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

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Lower oil prices boost stocks

NEW YORK - Stocks rose in early trading Tuesday as oil prices drifted lower and the grocer Supervalu Inc. said its second-quarter results nearly quadrupled.
   
The Dow Jones industrial average continues to hover near its all-time high as earnings season begins in earnest later Tuesday when economic bellwether Alcoa Inc., the aluminum maker, is expected to report its third-quarter results after the closing bell.

U.S. stocks ended higher Monday, with the Nasdaq Composite at its best level in five months, as a Fed official's soothing remarks on inflation, a going-private offer for Cablevision Systems and a $6 billion deal in the banking sector placed news of North Korea's nuclear test on the back burner. The Nasdaq Composite rose 0.5 percent, and 0.1 percent rises were seen for the Dow industrials and the S&P 500.
   
Oil prices slipped below $60 a barrel Tuesday on confusion about whether OPEC would cut production.
   
Supervalu, which attributed much of its earnings increase to its purchase of Albertson's grocery stores, also boosted its guidance for the year.
   
In early trading, the Dow Jones industrial average rose 4.08, or 0.03 percent, to 11,861.89. The Dow remains near its record closing high of 11,866.69.
   
Broader stock indicators edged higher. The Standard & Poor's 500 index rose 0.85, or 0.06 percent, to 1,351.51, and the Nasdaq composite index rose 3.04, or 0.13 percent, to 2,314.81. The Russell 2000 index of smaller companies rose 0.37, or, 0.05 percent, to 744.94.
   
Stocks in focus

After the market's close, Alcoa will release quarterly results, with the aluminum giant expected to earn 77 cents a share on revenue of $7.75 billion.
   
In Korea, LG.Philips LCD reported its second-straight quarterly loss as panel prices fell and inventory costs rose.
   
Elsewhere, Sovereign Bancorp is expected to force out Chairman and Chief Executive Jay Sidhu and name Vice Chairman Joseph P. Campanelli as president and CEO, The Wall Street Journal reported. An individual close to the situation told the paper that Sovereign would name a director, Michael Ehlerman, chairman. The changes are a compromise with Banco Santander, the Spanish bank that holds about a quarter of Sovereign, the Journal reported.
   
Two cruise operators were downgraded, with J.P. Morgan downgrading shares of both Carnival and Royal Caribbean Cruises to neutral. Though weakening oil prices and a mild hurricane season have lifted both company's shares since mid-August, there are headwinds ahead, the broker warned.
   
The same brokerage is taking a more positive stance on homebuilders, upgrading D.R. Horton Inc. and Standard Pacific Corp. to overweight from neutral and Toll Brothers Inc. to neutral from underweight.

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Dollar inches higher as dust settles on North Korean nuke test

LONDON - The dollar continued to inch higher as the dust began to settle on North Korea's nuclear test over the weekend.
   
"While investors continue to shrug off risk events like the demise of hedge funds and announcements of nuclear testing, carry trades will stay supported and the higher yielding dollar will remain resilient," said Mansoor Mohi-uddin at UBS.
   
Notably, the dollar closed in on the 120 yen level, a key barrier which many believe will worry investors about the yen's weakness. On the other hand, the euro, though a touch lower against the dollar, is above the important 150 yen level.
   
The widespread weakness of the yen may spark comments from politicians on both sides of the Atlantic. Some sections of the market believe Japanese authorities may be forced to talk up the yen and that Thursday's Bank of Japan meeting will be a timely opportunity.
   
The dollar's strength today comes on expectations that the US will avoid a recession and that any slowdown will be gradual.
   
Investors have the economic data to back this up. At the end of last week, the US labour market report was deemed strong despite a soft headline job creation number because of large upward revisions to data over the previous months.
   
The pound was steady as the market ignored a slight deterioration in the UK's trade position with the rest of the world, focusing instead on the British Retail Consortium's snapshot of the retail sector.
   
According to the BRC, like-for-like sales, which strips out the effects of changes in floor space, rose by an annual rate of 2.4 pct, against expectations of 2.5 pct. The rate was also at 2.5 pct in August.

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The European Markets at 11.30 GMT

London - Leading shares advanced at midday as ongoing M&A speculation across several sectors lifted sentiment while Corus slid as hopes faded of an imminent bid from Tata Steel, and with Wall Street poised to open firmer. At 11.54 am, the FTSE 100 added 22.1 points to 6,052.9, with the wider market also clocking up gains.

Paris - Share prices were higher midday as EADS bounced after confirming its change of CEO and as gains from Arcelor-Mittal and financials helped the index top 5,300 points. At 11.20 am the CAC-40 index was up 21.26 or 0.40 pct at 5,306.

Frankfurt - Shares were higher late morning, with sentiment lifted by Asia's calm reaction overnight to North Korea's nuclear test, and after Allianz outperformed on hopes it will realise a profit of over 1 bln eur from ICBC's initial public offering. At 11.20 am, the DAX 30 was up 25.5, or 0.42 pct at 6,110.48, with the MDAX up 76.74, or 0.88 pct at 8,626.6. Elsewhere, the TECDAX rose 6.85 to 671.46.

Amsterdam - Share prices were slightly higher in early afternoon trade, in line with gains on European markets, as futures point to a higher start to trading on Wall Street later today. At 1.26 pm, the AEX index was up 2.27 points or 0.47 pct at 489.49, after opening at 488.07 and falling to a low of 487.69.
   
Milan - Share prices were slightly higher at midday, led by BPM on ongoing talk that the bank could be taken over and an upgrade. At 11.42 am, the Mibtel index gained 0.27 pct to 29,907 points and the S&P/Mib added 0.21 pct to 39,163.

Madrid - Shares were higher early afternoon, led by gains in Repsol YPF on M&A talk, with investors still in a broadly positive mood. At 1.00 pm, the IBEX-35 index rose 63 points to 13,175.8, after trading in a range of 13,154-13,230, on turnover of 1.9 bln eur.

Brussels - Shares were higher midday, supported by overnight Wall Street gains, with speciality materials group Umicore leading the blue-chips, analysts said. At 11.56 am, the Bel 20 was up 18.11 points or 0.44 pct at 4,121.52.

Zurich - Swiss shares moved higher in midday trade surpassing the 8,600 level and reaching an inter-day all-time high of 8,621 points. At 12.45 pm, the Swiss Market Index was 71.68 points higher at 8,620.59, and the Swiss Performance Index up 52.37 at 6,709.2 points.

Helsinki - Helsinki shares were higher early afternoon, led by Outokumpu after it issued a third quarter trading update that positively surprised, with Nokia also posting solid gains. At 1.05 pm, the OMX Helsinki 25 was 0.76 pct higher at 2,639.52 and the OMX Helsinki was up 0.76 pct to 8,936.41 on 384 mln eur turnover.

Stockholm - Shares were marginally higher in midday trade, taking the index to within a point of its May highs when the market reached its highest level since October 2000. At 12.30 pm the OMX Stockholm index was up 0.27 pct at 342.75 points and the OMX Stockholm 30 up 0.25 pct at 1,069.63 points.

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Asian shares close mostly higher, rebounding from NKorean nuclear sell-off

HONG KONG - Shares across the Asia-Pacific region closed mostly higher, bouncing back from some severe losses yesterday due to a nuclear test by North Korea.
   
Tokyo shares ended higher as most investors shrugged off North Korea's nuclear bomb test yesterday, when the Tokyo market was closed, but were off their highs following the release of weaker-than-expected core private sector machinery orders data.
       
The benchmark Nikkei 225 index had gained more than 100 points before the release of the data but gave up more than half of that shortly after the announcement.
   
The Nikkei 225 Stock Average closed up 41.19 points or 0.25 pct at 16,477.25, off a high of 16,620.15. The broader TOPIX index of all first-section issues was up 0.62 points or 0.04 pct at 1,634.83.
   
The Cabinet Office said core private-sector machinery orders rose a seasonally adjusted 6.7 pct in August from the previous month, following a 16.7 pct fall in July. The market had expected a rise of 11.4 pct, according to a Nihon Keizai Shimbun poll of economists.
   
Core private-sector machinery orders, which exclude volatile orders from electric utilities and for ships, are viewed as a leading indicator of corporate capital spending.
   
Share prices opened lower in a knee-jerk reaction to news of North Korea's nuclear bomb test but quickly recovered.
   
"North Korea is only hoping to pressure other countries. The situation does not look like it will lead to a nuclear war, or something like Iraq," said Hideo Mizutani, chief strategist at Sieg Securities.
   
"On top of that, the yen will not strengthen against the dollar for some time due to geopolitical tensions in the region, and this will benefit Japanese exporters," Mizutani added.
   
Daiwa Institute of Research senior economist Junichi Makino said the weaker-than-expected rise in core private-sector machinery orders for August shows that companies may be slowing their capital spending amid sluggish demand.
   
But he stressed that it was too early to say, based on the disappointing August data, that machinery orders have peaked. He added he would prefer to wait for the September figures.
   
Australian shares closed higher as investor sentiment rebounded from yesterday's sell-off due to North Korea's nuclear test and interest rate concerns. The S&P/ASX 200 advanced 49.5 points or 0.95 pct to close at 5,248.6, below the day's high of 5,251.0 and above the low of 5,214.2.
   
Hong Kong shares were stronger in afternoon trade after the generally calm reaction on Wall Street and in Tokyo to North Korea's action. At 3.29 pm the Hang Seng Index was up 145.26 points or 0.82 pct at 17,820.50.

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In mainland China, A-shares in Shanghai and Shenzhen closed mixed on profit-taking, with financial issues and property developers losing ground. The Shanghai A-share Index shed 0.16 points or 0.01 pct to 1,874.96 while the Shenzhen A-share Index was up 0.76 points or 0.16 pct at 465.05.
   
Seoul shares finished higher, rebounding from yesterday's plunge due to the news from North Korea, as foreign investors sought bargains in blue chips.
   
Sentiment quickly stabilized, with the crisis failing to dent Wall Street's uptrend overnight, although there remained fears of further nuclear tests by Pyongyang.
   
The KOSPI index closed up 8.97 points or 0.68 pct at 1,328.37, off a low of 1,322.44 and a high of 1,334.41.

Asian Bourse Round-Up

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Commodities

Bond prices fell, with the yield on the 10-year Treasury note at 4.73 percent, up from 4.70 percent Friday. The U.S. bond market was closed Monday for Columbus Day. The U.S. dollar rose against other major currencies in European trading. Gold prices were mixed.
   
Crude oil futures fell. A barrel of light crude was quoted at $59.44, down 52 cents, in electronic trading ahead pof the opening on the New York Mercantile Exchange.
   

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