US & World Daily Markets Financial Briefing 12-07-2006

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Stocks little changed on trade deficit

NEW YORK - Stocks were little changed in early trading Wednesday while traders waited for earnings reports that would help give Wall Street a direction.
   
Microsoft Corp. fell following an unfavorable EU antitrust ruling.
   
The market shrugged off the government's report of a higher May trade deficit although it was smaller than expected and was generally seen as good news. The Commerce Department said the trade imbalance rose by 0.8 percent in May to $63.8 billion, with much of the jump due to higher oil prices.

The increase was smaller than the 2.5 percent rise that economists expected but
still represented the sixth largest deficit in history. So far this year, the trade deficit is running at an annual rate of $763 billion, 6.5 percent higher than last year's record $716.7 billion.
   
Microsoft fell about 1.5 percent after the EU fined the software company $357 million for failing to obey its 2004 antitrust order to share program code with rivals and threatened new penalties of $3.82 million a day beginning July 31. Microsoft immediately said it would appeal the fine, claiming the hefty amount was unfair.
   
In the first hour of trading, the Dow Jones industrial average rose 1.04, or 0.01 percent, to 11,135.81.
   
Broader stock indicators were mixed. The Standard & Poor's 500 index rose 0.66, or 0.05 percent, to 1,273.18, and the Nasdaq composite index fell 3.03, or 0.14, to 2,125.83.
   
Bonds fell, with the yield on the 10-year Treasury note at 5.14 percent, up from 5.11 percent Tuesday. The U.S. dollar was higher against other major currencies in European trading and gold prices rose.

The Russell 2000 index of smaller companies was up 0.28, or .04 percent, to 714.67.
   
Overseas, Indian stocks rose a surprising 3 percent despite predictions the market would plunge after train bombings that rocked Bombay, the country's financial capital.

Stocks in focus
   
Microsoft was down 33 cents at $22.77 after the EU's ruling.     

Monster Worldwide Inc. said it may need to restate earnings from 2005 and previous years to correct accounting for stock-options grants. The company has been internally reviewing options granting practices, and said it may take non cash charges for stock-based compensation expenses.

But Goldman Sachs said the company's fundamentals remain intact and the stock rose $1.93, or 5.2 percent, to $39.17.

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Dollar rises after US trade gap widens only marginally

LONDON - The dollar got a small boost in afternoon trade after the US trade gap in May proved slightly narrower than expected.
   
The deficit rose to 63.8 bln usd in May, marginally higher than the downwardly revised 63.3 bln usd in April. Analysts had predicted a wider shortfall of around 65 bln stg.
   
Market reaction to the data was fairly straightforward with a stronger-than-expected outcome positive for the dollar.
   
Investors' eyes are firmly on the horizon and the debate continues whether the Fed will pause from its rate hiking cycle which started back in 2004 at its next meeting on August 8.
   
The Fed has already hiked the benchmark rate from 1.00 pct to 5.00 pct at present. US economic data in the run-up to the meeting will be key. The US inflation numbers due June 19 will be pivotal.
   
Elsewhere, the pound stayed depressed after UK employment data showed unemployment rose to a four-and-a-half year high during June.
   
In addition, average earnings in the three months to May remained subdued, which may be seen by some as arguing against an interest rate hike by the Bank of England. The rate-setting Monetary Policy Committee has already noted in its Inflation Report in May that there have been few signs that energy price increases have fed through into wage inflation.
   
"The labour market data continues to suggest that the growing amount of slack in the labour market is helping to prevent any pick-up in pay growth following last year's rise in CPI inflation," said Vicky Redwood, economist at Capital Economics.
   
Today's data follow disappointing UK trade data and a weaker-than-expected retail sales survey by the British Retail Consortium.
   
Separately, the yen was weaker all around as market jitters increased ahead of Friday's interest rate decision from the Bank of Japan.
   
With the market now fully expecting the BoJ to hike interest rates for the first time in six years, attention will focus squarely on the accompanying statement, analysts said.

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The European Markets 12.00 BST

London - UK blue chips held firm, albeit off highs at midday ahead of an expected firmer opening on Wall Street, fuelled by strength in heavyweight mining issues and with Partygaming seeing a relief rally after US gaming legislation moves, dealers said.
   
At 12.13 pm, the FTSE 100 index was 27.09 points firmer at 5,894.3, below an early morning peak of 5,899.3.

Frankfurt - Shares were higher at midday after Wall Street's positive close yesterday, and pushed through by strong gains in energy stocks as oil prices continue to hover around the 74 usd mark, dealers said.
   
At 11.59 am, the DAX 30 index was 65.47 points or 1.17 pct higher at 5,681.51, having moved between 5,641.01 and 5,700.01 so far this session.

Paris - Shares were higher across the board in midday trade on the rebound from yesterday's sell-off driven by bargain-hunting, as Wall Street was seen opening firm, dealers said.
   
At 12.47 pm, the main CAC 40 index was 57.70 points or 1.17 pct higher at 4,972.09, on solid trading volume of 1.74 bln eur.

Amsterdam - Shares were broadly higher at midday, buoyed by tech stocks and US futures pointing to a higher opening of Wall Street, dealers said.
   
At 12.12 pm, the AEX was 3.27 points or 0.75 pct higher at 441.85 after opening at 441.20 and reaching an earlier high of 442.91.

Helsinki - Helsinki shares moved higher in midday trade, with Nokia leading the market into the black as the tech sector recovered from yesterday's lows following Nasdaq's gains overnight, traders said.
   
At 11.55 am, the OMX Helsinki 25 was 1.26 pct firmer at 2,460.99 and the OMX Helsinki was up 1.15 pct at 8,569.28. Turnover was 173 mln eur.

Milan - Share prices were higher at midday, led by banks which were lifted by the central bank's renewed call for consolidation in the sector, dealers said.
   
At 11.55 am, the Mibtel was up 0.60 pct at 27,914 points and the S&P/Mib was 0.60 pct higher at 36,429.

Stockholm - Shares remained in positive territory in midday trade, with mining firms performing strongly, but were off a touch from earlier levels, as Ericsson and some of the enginerring blue chips moved into negative territory, dealers said.
   
At 12.20 pm, the OMX Stockholm index was up 0.44 pct at 305.29, while the OMX Stockholm 30 index was up 0.41 pct at 943.19. Turnover was 4.83 bln skr.

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Asian shares close mostly lower, sharp fall in Tokyo

HONG KONG - Shares across the Asia-Pacific region closed mostly lower, with Tokyo down sharply on news of the bombing in India and ahead of the Bank of Japan meeting, dealers said.
   
Japanese share prices finished lower for the second day, ahead of an expected increase in interest rates by the Bank of Japan, which starts a two-day policy meeting tomorrow, and following the train blasts in Mumbai, dealers said.
   
For the sixth straight session, foreign investors were net sellers of stocks even before the opening bell.
   
The Nikkei 225 Stock Average closed down 224.50 points or 1.4 pct at 15,249.32, off a low for the day of 15,169.15.
   
The broader TOPIX index of all first-section issues shed 22.16 points or 1.4 pct at 1,563.69, off a low of 1,556.87.
   
Sieg Securities chief strategist Hideo Mizutani said many investors were keeping to the sidelines before the meeting of the central bank's policy board.
   
Mizutani said investors had already factored-in an increase in interest rates of a quarter of a percentage point, but were awaiting the Bank of Japan's post-meeting statement and subsequent remarks by governor Toshihiko Fukui for clues about whether more increases are on the way.
   
Australian shares ended higher as investors bought resource stocks after base and precious metal prices rose overnight, dealers said.
   
They said that major banks fell as interest rate hike expectations rose following a strong increase in a consumer confidence survey for July.
   
The S&P/ASX 200 advanced 21.1 points or 0.41 pct to close at 5,128.3. The benchmark indicator closed off the day's high of 5,141.0 and above a low of 5,116.8.
   
Hong Kong shares were slightly higher in afternoon trade, with investors trading cautiously ahead of US corporate earnings reports and following a drop on the Japanese market, dealers said.
   
At 3:28 pm the Hang Seng Index was up 15.98 points or 0.10 pct at 16,506.11.
   
In China, A-shares in Shanghai and Shenzhen closed lower in rangebound trade as airlines and food stocks succumbed to profit-taking pressure, dealers said.
   
The Shanghai A-share Index lost 6.32 points or 0.34 pct to 1,829.44 on turnover of 30.33 bln yuan and the Shenzhen A-share Index was down 0.16 points or 0.03 pct at 465.53 on turnover of 19.96 bln yuan.
   
Seoul shares finished slightly lower with investors reluctant to build fresh positions ahead of earnings results from industry bellwethers, the expiry of options contracts and the Bank of Japan's policy board meeting, dealers said.
   
After a firm start, the market changed direction several times during the session to close in negative territory, with foreign investor activity in futures ultimately determining the market's direction, they added.
   
The sharp downturn in Tokyo shares also pressured sentiment in late trade.
   
The KOSPI index closed down 3.75 points or 0.29 pct at 1,296.69, after moving between 1,311.27 and 1,291.61.

Asian Bourse Round-Up

For a full list of closing prices, click here

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Gold near day highs, buying continues after Mumbai bombs
       
LONDON - Gold traded near day highs, making further headway after touching 5 week highs yesterday, as safe haven buying sparked by yesterday's bomb attacks in Mumbai, India, continued apace.
   
At 12.50 pm, spot gold, which earlier hit a day high of 647.05 usd, was quoted at 645.70 usd, against 641.20 at the time of the COMEX market close yesterday.
   
Other precious metals were also higher. Spot silver was at 11.68 usd against 11.45, platinum was at 1,257.50 usd from 1,240.00 and palladium was at 327.00 usd against 322.00.
   
Gold touched 643 usd yesterday, its highest level since early June, after a series of bomb attacks in Mumbai left over 180 people dead. The yellow metal, seen as a safe haven asset, has since surpassed yesterday's record.
   
Analysts said, however, that gold was pushed higher yesterday by a favourable technical picture and not by the Mumbai attacks alone, adding that sentiment towards the precious metals has not changed significantly.
   
"Although gold may expect to find support on the back of heightened security worries as highlighted by the Mumbai bombings, light profit taking was seen to cap the rally (yesterday) and brings into question the sustainability of the current rally," Standard Bank said in a note.
   
It added, however, that "should gold be able to hold onto overnight gains and consolidate in the 640's, it will likely move forward to target the next level of 650 usd.
   
UBS Investment Bank said that because technical resistance at 637 usd was broken yesterday, its technical analysts see gold moving toward 660 usd in the short-term.
   
Gold hit a 26-year-high of 730 usd in mid-May on increased geopolitical tensions, high oil prices and an uncertain outlook for the dollar, but a brutal sell-off soon ensued, sending the precious metal down to 543 usd in mid-June.
   
John Meyer, analyst at Numis Securities, said gold has been firming since the June falls and that this uptrend should continue, led by "rising demand, some interruptions to mine supply and central bank activity".

Crude oil futures rose. A barrel of light crude was quoted at $74.42, up 26 cents, in electronic pre-opening trading on the New York Mercantile Exchange.

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