US & World Daily Markets Financial Briefing 15-05-2006

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U.S. stocks open mixed; Target Corp. under pressure

NEW YORK - U.S. stocks were mixed in choppy trading Monday as a pullback in oil prices put a floor on declines, but Target Corp. shares tumbled after the discount retailer's quarterly profit fell short of analyst expectations.
   
The Dow Jones Industrial Average rose 9 points to 11,393. The gains are modest compared to the more than 250-point drop logged in the two previous sessions.
   
The Nasdaq Composite fell 2 points to 2,241 while the S&P 500 Index was off less than 1 point at 1,290.
   
On Friday, stocks ended lower on the session and on the week because of concern that inflation in the economy will prompt the Federal Reserve to continue raising interest rates.
   
Stocks in focus
   
Boeing Co. shares fell 1.2% to $85.92 on a Wall Street Journal that it has agreed to pay $615 million to end three years of Justice Department investigations into high-profile contracting scandals at the defense giant.
   
Shares in Target Corp. fell 6.4% to $49.85 after the discount retailer's quarterly profit fell short of analyst expectations. Sales rose 12% to $12.86 billion, edging past Wall Street estimates.
   
Verizon Communications dipped 23 cents to $31.56. UK newspaper the Observer said Vodafone Group may agree to sell its minority stake in Verizon Wireless to the U.S. telecoms giant for around $48 billion. U.S.-listed shares of Vodafone added 1.6% on the news.
   
Microsoft Corp. shares added a penny to $23.09 after the Department of Justice said in a court filing late Friday that the software giant had agreed to a two-year extension of a key part of its landmark settlement. It also found a new search feature in the latest version of Microsoft's Web browsing software was not anticompetitive.

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Dollar rises after commodity price pullback

NEW YORK - The dollar rallied across the board early Monday, recovering from recent steep losses while showing a limited reaction to weaker-than-expected manufacturing and foreign-capital-inflows data.
   
Meanwhile, a slump in Asian equities and a significant drop in commodities prices also supported the dollar, said analysts. Commodity-price strength tends to hurt the dollar, since the U.S. is a net importer of oil and other commodities.
   
In early New York trading, the euro fell to $1.2812, down from $1.2921 late Friday, after rising to $1.2972 earlier, the highest level since May 5. The dollar traded at 110.34 yen, up from 110.06 yen late Friday. The British pound was at $1.8811, down from $1.8941. The dollar was at 1.2106 Swiss francs, up from 1.1979 francs late Friday.
   
The greenback had touched a more than one-year low against the euro earlier in the session after a Wall Street Journal article said over the weekend that the U.S. was comfortable with a weaker dollar. The U.S. currency has hit fresh multimonth lows against major rivals almost on a daily basis since late April.
   
Weaker U.S. data
   
Capital flows into the United States fell to $69.8 billion in March after reaching a revised $90.5 billion in February, the Treasury Department said Monday. The decline was led by a sell-off in Treasury bonds and notes bought by official foreign institutions. Economists had expected net-foreign-securities purchases to decline to around $80 billion.
   
The market showed "minimal reaction in the dollar however as the number still meets the inflow need to plug the trade deficit," she said.
   
The nation's trade deficit narrowed to $62 billion in March, the lowest since last August, the Commerce Department said Friday.
   
Elsewhere, the Empire State Manufacturing index fell to 12.4 points in May from 15.8 in April, the New York Federal Reserve Bank said. This is the lowest level since June 2005. Economists were forecasting the index to inch lower to 14.6.
   
Later in the week currency investors will scrutinize data on consumer prices, producer prices, housing starts and industrial production for more clues on the U.S. economic strength and inflation pressures.
   
Dollar/yuan falls below key level
   
Overnight, the Chinese yuan crossed the 8.00 threshold for the first time since China revalued its currency by 2.1% in July. Since the big move, the yuan has appreciated a further 1.4%.
   
The people's bank of China set the yuan mid-point at 7.9982 against the dollar.
   
The market had abounded with talk of faster appreciation of the yuan after the U.S. Treasury stopped short of branding China a currency manipulator last week.
   
"The fact that Asian currencies have not responded to USD-CNY fixing below 8.00 today is not surprising as CNY's fix is simply catch-up after recent USD weakness vs. EUR and JPY rather than the start of a phase of meaningful CNY outperformance," said analysts at ABN Amro in a note.
   
Aussie, kiwi under pressure
   
Currencies that are particularly linked to commodity prices, such as the Australian dollar, came under particular pressure as commodity prices declined.
   
The Australian dollar last traded down 1% at 0.7644, while the New Zealand dollar was down 1.2% at $0.6211.

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The European Markets at 12.00 BST

London - Leading shares stayed in the red at midday as a weak dollar and inflation fears across the Atlantic continued to dog investors, with heavyweight miners the biggest losers on the back of profit-taking, dealers said.
   
At 12.10 pm, the FTSE 100 index was off 59.0 points at 5,853.1, but off an earlier low of 5,755.4, with the FTSE 250 index down by 221.6 points at 9,590.2.

Frankfurt - Shares were sharply lower in midday trade, extending Friday's solid losses, after Wall Street ended last week deep in the red, though RWE bounced back from initial losses on concerns over CO2 prices as investors instead focused on its forecast-beating first-quarter results, dealers said.
   
At 11.54 am, the DAX 30 index was 75.76 points or 1.28 pct lower at 5,840.52, having moved between 5,785.14 and 5,902.44 so far this session.

Paris - Shares were sharply lower by midsession after heavy trading downwards, in the wake of Friday's large drops led by Wall Street on concerns over the effects of prolonged high commodity prices, dealers said.
   
At 1.10 pm, the CAC-40 was 54.21 points or 1.06 pct lower at 5,096.01, off a morning low of 5,052.80 points, on heavy volume of 3.01 bln eur.

Amsterdam - Share prices were broadly lower at midday as US futures were firmly in the red, indicating a negative Wall Street open, dealers said.
   
At 12.53 pm the AEX index was down 2.47 points or 0.54 pct at 452.62, after opening at 451.98 and reaching a low of 446.79.

Madrid - Share prices continued lower, but recovered from earlier steep declines as selected TMTs like Telefonica and Sogecable, as well as Endesa, recovered, with US futures off lows and lower oil prices also providing support, dealers said.
   
At 12.40 pm, the IBEX-35 index shed 91.2 points to 11,620.0, after trading in a range of 11,517-11,673 on turnover of 1.7 bln eur.

Milan - Share prices were lower at midsession, hit by Friday's sell-off on Wall Street, with losers led by Fiat on profit-taking and with utilities slightly outperfoming the market thanks to their defensive qualities, dealers said.
   
At 12.58 pm, the Mibtel index fell 0.88 pct to 29,123 and the S&P/Mib was off 0.49 pct at 37,752, while volumes stood at 5.08 bln eur.

Helsinki - Helsinki shares fell sharply in morning trade, in line with Europe, as investors continued to exit resource-intensive stocks, with Rautaruukki and Outokumpu hit most and Fortum holding firm after this morning's CO2 data, dealers said.
   
At 12.42, the OMX Helsinki 25 was 1.25 pct lower at 2,573. 33, while the OMX Helsinki was 0.65 pct lower at 9,065.46.

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Asian shares close mostly lower tracking Wall St losses

HONG KONG - Share prices across the Asia-Pacific region ended mostly lower with bourses hit by Wall Street's fall on Friday, dealers said.
   
In Japan, share prices closed lower for the fifth consecutive trading day on the US market retreat and the yen's strength against the US dollar, dealers said.
   
The 225-issue Nikkei Stock Average ended down 114.87 points or 0.7 pct at 16,486.91, after dipping as low as 16,317.20. It was its lowest finish since March 17, when the blue-chip marker settled at 16,339.73.
   
The TOPIX index of all first-section issues lost 6.37 points or 0.4 pct at 1,681.81, off a low of 1,664.64.
   
"Stock prices slipped today as market sentiment was under pressure after the pullback on Wall Street Friday and because of the yen's advance against the dollar," said Hiroyuki Nakai, chief strategist at Tokai Tokyo Research Center.
   
In Australia, share prices finished sharply lower as investors dumped resources following the large sell-off on Wall Street and a fall in metal prices, dealers said.
   
They said local investor sentiment was also impaired by increasing concerns over interest rates sparked by a large fiscal stimulus revealed in last Tuesday's federal budget.
   
The S&P/ASX 200 plunged 95.4 points or 1.79 pct to close at 5,234.1, retreating further from Thursday's record close of 5,364.5.
   
Share prices in Hong Kong were trading lower on Wall Street losses and as investors fretted over the outlook for inflation and interest rates, dealers said.
   
Property stocks led the losses while blue chips HSBC and China Mobile also contributed to the benchmark index's extended correction.
   
At 3:24 pm, the Hang Seng Index was down 353.17 points or 2.09 pct at 16,548.68.
   
Mainland China bucked the trend, with A-shares in Shanghai and Shenzhen closing broadly higher on the back of continuing strong inflows of new capital with steelmakers, power generators and metal issues in demand, dealers said.
   
The Shanghai A-share Index added 64.70 points to 1,747.44 on turnover of 52.05 bln yuan and the Shenzhen A-share Index was up 17.93 points at 420.70 on turnover of 28.80 bln yuan.
   
Share prices in Seoul ended sharply lower, extending heavy losses, with foreign investors selling down shares and futures, discouraged by Wall Street and the yuan's rise beyond 8.00 usd, dealers said.
   
The People's Bank of China's reference rate for trading in the Chinese yuan was set at 7.9982 against the US dollar today, strengthening beyond 8 for the first time since the July revaluation, a development that sparked fears here of a rise in the won, they added.
   
The KOSPI index closed down 31.22 points or 2.16 pct at 1,413.98.

Asian Bourse Round-Up

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Gold futures drop as much as $25 in morning trading

SAN FRANCISCO - June gold fell to a low of $686.70 an ounce in New York Monday morning, its weakest level since May 9. The contract was last at $690, down $21.80, or 3.1%, retreating from Friday's nearly 26-year high.

Friday marked the beginning of a "10%-20% correction that can literally take place in a manner of days, but more likely weeks since copper, gold and silver had extremely high overbought readings," said Peter Grandich, editor of the Grandich Letter.

July silver lost $1.015, or 7.1%, to stand at $13.22 an ounce and July copper fell 10.9 cents, or 2.8%, to trade at $3.755 a pound.

Bond prices rose, and yields declined, after a weaker-than-expected reading on manufacturing activity in the New York area. A sharp pullback in crude and metals prices also helped damp inflation concerns and elevate bonds. The benchmark 10-year note was up 4/32 at 99 18/32, with its yield at $5.19%.
   
Crude-oil futures fell sharply, hovering around $70 a barrel amid a broader pullback in commodities, with last week's lowered demand estimates from a key energy agency continuing to weigh on prices. Crude for June delivery was last down $1.99 at $70.05 a barrel, after briefly falling below $70 a barrel in electronic trading.

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