US & World Daily Markets Financial Briefing 01-08-2006

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Stock prices fall on inflation fears

NEW YORK - Deepening fears of inflation prompted investors to sell off stocks Tuesday as a key price index climbed to an 11-year high and energy prices rose in response to Middle East conflicts. In early trading, the Dow Jones industrial average fell 30.98, or 0.28 percent, to 11,154.70.
   
Broader stock indicators also fell. The Standard & Poor's 500 index lost 4.28, or 0.34 percent, to 1,272.38, and the Nasdaq composite index dropped 15.20, or 0.73 percent, to 2,076.27.
   
While inflation-adjusted consumer spending rose a sluggish 0.2 percent in June, the Commerce Department also reported that consumer prices are up 2.4 percent year over year, the highest rate of inflation since April 1995.
   
The Federal Reserve meets next Tuesday to gauge whether more interest rate hikes are needed to clamp down on inflation. The Commerce report could push
policy makers toward another quarter percentage point increase, which would put the benchmark rate at 5.5 percent and make capital more expensive for corporations.
   
Rising crude oil and natural gas futures added to Wall Street's worries, since the Fed has signaled that high energy prices could further feed inflation.

Crude prices rose 40 cents to $74.80 per barrel due to multiple crises in the Middle East, while natural gas futures built on Monday's 14 percent surge based on higher U.S. electrical demand in a nationwide heat wave.

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Dollar rises on strong US core PCE data

LONDON - The dollar was higher after data this afternoon showed the core PCE deflator -- the Federal Reserve's preferred measure of inflation -- rose at its fastest rate in over ten years in June.
   
The figures showed core inflation, as measured by the personal consumption expenditure price index, grew by 2.4 pct in June from a year earlier, the biggest gain since April 1995.
   
At 1.22 pm GMT, the euro was trading at 1.2748 against the dollar, down from 1.2763 just before the data were released, while the dollar rose to 115.08 against the yen from 114.69 previously.
   
Recent weak US data have gradually caused the market to lean towards thinking that the Fed will finally pause in hiking rates at its next meeting on August 8, but today's numbers may raise some question marks over that.
   
However, many still believe today's rise will not be sufficient to push US rate-setters towards an August hike since it is still within the Fed's inflation forecast.
   
"The June figures remain in line with the Fed's inflation forecast and so we maintain our view that the FOMC is likely to pause in its rate hike cycle at next week's meeting," said Mike Carey at CALYON.
   
Investors will therefore be looking to the ISM survey on manufacturing activity later this afternoon and employment figures on Friday for further clues.

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The European Markets at 11.30 GMT

London - Leading shares held firm, off highs at midday, with Wall Street seen opening flat after yesterday's falls, and as strength in heavyweight mining and oil issues outweighed a weak performance from banking group HBOS, dealers said.
   
At 12.04 pm, the FTSE 100 index was 8.5 points points higher at 5,936.8, having drifted back from a midday peak of 5,949.8.
   
Frankfurt - Shares were flat in midday trade as solid gains by MAN on the back of its second-quarter results and raised full-year earnings guidance were offset by sharp declines by Deutsche Post and Deutsche Bank, after their numbers disappointed the market, dealers said.
   
At 11.36 am, the DAX 30 index was 1.13 points or 0.02 pct higher at 5,683.10, having moved between 5,652.73 and 5,689.44 so far this session.

Paris - Shares were slightly lower at midday, with activity turning quiet as the pace of first-half company results thinned considerably and the start of France's peak holiday month meant many traders were absent, dealers said.
   
The CAC-40 index was down 3.20 points or 0.06 pct at 5,006.22, on light volume of 946 mln eur.

Amsterdam - Shares were higher in midday trade as investors looked to US futures which were indicating a higher Wall Street opening, while KPN soared following better-than-expected second-quarter earnings, dealers said.
   
At 12.17 pm, the AEX was up 1.69 points or 0.37 pct to 455.75, after opening at 452.93 and reaching an earlier high of 456.60.

Madrid - Share prices were near lows mid-session in thin trade as US futures turned lower amid renewed interest rate concerns, while Ferrovial outperformed on a price target hike by Merrill Lynch and utilities were mixed, dealers said.
   
At 1.00 pm, the IBEX-35 index was down 36.9 points at 11.781.7, after trading in a range of 11,780-11,830, on turnover of about 772 mln eur.

Milan - Share prices were slightly higher in thin midday trade, supported by gains in heavyweight Eni, after news it is seeking to buy upstream oil assets, and in other oil-sector shares, while healthcare firm Arkimedica was sharply above its IPO price in its first day of trading, dealers said.
   
At 12.40 pm, the Mibtel index rose 0.22 pct to 28,148 points and the S&P/Mib added 0.19 pct to 36,676.

Stockholm - Shares remained in slightly negative territory in midday trade, but off earlier lows as profit-taking eased, with Tele2 still deep in the red after a disappointing second-quarter report, dealers said.
   
At 12.25 pm, the OMX Stockholm index was down 0.20 pct at 304.95, while the OMX Stockholm 30 index was down 0.18 pct at 944.57.

Helsinki - Helsinki shares were slightly higher in midday trade, with a lack of direction amid absence of newsflow, brokers said.
   
At 12.55 pm, the OMX Helsinki 25 was 0.39 pct higher at 2,470.87 and the OMX Helsinki was up 0.31 pct at 8,610.99 on volumes of 150 mln eur.

Zurich - Markets closed for Swiss National Day

Brussels - Shares were very slightly higher in late morning trade as metals groups Bekaert and Umicore led the index higher, traders said.
   
At 11.56 am, the Bel 20 was up 7.74 points or 0.20 pct at 3,803.65.

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Asian shares close lower in cautious trade on profit-taking, interest rate fears

HONG KONG - Shares across the Asia-Pacific region closed lower on fears of higher interest rates in the US and profit taking in some markets, dealers said.
   
Tokyo shares finished slightly weaker as investors opted to take profits after three straight days of gains and as investors turned wary ahead of US data that could give a clearer picture of the US FOMC's rate intentions at its policy meeting next week.
   
The Nikkei 225 Stock Average closed down 15.90 points or 0.1 pct at 15,440.91, after moving between 15,365.71 and 15,522.03. The TOPIX index of all first-section issues shed 5.00 points or 0.3 pct to 1,567.01. The index moved between 1,561.09 and 1,578.85.
   
After opening lower on a retreat in US markets overnight, shares moved in and out of positive territory before profit-taking sent the market lower at the close.
   
Australian shares closed marginally lower as investors remained cautious ahead of the expected announcement tomorrow that the Reserve Bank of Australia will raise official interest rates by 25 basis points to 6.00 pct, dealers said.
   
Sentiment was however generally positive for most of the trading session, with the fall on Wall Street offset by copper, nickel and oil prices gaining in overnight trading, which supported resource stocks.
   
The S&P/ASX 200 slipped 4.7 points or 0.09 pct to close at 4,981.3.The benchmark indicator closed off the day's low of 4,970.8 and below a high of 5,000.9.
   
Hong Kong shares were lower in afternoon trade as investors locked in profits in HSBC following its first-half results announcement.
   
Wall Street's drop overnight and conflicting signals on US interest rate prospects led investors to adopt a cautious stance. At 3.26 pm the Hang Seng Index had fallen 37.29 points or 0.22 pct to 16,934.05.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower on lingering liquidity worries due to an expected flood of new listings, with power generators and automakers under pressure.
   
The Shanghai A-share Index tumbled 12.68 points or 0.75 pct to 1,682.47 and the Shenzhen A-share Index was down 4.12 points or 0.97 pct at 418.23.
   
Seoul shares finished lower, with the index falling below 1,290 points, as financial stocks posted steep losses.
   
Solid program buying sent the index above its long-held resistance level of 1,300 points at one stage but the market soon lost momentum as foreign investors took profit.
   
Lackluster July export figures served as a dampener, raising concerns of an economic slowdown in the second half, with a decline in major Asian markets also pressuring sentiment.
   
The Ministry of Commerce, Industry and Energy said exports rose 12.4 pct year-on-year to 26.13 bln usd in July, but was down compared to June's 19.2 pct rise due to fewer working days and labor disruptions in the auto industry.
   
The KOSPI index closed down 10.46 points or 0.81 pct at 1,287.36, after moving between 1,306.91 and 1,286.43.

Asian Bourse Round-Up

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Gold little changed as dollar remains range-bound

LONDON - Gold was little changed in quiet trade as the dollar remained range bound against major currencies, with investors taking to the sidelines ahead of upcoming European Central Bank and US Federal Reserve rate decisions.
   
At 1.32 pm, spot gold, which earlier hit a high of 637.38 usd an ounce, was quoted at 633.65 usd, little changed from 634.60 usd at the time of the Comex market close in New York yesterday.
   
Other precious metals were mixed. Spot silver was at 11.35 usd against 11.33 usd at yesterday's close, platinum was at 1,232.00 usd against 1,228.00 usd while palladium was at 312.00 usd against 310.00 usd.
   
Gold closed slightly lower yesterday as safe haven flows dried up amid hopes that a cease-fire in the Middle East conflict will be reached soon.
   
Those hopes have since receded, however, with Israeli troops fighting fierce battles with Hezbollah militants after being given the green light to expand the ground offensive and advance up to 30 kilometres into south Lebanon.
   
TheBullionDesk.com analyst James Moore said the Middle East conflict should support gold going forward but that for now the metal is tracking movements in the US dollar, which has remained flat today but is under pressure overall.

Copper falls on hopes strike at Escondida can be avoided

LONDON - Copper prices fell after workers at Chile's Escondida mine gave management until tomorrow to raise their salary offer in order to avoid a crippling strike at the giant open pit mine next week.
   
At 3.02 pm, LME copper for three-month delivery was at 7,810.00 usd a tonne, down from 7,950.00 usd at the close Friday, while nickel was up at 26,250.00 usd a tonne against 25,500.00 usd. Other metals were mostly weak.
   
Zinc was at 3,400.00 usd against 3,415.00 usd at the close yesterday, lead was at 1,102.50 usd against 1,092.00 usd, aluminium was at 2,553.50 usd against 2,570.00 usd and tin was at 8,400.00 usd against 8,425.00 usd.

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