US & World Daily Markets Financial Briefing 25-10-2006

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Stocks mixed in early trading

NEW YORK - Stocks were mixed in early trading Wednesday as the market awaited the Federal Reserve's assessment of the economy investors frowned on General Motors Corp.'s profit report.
   
Wall Street was coming off a quiet session Tuesday as investors essentially paused while the Fed began a two-day meeting. Though the Dow Jones industrial average moved modestly higher to reach new trading and closing highs, the focus remained on the Fed and a stream of corporate earnings.    
   
In the first hour of trading, the Dow Jones industrial average was down 13.05, or 0.11 percent, at 12,114.83. Broader stock indicators were up slightly. The Standard & Poor's 500 index was up 0.33, or 0.02 percent, at 1,377.71, and the Nasdaq composite index rose 4.04, or 0.17 percent, to 2,348.88.

On Tuesday, the Dow industrials finished 10 points higher to another record close, though the Nasdaq Composite ended 10.7 points lower. The S&P 500 ended up 0.4 points to reach its best level since January 2001.
   
Crude-oil futures edged 11 cents higher at $59.46 a barrel ahead of weekly energy inventory data. Product stockpiles are expected to fall while crude stocks probably rose.
 
Stocks in focus
   
GM said its third-quarter loss narrowed as cost-cutting aspects of its turnaround plan began to take hold and as sales rose about 4 percent. The world's largest automaker said its loss for the quarter narrowed to $115 million, or 20 cents per share, from $1.7 billion, or $2.94 per share, a year earlier.
   
Altria's third-quarter profit came in slightly below Wall Street's expectation and the company didn't issue any information about a possible spinoff Kraft Foods Inc.

Boeing Co., the No. 2 commercial airplane maker behind Airbus SAS, said Wednesday its third-quarter earnings fell 31 percent, hurt by a hefty charge for pulling the plug on in-flight Internet service Connexion. But higher jet sales helped the company's revenues jump 19 percent, and it raised its guidance for 2007 earnings and revenue.
   
Amazon.com shares rallied 13 percent in Germany after reporting sales growth of 24 percent in the last quarter, though profit dropped by more than a third.
   
RadioShack swung to a $16 million, or 12 cents a share, loss in the third quarter, with revenue down 11 percent to $1.06 billion and comparable store sales falling 9.6 percent. RadioShack said, before tax, it made a $29 million writedown on its wireless kiosk operations and took $18 million in costs on its turnaround plan. Analysts polled by Thomson First Call, on average, had expected a profit of 17 cents a share on revenue of $1.13 billion.
   
Genesis Microchip, Corning Inc., RF Micro Devices and STMicroelectronics all may see pressure after quarterly financial reports, while Seagate Technology, QLogic Corp. and Avaya may rise on their quarterly numbers and outlooks.
  
There were several earnings results overseas, with Honda Motor reporting a 4 percent profit fall but raising its fiscal year earnings guidance, and Spanish utility and takeover target Endesa reporting a 25 percent profit rise.
   
Outside of earnings season, Thomson Corp. is reportedly near a decision to sell its learning division in what could fetch the publisher $5 billion, according to a report from The Wall Street Journal.

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Euro rises on strong business confidence surveys, German CPI data

LONDON - The euro edged higher as strong business confidence surveys and German CPI data suggested that euro zone interest rates will continue to rise, though investors remain nervous ahead of tonight's interest rate decision by the US Federal Reserve.
   
Key among this morning's surveys was the German Ifo index, which rose to 105.3 in October from 104.9 in September, above forecasts for a decline to 104.5 and remaining close to 15-year highs. Meanwhile, the INSEE measure of French business confidence also came in well above expectations, while a similar survey out of Italy was also on the strong side.
   
"The German IFO, French INSEE and Italian ISAE measures of business confidence all came in firmer than expected this morning, in contrast to the softer Belgian confidence numbers released yesterday," said Daniel Katzive at UBS.
   
The FOMC is fully expected to leave US interest rates on hold at 5.25 pct this evening and market participants will be looking to the accompanying statement for clues on the interest rate outlook going forward. Many think the Fed will focus more on worries about rising inflation than on the prospect of slowing economic growth, suggesting that rates will not be cut until well into 2007.
   
"It is likely ... that the Fed keeps its tightening bias which means that the Fed will not cut as early as December and dollar support will continue for longer," currency analysts at BNP Paribas said.
   
Later this afternoon, investors will also be keeping a close eye on the release of existing home sales data out of the US for further clues as to the extent of the slowdown in the US housing market.
   
Elsewhere, the Australian dollar remained firm after better-than-expected inflation data overnight raised hopes that the Reserve Bank of Australia will hike interest rates next month.
   
The pound was also firm after a set of hawkish comments late last night from Bank of England chief economist Charlie Bean, who suggested that policy-makers need to be careful to ensure that above-target inflation does not persist.

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The European Markets at 11.30 GMT

London - UK leading shares advanced at midday, albeit off session highs, with Tate & Lyle lifted by disposal news and another broker upgrade, and with Wall Street seen opening higher ahead of today's FOMC decision on US interest rates.
   
At 12.07 pm, the FTSE 100 index was 22.6 points higher at 6,204.3, just off an earlier peak of 6,216.1, having rallied from a low of 6,178.8.

Frankfurt - German shares were flat in late morning trade, treading water ahead of tonight's US FOMC rate decision and results from DaimlerChrysler due at midday, while investors cheered a better than expected Ifo number. At 10.50 am, the DAX was almost unchanged, up 1.1, or 0.02 pct at 6,249.1, while the MDAX was up 16.2, or 0.16 pct, at 8729.67. The TECDAX was flat at 686.67 and the DAX future was up 3.5 at 6,279.5.

Paris - Share prices were higher at midday as investors took comfort from the initial third-quarter sales and earnings reports hitting the market late yesterday and this morning, which have broadly been in line with expectations. At 12.10 pm the CAC-40 index was up 16.58 points at 5,421.12, on volume of 1.6 bln eur.

Milan - Share prices were higher at midday, led by oil stocks and printed directories company Seat Pagine Gialle (Seat PG). At 12.09 pm, the Mibtel was up 0.47 pct at 30,288 points and the S&P/Mib added 0.35 pct to 39,436.

Madrid - Share prices were flat in thin morning trade following a mixed performance on Wall Street overnight and with investors sidelined ahead of tonight's US rate decision. At 11.30 am, the Swiss Market Index was 4.14 points higher at 8,666.79, and the Swiss Performance Index up 5.72 points at 6,760.95.

Brussels - Shares were flat in late morning trade as imaging group Barco dropped sharply on third quarter results which were below company and analyst guidance. At 11.24 am, the Bel 20 was up 3.99 points or 0.10 pct 4167.39.

Zurich - Share prices were flat in thin morning trade following a mixed performance on Wall Street overnight and with investors sidelined ahead of tonight's US rate decision. At 11.30 am, the Swiss Market Index was 4.14 points higher at 8,666.79, and the Swiss Performance Index up 5.72 points at 6,760.95.

Amsterdam - Shares were flat at midday as investors awaited an interest rate decision by the US Fed and a flurry of earnings results tomorrow and Friday. At 12.02 pm, the AEX index was up 0.12 pct or 0.57 point at 493.46, after opening at 492.39 and trading in a range of 491.3-493.72.

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Asian shares close mixed, cautious ahead of FOMC rate decision

HONG KONG - Shares across the Asia-Pacific region closed mixed with many investors sidelined ahead of the US Federal Open Markets Committee (FOMC) meeting this week.
   
Tokyo shares closed lower in cautious trading as investors awaited more corporate earnings reports and the FOMC's decision on interest rates, dealers said. However, the decline was limited by a softening of the yen against the US dollar and the Dow Jones Industrial Average having closed at another all-time high on Wall Street overnight.
   
The blue-chip Nikkei 225 Stock Average closed 81.17 points or 0.48 pct lower at 16,699.30, off a low of 16,697.01. The broader TOPIX index of all first-section issues slid 9.15 points or 0.55 pct to 1,653.38, off a low of 1,651.20.
   
Australian shares ended higher as investors bought bank and resources stocks following a rebound in sentiment and options-related trading, as well as from higher gold and oil prices overnight, dealers said.
   
They said investors ignored the higher-than-expected rise in September quarter consumer inflation data which will likely lead the Reserve Bank of Australia to raise interest rates by 25 basis points when it next meets in early November.
   
The S&P/ASX 200 rose 35.0 points or 0.66 pct to close at 5,352.1, below the day's high of 5,355.2 and above the low of 5,317.6. The key index drew closer to its record closing high of 5,364.5 set on May 11.
   
Hong Kong shares were flat in afternoon trade as many investors stayed on the sidelines ahead of the outcome of the FOMC meeting.
   
Analysts widely expect US policy makers to leave rates unchanged but are keenly awaiting the accompanying statement for comments on the inflation outlook. At 3.26 pm the Hang Seng Index was down 14.16 points or 0.08 pct at 18,139.25.
   
In mainland China, A-shares in Shanghai and Shenzhen closed flat as follow-through buying was offset by profit-taking, with auto makers and metal stocks losing ground.
   
The Shanghai A-share Index gained 1.56 points or 0.08 pct to 1,897.88 and the Shenzhen A-share Index was up 0.22 points or 0.05 pct at 464.05.
   
Seoul shares ended slightly higher, rising for a fourth day, with sentiment underpinned by Wall Street's record-breaking rally and hopes for a rate freeze at the FOMC meeting. Trading volume was low and foreign investors remained inactive, however, reflecting concerns that geopolitical risks will continue to cap a sharp upswing.
   
The KOSPI index closed up 4.93 points or 0.36 pct at 1,371.43, after trading between 1,365.80 and 1,374.82.

Asian Bourse Round-Up

For a full list of closing figures, click here

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Gold a touch softer but supported above 580 usd

LONDON - Gold was a touch lower but supported above 580 usd as investors sought new leads to push prices in either direction.
   
"With oil and the dollar very steady the market is desperately lacking a driver to break the metal out of its range," said John Reade at UBS.
   
A slight recovery in oil prices helped underpin gold yesterday, but some of the effect appeared to be waning as trading in Europe got underway this morning. Gold's movements have been strongly correlated with oil recently due to the metal's status as a hedge against inflation. As oil prices fell some 25 pct since mid-July gold lost some of this appeal.
   
At 12.28 pm, spot gold was at 587.0 usd/oz, down 1.60 usd from yesterday's close but off a low of 583.7 usd. Meanwhile, spot silver was up at 11.86 usd an ounce from 11.76 usd.
   
Reade at UBS said that gold is holding up well, having climbed all the way up from around 570 usd, but that the outlook remains somewhat uncertain.
   
"From here gold is stuck pretty much in the middle of its broad 570-602 usd range and while sentiment has turned more positive, this is very much a short-term view and vulnerable," he added.
   
For now, gold is finding buyers on each dip, but there is also some caution ahead of the US interest rate verdict later today.
   
James Moore at theBulliondesk.com believes gold will have to break through the 608 usd level to stay firmly on the uptrend. Conversely, gold may slip under 572 usd and 535 usd before fresh waves of buying emerge.
   
That aside, Asian demand for gold was weak as many Indian banks stayed on the sidelines after the holiday for the Hindu festival of Diwali.

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