US & World Daily Markets Financial Briefing 26-07-2006

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Stocks down slightly on profit taking

NEW YORK - Stocks fell moderately in early trading Wednesday as investors took profits following two sessions of gains.
   
Positive earnings news from General Motors Corp. and Sun Microsystems Inc. wasn't enough to cheer nervous investors who, in months of choppy trades, have frequently met one day's advances with a selloff to lock in profits the next day.
   
Investors are slightly anxious over earnings season but much more nervous about the Aug. 8 meeting of the Federal Reserve, which could bring the 18th straight increase in the fed funds rate, the nation's benchmark interest rate. The markets are hoping that the Fed will then put its rate hike program on hold.
   
In the first hour of trading, the Dow Jones industrial average fell 27.53, or 0.25 percent, to 11,076.18 after rising a total of 230 points the first two days this week.
   
Broader stock indicators were lower. The Standard & Poor's 500 index fell 3.48, or 0.27, to 1,265.40, and the Nasdaq composite index fell 10.32, or 0.5 percent, to 2,063.58.
   
The Russell 2000 index of smaller companies fell 6.99, or 1 percent, to 690.45.
   
Bonds fell, with the yield on the 10-year Treasury note at 5.08 percent, up from 5.07 percent Thursday. The U.S. dollar was lower against other major currencies in European trading. Gold prices also fell.

Stocks in focus
   
In company news, General Motors Corp. rose $1.58, or 5.2 percent, to $32.24 after it said it lost $3.2 billion in the second quarter as it absorbed heavy charges for its massive restructuring program. But the world's largest automaker reported an adjusted profit without the charges that beat Wall Street estimates and its sales surged 12 percent.
   
Boeing Co., the world's largest aerospace company, fell $2.25 to $81.50 after it reported a $160 million loss for the second quarter on more than $1 billion in charges, including the steep cost to settle a Justice Department investigation into its defense contracting.
   
Amazon.com Inc. fell $5.12, or 15 percent, to $28.47 after the internet retailer said its second-quarter earnings plunged nearly 58 percent as the online retailer focused on giving customers cheap or free shipping deals and investing in new technologies. It also projected lower operating income for the year than previously forecast.
   
Hewlett-Packard slipped nearly 4 percent in Frankfurt after agreeing to buy management software company Mercury Interactive for $4.5 billion, or $52 a share.
   
Also on the deal front, The Wall Street Journal reported that The Blackstone Group is considering topping a private-equity consortium's agreed $21.3 billion leveraged buyout of HCA, the hospital chain.
   
The New York Post meanwhile reported that the auction of Jones Apparel Group is "near death" over concerns over price and the health of the company's brands.

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Kiwi dollar well-bid ahead of rate verdict but gains seen limited

LONDON - The Kiwi dollar was higher, aided by predictions that the New Zealand central bank will voice concerns about rising inflationary pressures when it delivers its rate verdict overnight.
   
But having already risen somewhat, the Reserve Bank of New Zealand will have to sound hawkish indeed for the Kiwi dollar to rise further.
   
And, despite concerns about rising price pressures, the central bank is still predicted to leave the benchmark official cash rate unchanged at the rather high 7.25 pct.
   
"Weak fundamental data at the beginning of the year led to rate cut fantasies, but over the last few weeks the picture has changed dramatically," Antje Praefcke at Commerzbank Corporates and Markets said.
   
At the start of the year, it was feared that the New Zealand economy may well slide into a recession but the fears did not materialise. After a series of strong economic data -- robust retail sales data and the continued high price pressures -- expectations of a hawkish statement have increased.
   
If anything, the strong data has led to scaling back in rate cut expectations and in some quarters there is now speculation of yet another rate hike. The Reserve Bank of New Zealand last lifted the base rate in December last year.
   
At last count, in the second quarter, the CPI annual rate of inflation reached 4.0 pct, having risen steadily over the previous three quarters. The central bank is required to keep inflation between 1 and 3 pct over the medium term.
   
The market will want to see that the rise in inflation to 4 pct has not made the central bank more nervous about rising wages given the continued tightness of the labour market, CALYON analysts said.
   
At 11:52 GMT, one Kiwi dollar bought 0.6245 usd, from under 0.60 usd at the end of June. The latter was also a 12-month low.

The US dollar weakened against both the yen and the euro.

Rouble at 26.98 per US dollar vs 26.91 yesterday

MOSCOW - The rouble traded at 26.98 per US dollar on the foreign exchange market, compared with 26.91 roubles yesterday.
   
Against the euro, it traded at 33.94 roubles compared with 34.06.
   
Volume was 647.7 mln usd, compared with 657.1 mln the day before, and was 22.5 mln eur compared with 25.8 mln eur yesterday.

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London shares higher midafternoon as weak Wall St offset by Reuters, B&B

At 2.50 pm, the FTSE 100 was 17.4 points firmer at 5,868.6, with the broader indices mixed. Volume remained light, with just 1.3 bln shares changing hands in 226,489 deals.
   
Northern Rock was the top blue chip performer, 53 higher at 1,099-1/2, after the mortgage bank reported a 13.3 pct hike in interim profits to 293.9 mln stg and raised guidance.
   
In response, Teather & Greenwood upped its stance to 'buy' from 'hold' while Cazenove reiterated its 'outperform' stance and said overall, the results are slightly ahead of its estimates and consensus.
   
Cazenove added the raised guidance for profit growth from 10-20 pct to 15-25 pct suggests that 20 pct asset growth will yield 20 pct earnings growth in the medium term.
   
Reuters was another winner, 16-1/2 firmer at 394, after the information provider raised its full year growth targets after reporting interim results that topped expectations.
   
The group now expects to deliver revenue growth of between 5-6 pct in 2006, from a previous 5 pct target, while the interim dividend was upped to 4.1 pence per share from 3.85 pence last year, the first such increase in five years.
   
Xstrata too was courted, 16 firmer at 2,040, after the miner received notice from Canada's Minister of Industry that its potential acquisition of Falconbridge has been approved by the Minister under the Investment Canada Act.
   
In retail, Morrison Supermarkets gained 3 at 203 after SG Securities lifted the grocer to 'buy' from 'sell' and Tesco added 3 to 360-1/2 after the same broker raised its stance to 'hold' from 'sell'.
   
On the downside, GlaxoSmithKline fell 18 at 1,512 after the drug maker's second quarter results and raised guidance failed to live up to expectations.
   
Pretax profits grew to 1.90 bln stg from 1.66 bln, with earnings up 15 pct to 23.3 pence compared to a consensus of 1.94 bln and 23.6 pence respectively.
   
ITV was another casualty, down 2-1/2 at 98 as bid speculation, which was strengthened by UBS earlier in the week, eased.

Frankfurt

German shares higher midday; TUI shines

At 3.06 pm, the DAX 30 index was 16.95 points or 0.30 pct higher at 5,582.71, having moved between 5,555.45 and 5,591.20 so far this session.
   
The MDAX was at 7,723.49, up 7.06 points or 0.09 pct, while the TecDAX was at 615.50, down 0.30 point or 0.05 pct. The DAX futures contract was at 5,606.00, down 23.00 points or 0.41 pct, while bund futures were at 116.11, down 0.25.
   
Meanwhile, the Ifo institute said its business climate index for Germany fell to 105.6 in July from 106.8 in June, a worse-than-expected decline, as sentiment in the manufacturing and retailing sectors worsened.
   
Economists polled by AFX News had forecast the index to slip to 106.0.
   
TUI led large-caps higher, gaining 0.54 eur or 3.51 pct to 15.94, amid vague market talk that AP Moeller-Maersk is interested in making a takeover bid for the German shipping and tourism giant, or for its shipping unit.
   
ThyssenKrupp added 0.66 to 26.58, while Hypo Real Estate rose 0.58 to 43.74.
   
Deutsche Post, up 0.35 at 19.40, recovered from yesterday's losses, having closed down 2.51 pct after US peer UPS reported a disappointing set of second-quarter results and issued guidance that did not please the market.
   
At the other end of the market, Continental AG dropped 0.92 eur or 1.22 pct to 74.80, while Infineon lost 0.10 to 8.37.
   
BMW and Volkswagen slid 0.22 to 38.65 and 0.24 to 54.78 respectively, as Peugeot slumped in Paris after reporting a much-weaker-than-expected set of first-half numbers and warning that second-half margins would only match levels seen in the first half.
   
However, DaimlerChrysler, which together with VW reports second quarter and first-half results tomorrow, was up 0.41 at 39.16.

France's CAC-40 was up 0.26 percent.

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Asian shares close lower on uncertainty about US economy

HONG KONG - Shares across the Asian region closed lower as stocks gave up morning gains after investors appeared unconvinced about the direction of the US economy, analysts said.
   
In Tokyo the key Nikkei index rose in early trade before slipping back down below 15,000 points, as investors opted to unload some holdings before the release of more quarterly results, dealers said.
   
The Nikkei 225 Stock Average closed 121.17 points or 0.8 pct lower at 14,884.07, after moving between 14,882.67 and 15,108.14.
   
The TOPIX index of all first-section issues shed 14.38 points or 0.9 pct at 1,520.44. It moved between 1,519.84 and 1,544.58.
   
Tokai Tokyo Research Center senior analyst Masayoshi Yano said many market participants had been reluctant to take big new positions while they waited for a batch of corporate earnings reports for the three months to June.
   
"Investors also remain wary about the resilience of the US economy and US stocks in the face of uncertainty about the outlook for US monetary policy, the Middle East crisis and the prospects for crude oil prices," said Koichi Ogawa, chief fund manager at Daiwa SB Investments.
   
Share prices in Australia closed sharply lower as investors reversed early buying prompted by the overnight rise on Wall Street after a 1.6 pct surge in Australia's headline inflation over the June quarter, dealers said.
   
They said with annual headline CPI at 4.0 pct over the year to June, which is well above the Reserve Bank of Australia's 2-3 pct target range, the central bank is almost certain to hike its official cash rate next week by 25 basis points to 6.00 pct.
   
Dealers said the prospect of higher interest rates weighed directly on banking stocks, while resource stocks were mostly lower despite base and precious metal prices jumping overnight.
   
Economists said the Reserve Bank of Australia is expected to hike its official cash rate by 25 basis to 6.00 pct on Aug 2 in an attempt to curb inflationary pressures.
   
The S&P/ASX 200 lost 56.7 points or 1.14 pct to close at 4,935.7.
   
The benchmark indicator closed off the day's low of 4,920.7 and below a high of 5,009.4. The All Ordinaries shed 52.3 points or 1.05 pct to close at 4,907.6.
   
Share prices in Hong Kong were trading slightly higher in rangebound trade as investors took a cautious stance amid mixed US economic data and corporate earnings, dealers said.
   
Gome Electrical Appliances posted sharp gains after confirming its acquisition of rival mainland retailer China Paradise Electronics, while PCCW fell following an announcement that it has ended talks with Macquarie and TPG-Newbridge over sale of its core telecom and media-related assets.
   
At 3:44 the Hang Seng Index was up 0.13 pct, or 21.69 points at 16,605.55.
   
Share prices in Seoul closed slightly lower, retreating from early gains, with retail and foreign investors taking profits on continuing uncertainty over the US economy and interest rates, dealers said.
   
The KOSPI index closed down 0.69 points or 0.05 pct at 1,279.08, off a high of 1,286.22 and a low of 1,277.08.
   
"The market seems to be consolidating, with many seeing a bottom at 1,200 points," Shinyoung Securities analyst Kim Se-Jung said.
   
He noted that the general view on US economic growth and inflation is turning positive, which should support the market.

Asian Bourse Round-Up

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Gold edges lower in rangebound trade, firm US dollar weighs

LONDON - Gold edged lower in range bound trade pressured by a firm US dollar, which held onto gains posted yesterday after a stronger-than-expected US consumer confidence reading boosted the chances of a rate hike in August.
   
At 12.07 pm, spot gold, which earlier hit a low of 614.10 usd an ounce, was quoted at 617.45 usd against 618.35 usd in late New York trade yesterday. Other precious metals were mixed.
   
Spot silver was at 10.93 usd against 10.94 usd in late trade yesterday, platinum was at 1,220.50 usd against 1,219.50 usd while palladium was at 313.50 usd against 312.50 usd.
   
Gold closed higher yesterday despite a bout of profit taking which followed on from strong gains in the dollar. It settled above the 100-day moving average, suggesting the metal had some strength in store.
   
However, early selling in Asia took gold below the moving average to the 615 usd region, with a lack of clear direction for the metal suggesting it could "settle into consolidation", said Standard Bank in a note.

Copper falls on jump in LME stockpiles

LONDON - Copper prices fell, reversing yesterday's strong gains, after stocks held in LME warehouses rose by the highest levels in 6 weeks, although jitters about a possible strike at Chile's Escondida mine limited falls.
   
At 1.32 pm, LME copper for three-month delivery was at 7,345 usd a tonne, down from 7,430 usd at the close yesteraday, while nickel was down at 24,350 usd a tonne against 24,650 usd.
   
Other metals were mixed. Zinc was at 3,180 usd against 3,225 usd at the close yesterday, tin was at 8,325 usd against 8,300 usd and aluminium was at 2,488 usd against 2,530 usd.
   
The LME said today copper stocks gained 2,925 tonnes to 99,225 tonnes - the biggest one day gain since early June. "A big jump in copper stocks today may have something to do with the weaker tone," said Man Financial analyst Ed Meir.
   
He noted copper stocks are now climbing back to just under the 100,000 tonne mark, but said price weakness should be held in check "as a crucial strike vote by Escondida's labour unions takes place on Friday".
   
Meanwhile, a rock fall at Codelco Chiquicamata mine in Chile, which has so far taken out 1,000 tonnes per day of copper concentrate, should also limit falls, especially as it is still unclear when production will resume.

Crude oil futures fell. A barrel of light crude was quoted at $73.63, down 12 cents, in electronic pre-opening trading on the New York Mercantile Exchange.

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