US & World Daily Markets Financial Briefing 10-11-2006

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Stocks advance on oil decline

NEW YORK - Stocks rose moderately in early trading Friday as oil prices fell and after Boeing Co. won a contract to build U.S. Air Force helicopters.
   
In the first hour of trading, the Dow Jones industrial average rose 10.65, or 0.09 percent, to 12,113.95.
   
Broader stock indicators also gained. The Standard & Poor's 500 index was up 0.80, or 0.06 percent, at 1,379.13, and the Nasdaq composite index was up 1.27, or 0.05 percent, at 2,377.28. The Russell 2000 index of smaller companies was up 0.17, or 0.02 percent, at 762.23.
   
Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.60 percent from 4.63 percent late Thursday.    

Boeing won out over Lockheed Martin Corp. and United Technology Corp.'s Sikorsky division in securing a contract worth about $13 billion to build combat search and rescue helicopters. Boeing was up 1.57 at $86.68, while Lockheed was up 6 cents at $85.43 and United Technologies was down 17 cents at $64.74.
   
In other corporate news, insurance company American International Group Inc. rose $1.72, or 2.5 percent, to $69.76 after its third-quarter profit more than doubled due to higher sales and a quiet hurricane season.
   
Two members of the Dow industrials, Walt Disney and American International Group, reported earnings that more than doubled.
   
Disney shares slipped 2 percent in Frankfurt in light trading, while AIG shares were little moved.
   
Adobe Systems may see pressure after announcing the resignation of its chief financial officer, Randy Furr. Adobe said his resignation wasn't related to work he did at Adobe.
   
Nvidia shares rose 3.9 percent in Germany after the graphics-chip maker's quarterly earnings and revenue beat analyst forecasts.
   
Elsewhere, Genentech agreed to pay $919 million, or $20 a share, for Tanox Inc., a developer of therapies based on monoclonal antibodies.

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Dollar edges up after sharp falls overnight

LONDON  - The dollar edged up slightly against major currencies after falling sharply overnight as the market took a breather ahead of key US inflation data next week.
   
The market is also keeping a close eye on today's European Central Bank conference, with some key speakers scheduled to comment, including ECB president Jean-Claude Trichet and Federal Reserve chairman Ben Bernanke.
   
The dollar reached close to three-month lows against the euro and 18-month lows against the pound earlier today on renewed worries about central bank reserve diversification following comments from People's Bank of China governor Zhou Xiaochuan late yesterday. Zhou said China has a very clear plan to diversify its reserves, though he later denied that China has any plans to accelerate this diversification.
   
HBOS currency analyst Steve Pearson said the comments provided the trigger for the dollar to break below key levels. Though the gains may have been an over-reaction they are a sign of how sensitive the market is to any hints on reserve diversification away from the dollar.
  
Elsewhere, the yen continued to edge lower following yesterday's sharp losses against the euro after Bank of Japan governor Toshihiko Fukui warned that the central bank is watching for signs of a build-up in carry trades.
   
Fukui said the BoJ is monitoring carefully the recent increase in carry trades --  where investors borrow in low-yielding currencies such as the yen to invest in higher yielding assets elsewhere -- and particularly any signs that these positions could unwind rapidly, causing volatility in exchange rates.
   
Bank of New York analyst Neil Mellor said the comments could spark talk that the Japanese central bank is likely to raise interest rates sooner rather than later.

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Euroshares weak midday; poor Capitalia Q3 offsets firm ENI figs; Wall St seen up

Leading European exchanges were lower in midday trade, with weakness among the telecoms and poor results from Capitalia offsetting consensus-beating third quarter figures from ENI, while retreating crude oil prices are seen pushing Wall Street stocks higher at the open.
   
At 11.57 am, the STOXX 50 Index was 4.09 points lower at 3,713.08, while the STOXX 600 lost 0.16 points at 358.76.
      
On the downside of results news, shares in banking peer Capitalia also slid, down 0.12 eur to 6.93, a fall of more than 1.7 pct, after the group reported lower-than-expected nine-month results of 804 mln eur, an increase of 26 pct but against expectations of a 822-852 mln net gathered by AFX News.
       
In other news, a lost contract saw shares in Finmeccanica dip by 0.31 eur to 18.64, a fall of more than 1.6 pct, after the group lost a lucrative US helicopter deal to Boeing. The initial contract award is for 712 mln usd; but the program may be worth as much as 13 bln usd.
   
Meanwhile, the telecoms sector was weaker, with a downgrade to 'reduce' from 'hold' by UBS on Deutsche Telekom weighing on sentiment. Deutsche Telekom shares sank 0.29 eur to 13.18 eur after UBS said it sees no catalysts following the group's presentation of third-quarter results yesterday.
      
The negative feeling spread in the sector, with France Telecom losing 0.13 eur to 19.79 while Telecom Italia shed 0.022 eur to 2.35.
   
Meanwhile, Europes largest insurer Allianz suffered, shedding 0.73 eur to 151.92 after saying it is 'examining options' after Henderson Group this morning upped its offer for John Laing to 405 pence per share, valuing the company at about 950 mln stg from a previous offer of 886.9 mln stg.  The German insurer made a 385 pence cash per John Laing share offer in October.
   
Over on the bright side, Eni shares climbed 0.39 eur to 24.71 after the group said third-quarter adjusted net profit rose 7.1 pct to 2.620 bln eur from 2.446 bln a year earlier, underpinned by an improved operating performance which was partially offset by a higher tax rate.
  
A consensus of seven brokers had indicated an adjusted net profit of 2.396 bln eur.
   
Enel rose 1.68 pct to 7.76 eur after yesterday's third-quarter results, which JP Morgan described as "solid", while Lehman Brothers increased its target on the stock to 8.3 eur from 7.7 eur, a dealer added.
   
Shares in SanPaolo IMI shares advanced, up 0.07 to 16.86 after being upgraded to 'add' from 'hold' by Dresdner Kleinwort ahead of the bank's nine-months results due later today.
   
Banca Intesa reports third-quarter figures on Tuesday, with net profit seen flat to higher, analysts said. The merger will create Italy's largest bank and is scheduled to close late this year or early next year. It is still subject to shareholder and antitrust approvals.
       
SanPaolo shares also benefited from a report in La Stampa citing union sources that the merged entity with Banca Intesa is planning to cut over 3,000 job cuts by year-end.
   
The chemical sector outperformed, with BASF one of the top performers, up 1.13 eur to 69.85 on the back of positive numbers from Sika and Rhodia.
   
Swiss chemical group Sika shares took on 64 sfr to 1,715, surging by more than 3.88 pct, after reporting consensus-beating nine-month results, with net profit up 37.5 pct at 184.9 mln sfr, from 132.4 mln a year earlier on sales of 2,888.7 bln, on the back of organic growth, acquisitions and a benign currency effect.
   
Meanwhile, French chemical group Rhodia shares firmed by 3.62 pct to 2.29 eur after unveiling a surge in third-quarter operating profit as its net result swung to a higher-than-expected profit from a loss a year earlier.

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Source: AFX News/Associated Press

Asian shares close mostly lower, Tokyo falling on machinery orders data

HONG KONG - Shares across the Asia-Pacific region closed mostly lower, with selling in Tokyo after the release of machinery orders data that showed an unexpected decline.
   
Tokyo shares closed down, but off their lows, after the September core private sector machinery orders data fell, indicating corporate capital spending is slowing.
   
Orders fell a seasonally adjusted 7.4 pct from August.  A poll of economists had indicated a rise of 2.6 pct was expected. The release prompted investors to lock in gains made shortly before the closely-watched economic indicator was released.
   
The blue-chip Nikkei 225 Stock Average closed down 86.14 points or 0.53 pct at 16,112.43, off a low of 16,104.74. For the week, the Nikkei lost 237.59 points or 1.45 pct.
   
The broader TOPIX index of all first-section issues shed 7.69 points or 0.48 pct to 1,581.37, off a low of 1,578.80. For the week, the TOPIX lost 37.65 points or 2.3 pct.
   
Dealers said investors will remain cautious as they await next week's Japanese GDP data for the July-September quarter and until then the Nikkei is not expected to stray too far from 16,000 points.
     
Australian shares ended slightly higher on selected buying in a market lacking direction because of uncertainty over the US political situation.
   
They said the market remained positive about earnings prospects but there was no clear direction as investors weighed up the impact of the US mid-term elections.
   
The S&P/ASX 200 ended down 7.7 points or 0.14 pct to close at 5,436.7, retreating from Tuesday's record close of 5,491.6. The benchmark index closed above the day's low of 5,414.7 and below the high of 5,440.7. For the week the S&P/ASX 200 rose 4.7 points.
   
Hong Kong shares were weaker in afternoon trade following losses on Wall Street and Tokyo and as rising crude oil prices made many investors turn cautious. At 3.31 pm the Hang Seng Index was down 32.20 points or 0.17 pct at 18,920.66.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower on profit-taking after the key index rose over the 1,900 point level in early trade. The Shanghai A-share Index slipped 13.58 points or 0.68 pct to 1,979.10 and the Shenzhen A-share Index was down 10.43 points or 2.22 pct at 460.40.
   
Seoul shares closed lower as foreign investors sold down blue chips in light trade ahead of the weekend, with sentiment undercut by Wall Street's overnight pullback.
   
The won's rally against the dollar on concerns over a rate tightening in Japan also added to the pressure, sending exporters into negative territory. The downside was limited, however, on hopes that the market will test 1,400 points sooner or later on solid economic and corporate fundamentals.
   
The KOSPI index closed down 3.71 points or 0.27 pct at 1,395.73, after trading between 1,391.69 and 1,399.87. The week ended with a gain of 11.85 points.

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Oil prices ease as IEA lowers 2006 demand forecast

LONDON - World oil prices eased after recent strong gains, as the International Energy Agency trimmed its 2006 demand forecast.
   
Prices had jumped higher yesterday on OPEC news and weak levels of US heating fuel stocks ahead of the northern hemisphere winter.
   
Light, sweet crude was down 45 cents at $60.71 a barrel in premarket electronic trading on the New York Mercantile Exchange after the International Energy Agency lowered its forecast for worldwide demand this year.
   
In London, Brent North Sea crude for December delivery fell 66 cents to 60.66 usd per barrel in electronic trading at 1.10 pm.
   
Over the course of Wednesday and Thursday, oil prices had gained 2.2 usd in New York and 2.8 usd in London, reaching peaks above 61 usd.
     
World oil demand in 2006 was forecast to grow by 1.1 pct this year, instead of 1.2 pct as previously predicted by the IEA, to an average of 84.5 mln barrels per day (bpd), the IEA said in a monthly oil market report published on Friday.
   
In 2007, demand was forecast to expand by 1.7 pct at 85.9 mln bpd, slightly lower than a previous forecast of 86 mln bpd.
   
World demand for oil would remain strong next year even in the event of a slowdown in the US economy, partly because of an "economic decoupling" of Asia from the United States, the IEA added.

Crude futures had surged yesterday in reaction to signs the OPEC cartel was following through on promised production cuts, and to a large fall in US inventory of distillates, including heating oil, analysts said.
   
The US Department of Energy said Wednesday that inventories of distillates, including heating oil and diesel, fell 2.7 mln barrels to 138.6 mln in the week to Nov 3. Analysts had expected a fall of only 800,000 barrels.
   
The DoE report had intensified doubts about the outlook for energy supplies after Saudi Arabian Oil Minister Ali al-Naimi had indicated Monday that OPEC  could cut output further at its meeting in December.
   
The Organisation of the Petroleum Exporting Countries last month said it would cut its total output by 1.2 mln bpd, effective Nov 1, to put a floor under prices which have fallen from record highs above 78 usd earlier this year.
   
Many traders have been sceptical about whether OPEC members would fully implement the cut, but the comments by al-Naimi and other cartel ministers lent credence to the cartel's official position.

Gold futures dipped $3.30 to $633.50 an ounce.

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