US & World Daily Markets Financial Briefing 17-05-2006

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U.S. stocks trade lower after inflation report fuels rate fears

NEW YORK - U.S. stocks fell in opening trade Wednesday after a stronger-than-expected rise in consumer prices in April reduced the likelihood that the Federal Reserve may pause in its cycle of interest-rate hikes at its June meeting.
   
Hewlett-Packard, however, was a bright spot on the Dow Jones Industrial Average, after the computer and printer maker posted strong quarterly earnings.
   
The Dow industrials fell 70 points to 11,348.
   
The Nasdaq Composite Index was down 11 points at 2,218 while the S&P 500 Index dropped 6 points to 1,286. 
   
Core inflation is now at the top end of the Fed's comfort zone. The central bank has raised short-term interest rates 16 times in a row over the last two years in a bid to choke off inflationary pressures in the economy.

Stocks on the go
   
Hewlett-Packard Co. was the only Dow component posting gains, up 4.3% at $32.45. The company reported a 51% rise in its second-quarter profit as the technology giant saw strong sales at its personal-computer and printing and imaging divisions. The company's earnings also beat Wall Street expectations.
   
More attention than usual was given to H-P's report due to a warning on May 8 from the company's top PC rival, Dell Inc. Dell's stock was last up 16 cents at $23.94.
   
Applied Materials Inc. fell 1.1% to $17.65. The world's largest maker of chip equipment reported a quarterly profit that topped Wall Street estimates. Some analysts, however, expressed about decelerating bookings and a conservative outlook.

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Dollar sliced to 8-month low vs. yen on CPI data

NEW YORK - The dollar hit a more than eight-month low against the yen, but was little changed against the euro Wednesday, as negative sentiment toward the dollar continued to prevail in the market.
   
The greenback briefly pared some losses after data showed U.S. consumer prices increased 0.6% in April and the core consumer price index -- which excludes food and energy prices -- increased 0.3%. Both figures were higher than expected: Economists were expecting the CPI to rise 0.5% and the core rate to rise 0.2%.
   
"The relative lack of reaction could be a good signal of how bearish overall U.S. dollar sentiment remains," said analysts at research firm Action Economics. "The greenback indeed remains in sell the rally mode, though a break to fresh trend lows is not anticipated on Wednesday."
   
In early New York trading, the euro was unchanged at $1.2849. The dollar weakened to 108.96 yen, the lowest level since Sept. 5, before paring losses to 109.33 yen from 109.68 yen.
   
The British pound was at $1.8914, up from $1.8878, after touching $1.9025, the highest level since May 5. The dollar was little changed at 1.2074 Swiss francs.
   
The dollar weakened across the board Tuesday after benign inflation and weaker-than-expected housing starts data boosted speculation the Federal Reserve is nearing the end of its interest-rate-raising cycle.
   
The central bank has increased interest rates at 16 consecutive meetings since June 2004, putting the federal funds rate currently at 5%.

Sterling one-year high

The British pound earlier hit a one-year high against the dollar on Wednesday, following minutes from the last Bank of England interest-rate setting committee that showed that one member pressed for an interest-rate hike in the last meeting.
   
The rate hike call, by David Walton, came amid another call for an interest-rate cut by outgoing member Stephen Nickell, and six other votes to keep rates at 4.5%.
   
Though the market has been expecting the central bank to lift rates later in the year, markets were surprised by the call for a hike at the last meeting.
   
"Walton was one of the members to vote for a rate cut during last June's MPC meeting thus his conversion to a hawk held special significance to the market," said Boris Schlossberg, senior currency strategist at FXCM.
   
"The news pushed the pound higher to within 10 points of the critical 1.9000 level...as traders now perceive the odds of a UK rate hike to be far higher than those of rate cut," he said, in a note.

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The European Markets at 12.00 BST

London - The FTSE 100 index was lower midday as early optimism was overtaken by caution ahead of US CPI figures, with strength in the mining sector offset by ongoing concerns energy costs will impact on corporate earnings, dealers said.
   
At 11.50 am, the FTSE 100 was 15.4 points lower at 5,831.2, having drifted off an earlier high of 5871.6. The broader indices remained positive.

Frankfurt - Shares were higher in midday trade following gains across Asia this morning and as US stock futures pointed to a higher opening on Wall Street, with Hypo Real Estate leading gainers on a broker upgrade, while Deutsche Boerse jumped on renewed hopes of a merger with Euronext, dealers said.    

At 11.15 am, the DAX 30 index was 20.12 points or 0.34 pct higher at 5,872.04, having moved between 5,864.79 and 5,897.77 so far this session.

Paris -  Shares were higher midsession as solid profits from several French companies offset uncertainty over the outlook for Wall Street in light of US interest rate fears, while Vivendi shares jumped from renewed speculation over its future, dealers said.
   
At 1.05 pm, the CAC-40 index was 14.78 points or 0.29 pct higher at 5,069.11, on volume of 2.29 bln eur.

Amsterdam - Shares were slightly higher at midday, with the index torn between futures pointing to a higher Wall Street open, and heavyweight shares weighing down the index, dealers said.
   
At 12.02 pm, the AEX was up 0.24 points or 0.05 pct to 451.32 after opening at 452.61 and hitting an earlier low of 450.88 and a high of 453.34.

Madrid - Share prices were flat in cautious midday trade, off earlier highs on nerves ahead of US CPI data, with Telefonica under pressure, while Gamesa rebounded after weak first-quarter results late yesterday, dealers said.
   
At 11.45 am, the IBEX-35 index rose 2.5 points to 11,598.4, after trading in a range of 11,594-11,636, on light turnover of 659 mln eur.

Milan - Share prices were slightly higher at midday in a technical rebound after recent losses, led by Tenaris, Saipem and BPM, though sentiment remains negative on concerns over raising inflation, dealers said.
   
At noon, the Mibtel was up 0.32 pct at 28,986 and the S&P/Mib added 0.14 pct to 37,593.

Stockholm - Shares were slightly lower in midday trade giving up earlier gains on concern over the dollar's weakness and on caution ahead of the release of US CPI data, but with mining stocks gaining on a rebound in metal prices, brokers said.
   
At 12.15 pm, the OMX Stockholm index was down 0.56 pct at 322.91 and the OMX Stockholm 30 down 0.75 pct at 994.10. Turnover was 9.753 bln skr.

Helsinki - Helsinki shares were flat in midday trade, shrugging off a weaker Wall Street yesterday, as investors moved to take advantage of the recent sharp decline in engineering stocks, dealers said.
   
At 12.16 pm, the OMX Helsinki 25 was 0.04 pct higher at 2,575.32, while the OMX Helsinki was up 0.23 pct at 9,114.16.

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Asian shares close higher, Tokyo stronger on bargain-hunting

HONG KONG - Shares prices across the Asia-Pacific region ended higher with Tokyo firmer as investors picked up bargains following the market's six-day slump, although worries over the yen's strength limited gains, dealers said.
   
The Nikkei 225 Stock Average closed up 149.25 points or 0.9 pct at 16,307.67, after touching a peak of 16,319.30. Yesterday, the blue-chip marker ended down 2.0 pct at 16,158.42, its lowest level in eight weeks.
   
The broader-based TOPIX index of all first-section issues gained 12.10 points or 0.7 pct at 1,657.07, just off its high for the day of 1,658.03.
   
"Stock prices gained on a technical rebound as bargain-hunters stepped in after the benchmark Nikkei 225 index lost more than 1,000 points in the past six trading sessions," said Hiroichi Nishi, equity chief at Nikko Cordial Securities Inc.
   
In Australia, share prices closed flat on a late sell-off, as investors remained cautious following two days of sharp declines initiated by the large correction in commodity prices from record levels, dealers said.
   
They said the key S&P/ASX 200 index rose early in trading, jumping 33.5 points as resource stocks gained from commodity prices recovering some lost ground overnight.
   
But, dealers said, late selling led to mixed results in the resources sector.
   
The major banks weighed on the market after March quarter wages data failed to dispel the likelihood of another central bank rate rise in 2006.
   
The S&P/ASX 200 added just 0.1 point to close at 5,217.5, remaining well below last Thursday's record close of 5,364.5.
   
Share prices in Hong Kong were trading higher in the afternoon on a technical rebound after the benchmark index fell nearly 750 points over the last three sessions, dealers said.
   
Index heavyweights HSBC and China Mobile led the gains following a rise in the prices of their American Depository Receipts overnight.
   
At 3:28 pm, the Hang Seng Index was up 203.10 points or 1.24 pct at 16,596.21.
   
In mainland China, A-shares in Shanghai and Shenzhen closed slightly higher on a technical rebound after yesterday's heavy losses, with telecoms and automakers buoyed by rotational interest, dealers said.
   
The Shanghai A-share Index added 12.42 points to 1,706.21 on turnover of 42.68 bln yuan and the Shenzhen A-share Index was up 3.34 points at 413.16 on turnover of 24.91 bln yuan.
   
In Seoul, share prices closed sharply higher, ending a three-day run of declines, with large cap IT companies, POSCO and Kookmin Bank posting solid gains, dealers said.
   
Despite Wall Street's weaker close, the market started strongly with investors deciding the market correction has been overdone, they added.
   
Strong institutional interest helped the market reclaim the 1,400-point level, with solid gains in major Asian markets also providing support.
   
The KOSPI index closed up 19.36 points or 1.40 pct at 1,401.47.

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Gold futures climb above $700 an ounce in morning dealings

SAN FRANCISCO - June gold climbed to $701.80 an ounce, up $8.60 in New York. The contract rose as high as $712.50. "Once again the weaker U.S. dollar drove gold prices north, as the dollar lost value as a consequence of heightened euro zone inflation and calls for more flexibility in Asian currencies," said Matthew Parry, an economist at Moody's Economy.com.

He remains bullish on gold going forward "as we envisage the U.S. dollar falling further."

July silver was up 1 cent at $13.55 an ounce but July copper fell by 8.2 cents to $3.76 a pound.

Crude-oil futures were little changed ahead of weekly supply data. Oil for June delivery was last down 2 cents at $69.51.
   
Treasury losses mounted, sending yields higher, after the CPI report. The fixed-income market abhors inflation because it eats into the value of bonds.

The benchmark 10-year Treasury bond last was off 13/32 at 99-24/32 with a yield of 5.159%., up a bit from 5.107% at Tuesday's close.

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