US & World Daily Markets Financial Briefing 05-07-2006

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Dow, Nasdaq tumble in early trading

NEW YORK - Concerns over North Korea's nuclear ambitions and high oil prices pressured stocks Wednesday, one session after the start of the third quarter brought new money into the market.
   
With North Korea test firing seven missiles Wednesday, stocks around the globe sagged as investors worried that the disagreement between North Korea and the United States could intensify.
   
Although oil prices were stable in early trading, they were expected to surge higher. A barrel of light crude was unchanged at $73.93, paring earlier losses in electronic trading before opening on the New York Mercantile Exchange.
   
In the first hour of trading, the Dow Jones industrial average fell 61.71, or 0.55 percent, to 11,166.31, after gaining 77.80 in holiday-shortened trading Monday.
   
Broader stock indicators also moved lower. The Standard & Poor's 500 index lost 8.15, or 0.64 percent, to 1,272.04, and the Nasdaq composite index dropped 22.47, or 1.03 percent, to 2,167.96. The Russell 2000 index of smaller companies fell 8.67, or 1.19 percent, to 722.13.
   
Bonds fell along with stocks, with the yield on the 10-year Treasury note rising to 5.21 percent from 5.15 percent late Monday.    

With no corporate earnings and little economic data due in the days ahead, investors were likely to focus on the Commerce Department's latest report on factory orders, due later in the morning, with hopes that a dropoff in orders would show a slowing economy that would not need further interest rate hikes from the Federal Reserve.

Stocks in focus
   
In corporate news, General Motors Corp. slipped 13 cents to $29.28 after Chief Executive Rick Wagoner agreed to meet with the CEO of Nissan and Renault later this month to discuss a possible three-way alliance, according to media reports.
   
Rambus Inc. gained $1.85, or 8.1 percent, to $24.62 on its announcement of a patent licensing agreement with Toshiba for memory controllers.
   
Fellow semiconductor maker Marvell Technology Group Ltd. said it had received a request from the U.S. Securities and Exchange Commission and federal prosecutors over its executive stock compensation plans. Marvell skidded $2.43, or 5.4 percent, to $42.41

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Dollar little changed after modest gains on North Korean missile test

LONDON - The dollar was little changed, having risen slightly after after North Korea's missile tests overnight.
   
The tests weighed on Asian stock markets and currencies and helped flows into the dollar but these flows soon faded away, leaving the dollar in the mid 1.27 level against the euro.
   
"While the tests have captured attention, price action in response has been relatively limited," said Daniel Katzive at UBS. He believes that investors' appetite to take on risks has been renewed somewhat and that the missile tests have not as yet damaged the gradual recovery.
   
Over in Europe, the euro got a fillip in European trading after a stark reminder that the economy in the 12-nation single currency area continues to improve rapidly.
   
The euro-zone services sector, which makes up the bulk of overall GDP, hit a high not seen in six years, strengthening further expectations of rate hikes in the coming months.
   
The European Central Bank will deliver its interest rate decision tomorrow but no change is expected until end August.
   
"Firm data is required to validate the current market expectation of a very hawkish steer from ECB President Jean Claude Trichet at tomorrow's ECB press conference," said Steve Pearson at HBOS.
   
The euro's fortunes will be inexorably linked to the tone taken by Trichet. If he signals vigilance on the inflation front, the euro will likely get a boost.
   
Later today, attention will fall on the US equivalent of the services PMI. A weak number will weigh on the dollar. Beyond today, focus will be on the US jobs report on Friday, where markets will be watching for signs that the economy is cooling.
   
Elsewhere, the pound firmed slightly after a mixed services sector report for June.
   
The UK services sector purchasing managers' index fell to a seasonally adjusted 58.7 in June from 59.2 in May. Economists polled by AFX News had forecast a more modest fall to 58.9. However, there were rises in the sub-indices measuring employment and prices paid.

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The European Markets at 12.00 BST

London - UK blue chips remained lower at midday, with Alliance & Leicester the main casualty after Credit Agricole walked away from making a bid while North Korea's missile testing could drag Wall Street down after yesterday's Independence Day holiday, dealers said.
   
At 11.54 am, the FTSE 100 index was 35.7 points to the worse at 5,847.8, while the broader indices were also lower.

Frankfurt - Shares were lower in midday trade following gains in the last five sessions, after Asian markets closed in the red this morning on the back of concerns over North Korea's missile tests and as US stock futures pointed to a lower opening on Wall Street this afternoon, dealers said.
   
At 11.28 am, the DAX 30 index was 41.95 points or 0.73 pct lower at 5,687.06, having moved between 5,682.21 and 5,705.58 so far this session. The MDAX was down 65.21 points or 0.82 pct at 7,929.21, while the TecDAX was down 5.50 points or 0.82 pct at 666.88.

Paris - Shares were lower in midsession trade as cautious investors awaited indications from the European Central Bank on Thursday over the future direction of its rate policy, while North Korea's missile test was not seen as having any significant effect on the French market, dealers said.
   
At 12.51 pm, the main CAC 40 index was trading 28.98 points or 0.58 pct lower at 4,954.90, on volume of 1.73 bln eur.

Amsterdam - Shares were lower in midday trade as index heavyweights fell and US futures pointed to a lower Wall Street opening later today, dealers said.
   
At 12.14 pm, the AEX was down 2.02 points or 0.45 pct to 442.36, off a high of 443.06.

Brussels - Shares were lower in early afternoon trading, impacted by losses in Asia on concerns over North Korean missile tests and on cautious trading ahead of Wall Street's reopening, with Kinepolis jumping after posting first half visitor numbers that were welcomed by the market, traders said.
   
At 1.55 pm, the Bel 20 was off 22.66 points or 0.61 pct at 3,704.68.

Milan - Shares were lower in midday trade amid security concerns fuelled by North Korea's missile tests and led by oil plays, while Fideuram soared after its parent Sanpaolo IMI, also up, launched a minorities buyout, dealers said.
   
At 1.10 pm, the Mibtel index lost 0.54 pct to 27,979 points and the S&P/Mib fell 0.83 pct to 36,433, while volumes were 1.49 bln eur.
   
Madrid - Share prices were lower in quiet midsession trade, tracking the weaker trend across Europe on concerns over North Korea's missile tests, with Endesa and Iberdrola lower after downgrades, while constructors rebounded, dealers said.
   
At 12.40 pm, the IBEX 35 index was down 74.1 points at 11,530.9, after trading in a range of 11,514-11,555, on turnover of 856 mln eur.

Zurich - Share prices continued to decline in quiet afternoon trade with investors opting to take profit in the absence of market moving news, and with focus also on Friday's key US labour market data, traders said.
   
At 2.00 pm, the Swiss Market Index was down 53.21 points at 7,674.59, and the Swiss Performance Index down 40.32 points at 5,979.67.

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Asian shares close lower, Tokyo drops on NKorea missiles

HONG KONG - Shares across the Asia-Pacific region ended lower, with Tokyo falling in reaction to the North Korea missile tests, dealers said.
   
Tokyo shares ended a four-day winning streak in response to the tests and concern about geopolitical risk in Asia.
   
But the market showed some firm downside resistance because in recent weeks the media had repeatedly reported the possibility of test firings, dealers said.
   
The blue-chip Nikkei 225 Stock Average closed 114.56 points or 0.73 pct lower at 15,523.94, off a low of 15,479.93.
   
The broader TOPIX index of all first-section issues closed 12.46 points or 0.78 pct lower at 1,589.97, after touching a low of 1,585.32.
   
SBI Securities market analyst Hideyuki Suzuki said: "The launching of missiles by North Korea provided a good reason for profit-taking, because this news came after the market rose for a fourth straight trading day yesterday, and on the same day that the US market was closed for a public holiday."
   
But he added: "I do not think this news will have a lasting impact on the market."
       
Australian shares closed marginally lower after stocks drifted sideways for most of the trading session as a result of the US holiday, dealers said.
   
They said the Reserve Bank of Australia's decision to hold official interest rates at 5.75 pct helped the banking sector higher.
   
Reports of North Korean missile tests lifted the price of gold, which led to buying of gold stocks.
   
The S&P/ASX 200 fell 7.38 points or 0.15 pct to close at 5,096.9.
   
The benchmark indicator closed off a low of 5,093.3 and below a high of 5,125.9.
   
Hong Kong shares were lower in afternoon trade, with mild profit-taking following gains of over 600 points in the last four trading days, dealers said.
   
They said the mood was subdued as the US markets were closed.
   
At 3.27 pm the Hang Seng Index was down 77.98 points or 0.48 pct at 16,291.00.
   
In mainland China, A-shares in Shanghai and Shenzhen closed mixed with Shanghai buoyed by a strong debut from the Bank of China while the Shenzhen market was hit by profit-taking, dealers said.
   
The Shanghai A-share Index rose 39.42 points or 2.23 pct to 1,807.33 and the Shenzhen A-share Index was down 2.85 points or 0.63 pct at 452.22.
   
Seoul shares ended lower but off their lows for the day as investors quickly shrugged off news of North Korea's missile tests, dealers said.
   
News of the tests sent the index down nearly two pct in early trade but the market soon recovered much of the early losses as investors decided that North Korean jitters will serve only as a short-term negative lead.
   
The KOSPI index closed down 6.07 points or 0.47 pct at 1,279.85, after moving between 1,286.47 and 1,260.69.

Asian Bourse Round-Up

For a full list of closing prices, click here

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Gold gains on safe haven buying frenzy

LONDON - Gold prices rose, jumping almost 1 pct in Asia on a safe haven buying frenzy sparked by news North Korea has test fired several missiles including a long range Taepodong-2 capable of reaching US soil.
   
At 12.36 pm, spot gold, which earlier touched a one month high of 630.75 usd an ounce, was quoted at 627.35 usd against 622.00 usd in late London trade yesterday. Other precious metals traded mixed.
   
Spot silver was up at 11.43 usd against 11.23 usd, platinum was lower at 1,230.50 usd from 1,231.50 usd and palladium edged up to 325.00 usd against 324.50 usd.
   
North Korea triggered international outrage and crisis talks at the UN Security Council after it test-fired seven missiles today into the Sea of Japan, and Japan said it appears to be preparing to launch two more.
   
Standard Bank said in a report while the missile tests increased the geopolitical worries in the region, the sharp gains in gold were aided by thin trading conditions and the absence of the US markets.
   
The US markets will reopen later today after the Independence Day holiday yesterday, which saw gold turn lower in lacklustre trade and amid selling by Japanese investors.
   
Geopolitical unrest increases the appeal of gold as a safe haven asset or hedge against inflation.
   
Standard Bank said while gold has turned higher today on safe haven buying,  "the return of New York after a four day holiday weekend could pose interesting possibilities for gold's direction".
   
"The immediate outlook remains firm, and the New Yorkers could easily push it higher, but could also send it lower given the fact that the last New York close was some 30 usd lower".
   
"A pull back in prices would not be entirely surprising although the longer term view remains firmly bullish."

Base metals gain, markets still focused on falling stocks

Base metals were higher, with copper, nickel and zinc leading the advancers, underpinned by falling inventory levels and with the market still convinced the US Federal Reserve is nearing the end of its rate hike cycle.
   
At 2.12 pm, LME copper for 3 month delivery was at 7,425.00 usd a tonne against 7,410.00 usd yesterday, while nickel traded at 22,950.00 usd from 22,550.00 usd and zinc at 3,360.00 usd against 3,320.00.
   
"Markets seem to be lifting out of the Fed's interest rate 'shadow', allowing bulls some measure of a run here," said Edward Meir, analyst at Man Financial.
   
Base metals reached all-time records in May, supported by historically low inventory levels and strong demand, but a sell-off soon ensued, prompted by fears continued interest rate rises by the Fed would crimp growth and demand.
   
Those fears began receding last week, however, after investors took the latest policy statement from the Fed as indicating the end of the rate hike cycle is near.
   
Meir added that Fed moves aside, "declining metal stock levels, especially on nickel, copper and zinc, seem to be reasserting themselves as market factors".
   
Prices firmed in quiet trade yesterday, underpinned by strong fundamentals and gains in oil, but with the market lacking firm direction with US players absent on account of the Independence Day holiday.
   
"The return of US players and possibly additional fund money could boost prices later today enabling the market to test overhead resistance," said UBS Investment Bank analyst Robin Bhar.

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