fed to cut rates has given stocks a boost in recent weeks, helping push the Dow Jones industrial average to a string of record-setting sessions. The Dow set another closing record Tuesday.
   
In the first hour of trading, the Dow Jones industrial average was down 46.10, or 0.39 percent, at 11,821.07.
   
Broader stock indicators were also down. The Standard & Poor's 500 index was down 4.96, or 0.37 percent, at 1,348.46, and the Nasdaq composite index was down 12.29, or 0.53 percent, at 2,303.14.
   
Stocks in focus
   
Shares in Alcoa Inc. slipped 4 percent in German trading after the firm said late Tuesday that it earned $537 million in third-quarter net income, or 61 cents a share, up 86 percent from a year ago but short of analysts' estimates of 77 cents a share.

The world's largest aluminum producer said revenue climbed 19 percent to $7.6 billion, as aerospace and commercial transportation customers offset weaker automotive and housing construction markets.
   
Genentech Inc. late Tuesday reported net earnings of $568 million, or 53 cents a share, up 58 percent from a year ago. Revenue rose to $2.38 billion from $1.75 billion. Earnings from continuing operations, on a per-share basis, came in at 59 cents. Analysts had been looking for a profit of 51 cents a share.
   
Legg Mason Inc. after Tuesday's closing bell said it expects net per-share income for the second quarter, ended Sept. 30, will be 96 cents to $1.02, while Wall Street is looking for $1.16. The asset-manager cited lower-than-expected revenue.
   
Among the companies due to report earnings Wednesday, Monsanto Co. is expected to post a fourth-quarter loss of 21 cents per share.
   
Yum Brands Inc., the operator of KFC, Taco Bell and Pizza Hut restaurants, is expected to report earnings of 75 cents per share for the third quarter.
   
And Gannett Inc. is expected to report earnings per share for the third quarter of $1.11.

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Dollar solid as Fed rate cut expectations diminish

LONDON - The dollar remained firm as investors scaled back expectations of an imminent rate cut from the US Federal Reserve and US stocks continued to drive ahead.
   
Analysts said this modest re-widening of future interest rate spreads between the US and its major competitors has helped the dollar post impressive gains in recent sessions. 
    
The US central bank is expected to keep its key Fed funds rate on hold at 5.25 pct at its forthcoming meetings. The rate-setting Federal Open Market Committee kept its key Fed funds rate on hold on Aug 8 after 17 consecutive quarter-point increases.
      
Elsewhere, the pound was steady against the euro after a relatively hawkish speech overnight from the Bank of England's governor Mervyn King was offset by equally tough language from European central bankers, not least the ECB's president, Jean-Claude Trichet.
   
Though King conceded that the recent slide in oil prices has made it less likely that the target rate of inflation will spike above 3.0 pct, he warned that the anticipated fall in September's CPI rate may not last long especially if wage pressures mount.
   
He also warned about the growth in the money supply and referred to an unreleased BoE study that suggests manufacturers are planning to raise prices to rebuild margins battered during the sharp spike in energy costs.
   
Meanwhile, Trichet indicated that European borrowing costs have further to rise if the economic outlook in the 12-nation single currency zone pans out as anticipated.
   
As a result of both speeches, the market continues to price in a BoE quarter-point rate increase in November to 5.00 pct and a similar ECB increase in December to 3.50 pct.

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German shares lower in afternoon, weaker Wall Street offsets M&A news

At 3.38 pm, the DAX 30 index was 27.12 points or 0.44 pct lower at 6,090.59, having moved between 6,080.14 and 6,111.02.
   
The MDAX was at 8,596.54, down 31.14 points or 0.36 pct, while the TecDAX was at 669.79, down 2.33 points or 0.35 pct. The DAX futures contract was at 6,129.00, down 32.5 points, while bund futures were at 117.34, down 0.07 point or 0.06 pct.
   
The euro last traded at 1.2538 usd, against 1.2553 in midday London trade.
     
Linde fell 0.92 eur or 1.22 pct, to 74.33, to lead the blue-chips lower, after dealers pointed to a small placement from Goldman Sachs.
   
Elsewhere, Continental eased 1.12 eur or 1.20 pct to 92.28, as investors locked in some profits following yesterday's spike on renewed takeover speculation.
   
Rumours that Continental might be taken over have circulated since the end of September, when the company announced that it had been approached by a possible unnamed private equity group. But Continental said talks with the possible buyer had been terminated by mutual agreement before a bid was launched.
   
Auto stocks were in the red with DaimlerChrysler losing 0.35 eur or 0.88 pct to 39.48, Volkswagen down 0.67 eur or 0.95 pct at 69.62 and BMW sliding 0.28 or 0.66 pct to 42.01.
   
Among the small list of shares able to buck today's negative trend, Deutsche Telekom rose 0.25 eur or 2.01 eur to 12.70 to lead the DAX, after a vague rumour circulated that private equity group Blackstone may be attempting to engineer a merger between BT Group and its German peer.
       
A report in today's Handelsblatt suggested that Drillisch, who on Monday said that it had built a 9.3 pct stake in TecDAX-listed Mobilcom, was looking to engineer a strategy change in its larger peer, possibly involving the sale of its Freenet.de subsidiary.
   
Mobilcom took on 0.92 eur or 5.02 pct to 19.23 as the top TecDAX gainer, while Prime Standard member Drillisch rose 5.41 eur or 1.69 pct to 5.41.
   
Back on the DAX, shares in Fresenius Medical Care (FMC) rose after its MDAX-listed parent company Fresenius AG announced it will ask its shareholders to approve a 3-for-1 share split.
   
On the MDAX, Techem dropped 1.13 eur or 2.86 pct to 38.41 to lead the index lower, as Pfleiderer rose 0.95 or 4.68 pct to 21.24 as the biggest gainer.
   
Morphosys led the TecDax downwards as the fastest decliner, dropping 2.09 eur or 4.02 pct to 49.91.

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Asian shares close mixed on lower oil prices, Wall St record close

HONG KONG - Shares across the Asia-Pacific region closed mixed as oil prices fell and the Dow Jones Industrial Average ended at a record in overnight trade. Stocks fell initially in some markets on reports of a second nuclear test by North Korea, but later recovered when the reports were refuted.
   
Tokyo shares closed lower as a sharp drop in oil prices overnight hit energy stocks although losses were trimmed by gains in exporters, spurred by the yen's weakness.
   
Reports that North Korea may have conducted a second nuclear test also dampened investor sentiment even though Japanese Prime Minister Shinzo Abe and South Korean officials said they could not confirm it.
   
The market opened higher after the Dow Jones Industrial Average set its fourth record close in two weeks overnight. But the Tokyo market struggled to keep those slim gains and eventually fell into negative territory, following declines in shares of oil refiners, non-ferrous metals firms and trading houses.
   
The Nikkei 225 Stock Average closed down 76.68 points or 0.47 pct at 16,400.57, just off its intraday low of 16,399.74. It touched a high of 16,595.91 points. The broader TOPIX index of all first-section issues fell 12.76 points or 0.78 pct to 1,622.07, after peaking at 1,644.58.
       
Dealers said the yen is likely to remain under pressure as it is seen as a proxy for other Asian currencies, and worries about a pickup in geopolitical tensions in the region will continue to weigh.
   
Australian shares closed higher, moving closer to the record levels reached in May, on gains in the financial services sector and on support for major resources stocks.
   
Retailers also advanced following a consumer sentiment survey for October showing further improvement after a solid pick-up in September as gasoline prices eased.
   
The S&P/ASX 200 ended up 34.2 points or 0.65 pct at its high for the day of 5,282.8 and above the low of 5,240.4
   
Dealers said selected media stocks also posted gains ahead of an expected relaxation in media ownership rules which will ease cross-ownership restrictions in place since 1987 and allow foreign ownership.
   
The new rules being debated in parliament could become law as early as this week, paving the way for a wave of takeovers, mergers and foreign investment in the 12 bln aud media industry.

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Hong Kong shares were steady in afternoon trade following chief executive Donald Tsang's policy address, which did not contain any major surprises. Tsang outlined proposals to encourage more stock market listings by foreign companies and steps to reduce pollution in the territory but he was silent on a planned goods and services tax.
   
At 3.30 pm the Hang Seng Index was up 29.77 points or 0.17 pct at 17,853.47.
   
In mainland China, A-shares in Shanghai and Shenzhen shrugged off early weakness and closed higher on bargain-hunting with steel makers and machinery issues gaining ground.
   
The Shanghai A-share Index added 5.62 points or 0.30 pct to 1,880.58 and the Shenzhen A-share Index was up 0.38 points or 0.08 pct at 465.43 on turnover of 12.79 bln yuan.
   
Seoul shares finished lower but well off their intraday lows, with sentiment quickly stabilizing after reports of another North Korean nuclear test could not be confirmed.
   
Reports by the Japanese media triggered massive sell-offs at the opening but the market quickly recouped much of its losses as the governments of South Korea, Japan and the US could find no evidence of a test, they added.
   
The KOSPI index closed down 2.88 points or 0.22 pct at 1,325.49, off a low of 1,315.84 and a high of 1,331.50.

Asian Bourse Round-Up

For a full list of closing prices, click here

Oil

Crude-oil futures slipped further, with the November contract dipping 36 cents to $58.16 a barrel in electronic trading.

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