US & World Daily Markets Financial Briefing 18-10-2006

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The Dow Jones industrials pass 12,000

NEW YORK - The Dow Jones industrial average swept past 12,000 for the first time Wednesday, extending its march into record territory as investors grow increasingly optimistic about corporate earnings and the economy.
   
The index of 30 big-name stocks surpassed the milestone just after trading began, rising to 12,029.50. The Dow had already set closing records seven times during the past two weeks.
   
It took the Dow 7 1/2 years to make the trip from 11,000, having been pummeled during that time by the dot-com bust, recession and the aftermath of the 2001 terror attacks. That slow trek was a striking contrast with the Dow's sprint from 10,000 to 11,000 in just 24 days in the spring of 1999, during the heady days of the Internet boom.
   
The Dow, whose stocks include blue chips such as International Business Machines Corp., Microsoft Corp. and Wal-Mart Stores Inc., has risen nearly 350 points so far this month as oil prices retreated below $60 a barrel and it appeared the economy was headed for a soft landing after more than two years of interest rate increases.
   
Investors' relief over oil's decline from a high of $78.40 has given Wall Street an unusually strong October; some of the market's worst days, including the 1929 and 1987 crashes, have been in October. And it was on Oct. 9, 2002, in the depths of the bear market, that the major indexes fell to their lowest levels in five and six years -- the Dow closed that day at 7,286.27.
   
The Dow has recovered faster from the stock market's troubles than the Standard & Poor's 500 and the Nasdaq composite indexes have done. All had peaked in early 2000 before dropping precipitously, but the S&P 500 and Nasdaq suffered more because of the heavy representation of high-tech issues among their stocks.
   
The S&P 500 is getting closer to its peak of 1,527.46, but the Nasdaq, which was bloated by its vast number of tech stocks, remains well below its high of 5,048.62.

December-dated crude oil futures dipped 10 cents to $60.56 a barrel ahead of weekly energy statistics. Another build in U.S. crude stocks is expected.

On Tuesday, U.S. stocks came under pressure after the latest producer-price report reignited inflation fears. A downgrade of Intel contributed to Tuesday's decline, with the Dow industrials losing 54 points, the Nasdaq Composite dropping 23 points and the S&P 500 losing 7 points.
   
But Intel may bounce back after the world's largest chipmaker's third-quarter earnings report showed signs it's past the worst of its problems. Intel reported a 35 percent profit decline, though compared with the second quarter, profit rose 47 percent. Intel shares were up 1.4 percent in Frankfurt.

Stocks in focus

IBM shares climbed 3.7 percent in Germany after the company's 47 percent profit rise exceeded analyst estimates behind global services deals.
   
Yahoo also was up, rising over 4 percent overseas after the company met expectations with a 20 percent sales rise. Profit at the Internet bellwether declined 37 percent.
   
German-listed Motorola shares dropped 8 percent after the company reported a 45 percent profit drop, a below-forecast 17 percent sales rise and said that fourth-quarter revenue also may miss Wall Street estimates. Shares of larger rival Nokia edged 0.6 percent lower in Helsinki trading.
   
On Wednesday, markets may react to earnings from J.P. Morgan Chase & Co. and medical products makers St. Jude Medical and Boston Scientific. After the close on Wednesday, Apple Computer, eBay Inc. and Advanced Micro Devices put out results.
   
Wednesday also features a heavy economic calendar, with the consumer price index the focus. The Labor Department reported that the CPI dipped by 0.5 percent last month, which was better than the 0.3 percent decline that Wall Street had been expecting.

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Dollar rises on strong US housing data

LONDON - The dollar was higher as figures out this afternoon showed a bigger-than-expected rise in US housing starts, easing concerns that the housing market is slowing sharply.
   
Construction of new homes and apartments rose in September by 5.9 pct following three consecutive monthly declines, figures showed.
   
Meanwhile, US inflation figures released at the same time came in slightly on the soft side, but not sufficiently to alleviate the concerns of rate-setters about rising inflationary pressures.
   
Official figures showed the headline US Consumer Price Index fell by 0.5 pct in September, the largest drop since November last year and sharper than the more moderate 0.3 pct decline forecast by analysts.
   
The core CPI rate, however, which excludes volatile food and energy prices, rose by 0.2 pct, the same increase as both July and August and in line with expectations. On an annual basis, the core rate rose by 2.9 pct, its biggest gain in over ten years.
   
The figures will not alter the market's current view that the next interest rate move by the Federal Reserve will probably be a cut, but an early reduction is unlikely given that concerns over rising inflationary pressures remain.
   
Marc Ostwald at Insinger de Beaufort noted core CPI was pulled down by the energy-driven fall in airline fares as well as a 0.3 pct drop in new and used car prices, but "nearly all the rest of the components" rose by around 0.3 pct on a month-on-month basis.
   
Elsewhere, the yen reversed some of its earlier gains, which had seen it reach 12-day highs against the dollar and three-week highs against the euro after a report overnight that the Bank of Japan plans to enhance monitoring of yen carry trade transactions. The BoJ later denied that any new initiative was underway.

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The European Markets at 12.00 GMT

London - UK blue chips remained firm at midday, with Man Group up on reports it is going ahead with its Man Financial demerger and Rio Tinto buoyed by a solid production update, while Wall Street is also seen opening higher. At 11.45 am, the FTSE 100 index was 21.4 points to the good at 6,130.0, off its midmorning high of 6,154.4.

Frankfurt - Leading German shares were higher midday, recovering a portion of yesterday's losses as M&A newsflow gave a boost to Deutsche Boerse, FMC rose to the top of gainers after a positive review from Deutsche Bank and Infineon dipped on slightly disappointing earnings news from peer ASML. At 1.29 pm, the DAX was up 26.49 points or 0.43 pct to 6141.59. The MDAX was up 71.26 points or 0.84 pct to 8594.36

Paris - Share prices were broadly higher in late morning trade, recovering from yesterday's steep declines after a number of US heavyweight companies, including Intel and IBM, posted reassuring third quarter results late yesterday, bolstering hopes that profits will remain solid even as the world's largest economy slows. At 11.42 am, the CAC-40 index was up 28.13 points or 0.5 pct at 5,331.12, on volume of 1.3 bln euro.

Amsterdam - Shares were higher at midday, with index blue chips putting in solid gains, while Akzo Nobel plummeted with investors concerned over the market introduction delay of key product Asenapine, as the chemicals company posted top-end third-quarter results. At 12.17 pm, the AEX index was up 0.49 pct or 2.39 points at 489.36 after trading in the range 487.61-489.89.

Milan - Share prices were higher at midday as the market enjoys a rebound after yesterday's losses, while BPU fell on speculation of a merger with Banca Lombarda. At 12.12 pm, the Mibtel index was up 0.52 pct at 30,077 points and the S&P/Mib gained 0.49 pct to 39,329.

Madrid - Shares were higher midday, in line with the rest of Europe, with utilities in focus and Repsol YPF underperforming after a downgrade. At 12.26 pm, the IBEX 35 index gained 69.7 points to 12,313.1, after trading in a range of 13,269-13,333, on turnover of 1.4 bln eur.

Stockholm - Shares remained in slightly positive territory in midday trade, extending morning levels on continued bargain hunting, with metals-related firms outperforming. At 12.20 pm, the OMX Stockholm index was up 0.61 pct at 347.97 points, while the OMX Stockholm 30 index was up 0.68 pct at 1,084.84.

Zurich - Share prices were higher in afternoon trade on a broad-based rebound supported by positive US futures and led by Synthes following the implant maker's release of strong third quarter sales. At 1.48 pm, the Swiss Market Index was 41.41  points higher at 8,576.67, and the Swiss Performance Index up 29.07 points at 6,685.19.
   
The euro eased against the Swiss franc to 1.5898  sfr, as did the dollar, to 1.2675  sfr.

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Asian shares close higher, Tokyo up on retail buying

HONG KONG - Shares across the Asia-Pacific region ended higher despite a fall on Wall Street overnight, as stocks reacted to local factors such as retail buying and merger and acquisition activity.
   
Tokyo shares closed higher, as sharp gains in Yahoo Japan Inc and Softbank helped the market erase early losses triggered by Wall Street's retreat overnight and a firmer yen.
   
The Japanese equity market had spent most of the day in negative territory, as Intel Corp's forecast-beating quarterly results also failed to drum up interest in technology stocks.
   
But a rebound in Softbank and Yahoo Japan -- favorites among retail investors -- helped the market reverse its direction in late trade, sparking the view that sentiment among retail investors is finally recovering.
   
The Nikkei 225 Stock Average closed up 41.41 points or 0.25 pct at 16,653.00, after moving between 16,466.74 and 16,666.20. The broader TOPIX index of all first-section issues was up 0.79 points or 0.05 pct at 1,638.74, just off the day's high of 1,639.33.
    
Australian share prices closed higher as restructure and takeover activity within the media sector lifted overall sentiment, dealers said. They said the lift in sentiment reversed earlier selling on a negative lead from Wall Street and inflationary concerns.
   
The S&P/ASX 200 rose 31.9 points or 0.60 pct to close at the day's high of 5,313.2, well above the day's low of 5,264.6.
   
Hong Kong shares were steady in afternoon trade following Wall Street's retreat after a bigger-than-expected jump in US core wholesale inflation renewed worries over interest rate hikes. The data served as an excuse for local investors to lock in profits after recent strong gains which took the index over the 18,000 points level.
   
At 3.28 pm the Hang Seng Index was up 4.33 points at 18,019.17.
   
In mainland China, A-shares in Shanghai and Shenzhen ended higher led by banks and property developers, ahead of the Industrial and Commercial Bank of China beginning the retail tranche of its initial public offering tomorrow.
   
The Shanghai A-share Index rose 24.19 points, to 1,877.14 and the Shenzhen A-share Index was up 5.88 points at 467.05.
   
Seoul shares closed slightly higher on program buying, recovering from steep early declines after reports North Korea had notified China of plans to conduct further nuclear tests.
   
Shortly before the market opened, NBC News reported, citing unidentified US officials, that the North Korean military informed China of plans to conduct a series of underground nuclear tests.
   
The governments of South Korea and Japan later said they had no information about China's alleged foreknowledge of Pyongyang's testing program. The market fell below 1,340 points at one stage but heavy program buying helped nudge the index up into positive territory toward the close.
   
The KOSPI index closed up 2.96 points or 0.22 pct at 1,354.26, after moving between 1,338.00 and 1,355.92.

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Gold edges up but analysts say upside potential still limited

LONDON - Gold edged slightly higher as physical buying emerged in Indonesia, but analysts said upside potential remains limited as falling oil prices reduce gold's appeal as a hedge against inflation.
   
At 1.26 pm, spot gold, which earlier hit a high of 595.00 usd an ounce, was quoted at 594.20 usd, up from the 589.90 usd level touched when the COMEX market closed in New York yesterday.
   
Other precious metals were also higher. Spot silver was up at 11.83 usd an ounce against 11.70 usd, platinum climbed to 1,085.00 usd against 1,079.00 usd, while palladium edged up to 321.50 usd against 316.00 usd.
   
TheBullionDesk.com analyst James Moore said while gold has found limited support from physical buying in Asia earlier, resistance around the psychologically important 600 usd level has been extremely strong.
   
Gold closed lower yesterday after making an initial push towards 600 usd and Moore said the metal will need oil to make a "substantial move back above 60 usd or the return of dollar bears" to break the 600 usd level.
   
"At the moment, rallies will continue to be used as selling opportunities with resistance seen from 600-608 usd, which is my upside breakout level," said Moore.
   
Rising oil prices spark inflation concerns and increase the appeal of gold as an anti-inflation hedge. A weak US dollar benefits gold as the metal is seen as an alternate investment to the US currency.
   
Oil prices were lower today ahead of US data expected to show another rise in already bulging US crude stocks and as traders awaited a clearer indication from OPEC about the extent of its planned output cuts.

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