US & World Daily Markets Financial Briefing 15-09-2006

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Wall Street gains on CPI report

NEW YORK - Wall Street surged Friday after a key inflation report showed consumer prices rose in line with expectations last month, raising investors' confidence that the Federal Reserve will keep interest rates unchanged.

The Labor Department reported consumer inflation slowed sharply from July, helped by a slower housing market and pullback in energy prices. Overall consumer prices and costs, excluding food and energy, rose 0.2 percent in August.

Recent economic data, which also included benign industrial production numbers released Friday, has raised expectations the Fed will leave rates unchanged at its Sept. 20 meeting.

"The news from this report shows that overall inflation is decelerating, and that's going to increase the markets confidence the Fed will leave rates unchanged next week," said Alan Gayle, senior investment strategist with Trusco
Capital Management. "Stocks are going to respond strongly to something like this."

In corporate news, Ford Motor Co. shares plunged after the troubled automaker said it will cut its work force by about a third, or 14,000 positions, and cut operations costs by $5 billion through 2008. Wall Street felt the plan fell short of what Ford needs for a turnaround.

Automaker DaimlerChrysler AG was also in focus after lowering its 2006 operating profit forecast, pinning the drop on a loss at its Chrysler Group unit during the third quarter.

In the first hour of trading, the Dow Jones industrial average advanced 58.03, or 0.50 percent, to 11,585.42.

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Broader stock indicators also moved higher. The Standard & Poor's 500 index added 5.99, or 0.39 percent, to 1,321.43, and the Nasdaq composite index rose 9.03, or 0.41 percent, to 2,237.76.

Bonds rose, with the yield on the benchmark 10-year Treasury note easing to 4.77 from 4.79 percent late Thursday. The dollar was mixed against other major currencies, while gold prices fell.

While most blue chips bounced in early trading, some high-profile names in the auto sector that failed to gain traction. Ford plummeted 69 cents, or 7.6 percent, to $8.40 after plans to restructure the company fell flat. The company was downgraded by a number of Wall Street analysts who felt the automaker  eeds to do more to shore up its balance sheet.

DaimlerChrysler gave up $4.10, or 7.8 percent, to $48.80 after cutting its outlook. The German automaker said Chrysler is "facing a difficult market environment" because of excess inventory and legacy costs for employees and retirees.

Leading technology stocks higher was Adobe Systems, which makes graphics software such as Photoshop. After reporting better-than-expected results late Thursday, the company provided guidance that soothed fears sales would  eaken in the current quarter. Shares added $4.20, or 12 percent, to $37.85.

The Russell 2000 index of smaller companies rose 1.68, or 0.23 percent, to 729.28.

Overseas, Japan's Nikkei stock average fell 0.47 percent. In afternoon trading, Britain's FTSE 100 was up 0.17 percent, Germany's DAX index rose 0.56 percent, and France's CAC-40 added 0.47 percent.

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AMSTERDAM - Shares are expected to open flat to slightly higher following Wall Street's mixed close, as investors wait to take their cue from key US inflation data expected later today, dealers said.

Yesterday, the AEX closed 0.34 points or 0.07 pct higher at 471.48.

PARIS - Shares are expected to open flat to slightly higher, with little direction from Wall Street and relatively few new French company results, dealers said.

Yesterday, the CAC-40 index finished down 14.08 points at 5,123.85, on volume of 4.2 bln euro.

September CAC-40 futures were trading up 2.5 points or 0.05 pct at 5,128.0 ahead of the official opening.

The euro was trading at 1.2724 usd, against 1.2736 late yesterday.

FRANKFURT - Shares are seen opening slightly higher, boosted by a further drop in oil prices, though a mixed Wall Street session overnight and caution ahead of a raft of US data this afternoon could put a cap on gains, dealers said.

At 8.21 am, brokerage Lang & Schwarz forecast the DAX 30 index would open at about 5,915, up some 8 some points from yesterday's close at 5,907.37.

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Asian shares closed mixed ahead of US inflation figure

HONG KONG - Shares across the Asia-Pacific region closed mixed with cautious trade in some markets as they await US consumer inflation data tonight and look for indications on US interest rates, dealers said.

Tokyo shares closed lower on renewed concerns about the prospects for the Japanese economy following a sharp downward revision in the monthly leading index and with some investors sidelined ahead of the long weekend, dealers said.

The Nikkei 225 Stock Average ended down 75.46 points or 0.47 pct at 15,866.93. For the week, the index lost 1.3 pct.

The broader TOPIX index of all first-section issues fell 4.70 points or 0.29 pct to 1,593.43. The index slid 1.6 pct during the week.

The Cabinet Office announced the index of leading economic indicators for July was revised down to 27.3 from the initial reading of 40.0. A reading above 50 indicates economic expansion over the subsequent three to six months, while 
reading below 50 suggests contraction.

Some investors also locked in recent gains with Japanese financial markets closed for a public holiday on Monday and ahead of the release later today of US consumer price data for August, dealers said.

Analysts say in the absence of major domestic leads, the local equity market is likely to look to Wall Street for direction next week, with the benchmark Nikkei 225 moving in a narrow range between 15,500 and 16,000 points.

"The revised leading index data joined the long list of weak economic indicators for the month of July, fueling uncertainties over the prospect of the Japanese economy," Nozomi Securities market analyst Akihiro Shiroeda said.

Shiroeda said that while the recent spate of weak data prompted some concern about the fate of the economy, "almost no one thinks that the Japanese economy
is slipping into a negative cycle."

"As long as the economy can maintain its momentum, people would not sell the Nikkei 225 to below the 15,500 level, but they may also not buy above 16,000," he added.

Australian shares finished lower on a broad sell-off as investors turned cautious after a volatile week, dealers said.

They said banking stocks suffered after Westpac issued an earnings forecast downgrade, while investors continued to fret about the future direction of commodity prices if global economic growth slows.

The S&P/ASX 200 ended down 34.0 points or 0.67 pct at 5,036.4, off a low of 5,021.1 and a high of 5,069.5.

For the week the benchmark index fell 101.1 points or nearly 2.0 pct, making it the second consecutive week that the index has lost ground.

Hong Kong shares were higher in afternoon trade with the market uncertain over US economic prospects and interest rates, dealers said.

They said investors are awaiting the US consumer inflation data for some guidance on what action the Federal Reserve will take on interest rates at its policy meeting next Wednesday.

At 3.30 pm the Hang Seng Index was up 32.70 points or 0.19 pct at 17,216.15.

In mainland China, A-shares in Shanghai and Shenzhen closed sharply higher on expectations of further yuan strength, with airlines and blue chips gaining, dealers said.

The Shanghai A-share Index rose 33.18 points or 1.87 pct to 1,810.30 and the Shenzhen A-share Index was up 6.19 points or 1.43 pct at 439.97.

Seoul shares closed slightly higher, reclaiming the 1,360 point level, as strong institutional and retail support offset foreign investors' profit taking ahead of the weekend, dealers said.

The market remained in negative territory for much of the session, with investors taking to the sidelines or locking in profits after a healthy rally of nearly 2.0 pct yesterday, but it gained momentum in late trade to close near its high, they noted.

The KOSPI index closed up 2.35 points or 0.17 pct at 1,361.10, after moving between 1,351.26 and 1,361.20. The benchmark index ended the week higher  ith a gain of 6.21 points.

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Forex - Dollar inches higher after mixed bag of US data

LONDON - The dollar inched higher after a mixed bag of US data showing that inflationary pressures are pretty much as expected in August while industrial production faltered slightly.

The US Labor Dept revealed that consumer inflation slowed from 0.4 pct in July to 0.2 pct in August. The slowdown was as predicted.

"The US is not out of the woods yet as far as inflation is concerned, despite the more moderate increases in both headline and core consumer prices in August," said Paul Ashworth at Capital Economics said. 

He pointed out that while the monthly core rate of inflation eased to 0.2 pct in August from 0.3 pct the previous month, the annual rate raced to a near five year high of 2.8 pct.

Still, the data did go some way to confirm that US rate setters will likely hold interest rates unchanged next week, at 5.25 pct for the second time in a row. The Fed paused from hiking rates in August, ending its run of 17 straight rate hikes going back to mid 2004.

Also out today, US industrial production fell 0.l pct in August from the previous month. Most analysts were predicting a gain.

The pound eased back after the week's steep gains as UK rate hike expectations receded into the background slightly as the flow of UK data slowed today.

The point had risen sharply after strong rises in UK inflation, house prices and retail sales.

In the euro zone, meanwhile, inflation was confirmed at 2.3 pct in August. Inflation has eased from 2.4 pct in July and 2.5 pct in May and June.

Analysts said the downward trend in euro zone inflation may limit the scope for the European Central Bank to continue raising interest rates into next year.

The decline will not stop the ECB council from hiking rates again over the next three months, but it may mean that it does not need to continue tightening policy next year, economists said.

"ECB council members have a dilemma on their hands as inflation is easing, just at the point when they are looking to escalate their tightening campaign," said David Brown of Bear Stearns.

He said the downward trend in inflation will not stop the ECB from raising its main interest rate to 3.50 pct by end-year from 3.00 pct currently, as expected by markets.

"But it could definitely put a firm block on the ECB's ambition to raise rates any higher next year," he said.

Elsewhere, the markets will be on the lookout for any statement at this weekend's G7 meeting relating to the Japanese yen and the Chinese yuan.

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