US & World Daily Markets Financial Briefing 19-07-2006

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Stocks rise on signs of cooling economy

NEW YORK - Stock prices rose in early trading Wednesday as signs the economy is cooling cheered investors and strong earnings from International Business Machines Corp. lifted the Dow Jones industrial average.
   
In early trading, the Dow rose 48.34, or 0.45 percent, to 10,847.57. Broader stock indicators also advanced. The Standard & Poor's 500 index rose 6.51, up 0.53 percent, to 1,243.37, and the Nasdaq composite index rose 3.87, or 0.19 percent, to 2,047.09.
   
The Russell 2000 index of smaller companies was up 5.57, or 0.82 percent, to 687.21.

The Labor Department said the Consumer Price Index rose by just 0.2 percent in June, the smallest increase in four months, but core inflation, which excludes energy and food, rose by 0.3 percent in June, higher than the 0.2 percent Wall Street expected.

That increase left core inflation rising for the past three months at an annual rate of 3.6 percent, far above the Federal Reserve comfort zone of 2 percent or less.
   
In a separate report, the Commerce Department said construction of new homes fell by 5.3 percent in June, another sign that the once-booming housing market is slowing.
   
Bonds were down, with the yield on the 10-year Treasury note at 5.16 percent, up from 5.14 percent Tuesday. 
   
Despite continued violence between Israel and Lebanon, crude oil futures fell. A barrel of light crude was quoted at $73.30, down 24 cents, in electronic pre-opening trading on the New York Mercantile Exchange.

Stocks in focus
   
In company news, IBM rose $2.14 to $76.40 after it reported second-quarter earnings of $2.02 billion, or $1.30 per share, on revenue of $21.9 billion. Its earnings beat analysts estimates.
   
JPMorgan Chase & Co., rose $1.55 to $42.26 after the company, the nation's third largest bank, said its profit grew strongly in the second quarter. Net income was above analysts' projections.
   
Yahoo Inc. fell $6.06, or 16 percent, to $26.18 after its second-quarter profit declined. Last year's quarter was skewed by Yahoo's sale of its remaining stake in rival Google Inc., while this year's reflected new rules for accounting for stock options. Still, a delay in Yahoo's new advertising platform and slower growth than Google put off investors.

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Dollar finds support from rise in core US CPI, Bernanke awaited

LONDON - The dollar was higher after key data released this afternoon revealed that core US inflation figures rose above expectations in June, increasing the chances that the Federal Reserve will raise interest rates further.
   
The dollar was at highs not seen since end-April against the euro and yen.
   
Official data revealed that core CPI inflation, which excludes energy and food, rose by 0.3 pct in June from May, above expectations for a more moderate 0.2 pct rise.
   
The headline CPI rate meanwhile rose by 0.2 pct from May, in line with expectations, and by 4.3 pct year-on-year.
   
Market focus will now turn to Fed chairman Ben Bernanke's testimony, scheduled for 3 pm BST. His words will be carefully picked for hints about the Fed's thinking on inflation. Since the market is far from pricing in a further quarter-point hike in the Fed Funds rate to 5.50 pct from 5.25 pct at present, any hint that this may be a possibility should support the dollar.
   
At present, the Fed is in a difficult place. Core inflation is running higher than the Fed's comfort levels but price pressures are predicted to ease as GDP growth slows.
   
Elsewhere, the pound weathered news that UK rate-setters voted unanimously to leave interest rates unchanged in July as market focus stayed on yesterday's much stronger-than-expected inflation data.
   
In the minutes to its July meeting, the Bank of England's Monetary Policy Committee said the outlook for inflation had not changed much since its previous meeting in June as it left the benchmark repo rate at 4.50 pct for the 11th month running.
   
However, the MPC would not have had access at the time to the June inflation figures which were publicised yesterday to reveal a massive 2.5 pct jump in annual inflation, immediately increasing talk that interest rates could be heading higher in the coming months.
   
The pound initially fell on the news that no member had opted for a hike but soon reversed those losses to move back up again.

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The European Markets 12.00 BST

London - Share prices were firm but well off their highs at midday, awaiting Wall Street's restart for fresh direction, with the DJIA seen higher, although much will depend on the latest US inflation numbers and today's Congressional testimony from Fed chairman Ben Bernanke, dealers said.
   
At 12.07 pm, the FTSE 100 index was 13.3 points firmer at 5,695.0, well below the morning peak of 5,719.5. All the broader FTSE indices were higher, with the FTSE 250 index up 48.9 points at 9,017.7.

Frankfurt - At 12.03 pm, the DAX 30 index was 12.44 points or 0.23 pct higher at 5,409.29, having moved between 5,409.11 and 5,434.19 so far this session.
   
The MDAX was at 7,451.11, up 47.23 points or 0.64 pct, while the TecDAX was at 588.70, up 5.64 points or 0.97 pct.
   
The DAX futures contract was at 5,436.00, down 14.50 points or 0.27 pct, while bund futures were at 115.75, down 0.15.

Paris - Shares were slightly higher in thin midday trade, tracking overnight gains on Wall Street, as a slew of positive second-quarter corporate earnings reports in Europe and the US lifted investor sentiment, dealers said.
   
At 12.35 pm, the main CAC 40 index was trading 8.72 points or 0.18 pct higher at 4,743.21 on light volume of 1.02 bln eur.
   
Of the CAC-40 shares, 26 were higher, 10 were lower and 3 were unchanged. Arcelor stock remain suspended from the index, pending the outcome of Mittal Steel's merger offer. On the Matif, July CAC-40 futures were trading up 10.5 points or 0.22 pct at 4,744.0.

Milan - At 12.51 pm, the Mibtel index rose 0.45 pct to 27,077 points and the S&P/Mib was up 0.31 pct at 35,292, while volume was 1.06 bln eur.
   
Indexes came off morning highs as new signals emerged that the violence in the Middle East is not close to an end.
   
Dealers also said they will focus on today's US inflation data and on Fed chairman Ben Bernanke speech for indications on future moves on interest rates.

Madrid - At 12.30 pm, the IBEX 35 index was up 49.6 points at 11,210.1, after trading in a range of 11,205-11,231 on turnover of 1.1 bln eur.
   
Sogecable was up 1.0 eur or 4.65 pct at 22.5, but off a high of 22.89, as its second quarter results beat forecasts thanks to cost control and better than expected advertising revenues, dealers said.

Stockholm - At 12.20 pm, the OMX Stockholm index was up 1.68 pct at 293.41, while the OMX Stockholm 30 index was up 1.86 pct to 910.23. Turnover was 6.154 bln skr.
   
Nordea was up 4.92 pct at 85.25 skr after the bank released a "very strong" set of second quarter results. Svenska Handelsbanken A was up 0.85 pct at 177, SEB A up 1.57 pct at 161.50, and ForeningsSparbanken A up 1.40 pct at 180.50.

Helsinki - At 12.22 pm, the OMX Helsinki 25 was 1.64 pct higher at 2,363.16 points and the OMX Helsinki was up 1.70 pct at 8,323.77. Turnover was 265 mln eur.
   
Nordea was the star performer, adding 5.36 pct to 9.24 eur, after the Swedish banking group reported a "very strong" set of second-quarter results, dealers said.

Zurich - At 12.28 pm, the Swiss Market Index was 25.31 points higher at 7,486.65, and the Swiss Performance Index up 24.2 points at 5,831.54.
   
Yesterday's top losers, Kudelski and SGS, were among best performers on the SMI this morning, with Kudelski up 0.70 sfr or 2.7 pct at 26.90 and SGS up 20 sfr or 1.8 pct to 1,108.

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Asian shares close mixed, cautious ahead of US Fed chairman's testimony

HONG KONG - Shares across the Asia-Pacific region closed mixed with markets cautious ahead of the testimony to the US Congress tonight by US Federal Reserve chairman Ben Bernanke, dealers said.
   
Tokyo share prices finished higher, ending a five-day losing streak, as investors sought bargains after the benchmark Nikkei index dropped by more than 400 points yesterday, dealers said.
   
But the gains were limited as investors awaited the release of US inflation data for last month and Bernanke's testimony to Congress, and for a string of earnings reports this week by US high-technology firms such as Intel Corp, Apple Computer Co Inc and Microsoft Corp, they added.
   
Uncertainty about the effect of the conflict in the Middle East on financial and commodities markets also weighed on the market, they said.
   
The blue-chip Nikkei 225 Stock Average closed 63.02 points or 0.4 pct higher at 14,500.26, after touching a high of 14,625.64.
   
The broader TOPIX index of all first-section issues closed 0.14 points or 0.01 pct higher at 1,475.42, off a high of 1,489.03.
   
Australian shares closed lower for the fifth consecutive trading day as early investor sentiment, buoyed by an overnight rise on Wall Street, reversed later in the session, dealers said.
   
They said volatile trade was likely to continue because of on-going concerns about geopolitical tensions, high oil prices and interest rates.
   
The S&P/ASX 200 shed 23.2 points or 0.47 pct to close at 4,900.1. The benchmark indicator closed off the day's low of 4,899.9 and below a high of 4,955.7.
   
Hong Kong shares were higher in afternoon trade as investors picked up select blue chips after the market fell over 470 points in the last four trading days, dealers said.
   
They said Wall Street's moderate gains overnight and an advance in Tokyo helped the recovery although the ongoing conflict in the Middle East and the possibility of further credit tightening measures in China put a lid on the upside.
   
At 3.28 pm the Hang Seng Index was up 77.16 points or 0.48 pct at 16,121.10.
   
In mainland China, A-shares in Shanghai and Shenzhen closed sharply lower on fears of credit-tightening measures, with banks and metal companies hit, dealers said.
   
The Shanghai A-share Index slid 41.23 points or 2.33 pct to 1,729.69 and the Shenzhen A-share Index was down 10.69 points or 2.37 pct at 440.60.
   
Seoul shares ended well off their intraday highs with foreign investors continuing to sell, offsetting institutional bargain hunting interest, dealers said.
   
The market failed to sustain early momentum, with only selected IT bellwethers enjoying gains, as investors were cautious ahead of the US Fed chairman's testimony and wanted to hear Bernanke's comments on US inflation risks, they added.
   
The KOSPI index closed up 0.23 points or 0.02 pct at 1,233.65, after trading between 1,244.58 and 1,231.05.

Asian Bourse Round-Up

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Gold falls on fears over further US rate hikes, dollar firms

Gold prices fell ahead of US Federal Board chairman Ben Bernanke's testimony to the Senate Banking Committee which is expected to provide fresh clues on the Fed's future rate intentions.
   
Yesterday, stronger-than-expected US June headline producer prices had the market betting the Fed will continue tightening rates at its August meeting.      Gold fell sharply on the news as the dollar rose.
   
The metal's losses continued today as safe haven flows faded slightly with investors scaling back expectations that Israel's offensive in Lebanon will not engulf the entire Middle East.
   
At 10.20 am, spot gold, which earlier hit a low of 625.00 usd an ounce, was quoted at 626.70 usd against 630.80 usd in late New York trade yesterday.
   
Precious metals traded flat to slightly higher. Spot silver was up at 10.63 usd against 10.53 usd in late New York trade, platinum was up at 1,212.00 usd against 1,220.00 usd while palladium was flat at 310.50 usd.
   
Gold hit a two-month high of 676 usd on Monday on safe-haven buying as violence between Israel and Hezbollah militants in Lebanon continued to raise fears of a wider, regional conflict.
   
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.
   
The sell-off sent gold down to 543 usd by mid-June, but it has since recovered and analysts believe long-term prices should continue higher as supply remains limited while demand is being boosted by central bank buying.

Copper falls, still pressured by news of progress at Escondida

Copper prices fell as the market remained under pressure from news of progress in labour talks at the Escondida mine in Chile and from fears over further Chinese rate hikes on the back of strong GDP growth.
   
At 2.32 pm, LME copper for three-month delivery was at 7,555 usd a tonne, down from 7,808 usd at the close yesterday, while nickel was down at 23,450 usd a tonne against 24,250 usd.
   
Other metals were mixed. Zinc was at 3,305 usd against 3,241 usd yesterday, tin was at 8,160 usd against 8,120 usd and aluminium was at 2,520 usd against 2,535 usd.
   
Escondida, the world's biggest copper mine, said yesterday it had formally requested talks with workers to discuss a new deal ahead of the upcoming labour contract expiry.
   
Base metals touched record levels in May, supported by historically low inventories and strong demand, but a sell-off soon ensued, prompted by fears continued interest rate rises by central banks will hurt economic growth. 

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