US & World Daily Markets Financial Briefing 17-10-2006

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Stocks slip before Dow can hit 12,000

NEW YORK - Wall Street retreated Tuesday from attempts to push the Dow Jones industrial average to a milestone, rattled by a fresh batch of economic data and a downgrade of chip maker Intel Corp.
   
The Dow was less than three points away on Monday from reaching the psychologically important 12,000 for the first time. Behind the three-week run up in stocks was optimism that corporate profits will remain robust amid a slowing economy.
   
However, that confidence was dealt a setback on Tuesday after the U.S. Labor Department reported a bigger-than-expected jump in core wholesale inflation. Also exasperating investors was a downgrade of Dow component Intel ahead of its third-quarter earnings report.
   
Wall Street also weighed earnings reports from Merrill Lynch & Co., Johnson & Johnson Co., and United Technologies Inc. Chicago Mercantile Exchange Holdings Inc.'s agreement to acquire rival CBOT Holdings Inc. for $8 billion sent shares of both exchanges higher.
   
In the first hour of trading, the Dow gave up 38.42, or 0.32 percent, to 11,942.18. Broader stock indicators also declined. The Standard & Poor's 500 index was down 5.22, or 0.38 percent, at 1,363.83, and the Nasdaq composite index fell 15.47, or 0.65 percent, to 2,348.37.
   
There is a bevy of economic data due out today, including industrial production and capacity utilization for September and August Treasury capital flows. The October NAHB housing market index also is due out.

Gold futures were holding below $600 an ounce in electronic trading, with the December contract flat at $598.50. Oil futures edged 16 cents higher at $60.10 a barrel.
   
Stocks in focus

Wal-Mart Stores has agreed to buy a key Chinese hypermarket chain for $1 billion, according to reports in The Wall Street Journal and The New York Times. Carrefour was the losing bidder for Taiwan-owned Trust-Mart. The Journal first reported the story late in the trading day on Monday.
   
InterMune is expected to jump after reaching a deal to commercialize a Hepatitis C products with Roche Holdings.
   
Roche separately reported a stronger-than-forecast 19 percent sales rise behind sales of cancer drugs and Tamiflu.
   
Callaway Golf may see pressure after warning of a widening loss in the third quarter, as quarterly sales were hit by lower in-store traffic at key golf retailers during the summer season.

Intel shares dropped 1.8 percent in German trading. Yahoo shares also dropped ahead of their quarterly results, losing 2 percent in Germany.

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Dollar stays steady after strong US TICS, core PPI data

LONDON - The dollar was little changed after data this afternoon showed investors' purchases of US assets rose sharply in August and a stronger-than-expected core PPI rate.
   
The US Treasury said portfolio capital flows to the US surged to an all-time high of 116.8 bln usd in August from 32.9 bln in July, easing concerns that the US will struggle to fund its substantial trade deficit.

The dollar initially rose on the news but soon reversed those gains, with market attention likely to focus on tomorrow's key US CPI data.
   
Earlier this afternoon saw the release of a mixed set of PPI data, which showed a sharp fall in US wholesale price inflation in September, but this was more than offset by news of a bigger-than-expected rise in core prices outside of energy and food.
   
Elsewhere, the euro remained broadly weaker after data showed an unexpected drop in euro zone September inflation to 1.7 pct from the provisional estimate of 1.8 pct, while the German ZEW index of economic expectations fell further in October to minus 27.4 vs minus 22.2 in September.
   
Though these are unlikely to alter expectations for a further euro zone interest rate hike later this year, they may raise questions over the outlook for the European economy going into 2007, analysts said.
   
The pound continued higher meanwhile after inflation figures this morning showed headline annual CPI inflation dipped as expected in September to 2.4 pct from 2.5 in August, but continued to suggest that the Bank of England will raise interest rates again next month.
   
CPI fell to 2.4 pct from 2.5 in August, but still remains well above the Bank of England's target of 2.0 pct. Moreover, other measures of inflation rose significantly, with the core CPI rate rising to its highest level in ten months, while the annual all-items RPI rate reached its highest level since June 1998.
   
The pound rose to an eight-day high against the dollar of 1.8715 usd, while the euro dropped to a 20-day low against the UK currency of 0.6704 stg.

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The European Markets at 12.00 GMT

London - Leading shares remained lower midday, slipping from 5-year highs as jitters ahead of the next batch of US corporate earnings and the latest economic data prompted investors to lock in some profits.
   
At 12.00 pm, the FTSE 100 was down 22.4 points at 6,149.8, off an earlier of 6,174.7, and slipping further away from yesterday's fresh 5-1/2 year high. The broader FTSE 250 was 81.6 points weaker at 10,296.3.

Frankfurt -  German shares were lower, led by TUI, following rising oil prices. Weak confidence data was also felt in Frankfurt, as the German October Zew expectations index sank to its lowest level since March 1993.
   
At 1.49pm, the DAX 30 index was down 35.82 points or 0.58 pct at 6,150.72, having moved between 6,130.01 and 6,170.02 this session.  The MDAX was at 8,593.25, down 76.32 points or 0.88 pct, while the Tec DAX was at 677.50, down 4.75 points or 0.70 pct.

Paris - Share prices were lower just before midday as profit-taking followed recent record highs for certain blue chips and as US futures pointed to a slide at the open later on Wall Street. At 11.20 am the CAC-40 index was down 35.28 or 0.66 pct at 5,326.69.

Amsterdam - Shares prices were slightly lower in early afternoon trade, with heavyweight financials among leading decliners. At 1.29 pm, the AEX index was down 0.61 pct or 3.0 points at 490.39 after opening near its highs at 492.42 and just off a low of 489.89.

Milan - Share prices were lower in midday trade on profit-taking, while Tenaris and oil stocks bucked the trend on higher oil prices. At 11.44 am, the Mibtel was down 0.45 pct at 30,147 points and the S&P/Mib fell 0.52 pct to 39,444.

Madrid - Madrid shares were lower midday, extending the morning's losses and in across-the-board profit taking, with Repsol YPF leading the losers and banks also down. At 1.00 pm, the IBEX-35 index fell 162.8 points to 12,315.9 after trading in a range of 13,307-13,486 on turnover of 2.5 bln eur.

Zurich - Swiss shares were lower in thin midday trade with US markets poised for opening falls, and with Roche lower on profit-taking after initially well-received nine months results. At 12.05 pm, the Swiss Market Index was 91.77 points lower at 8,540.3, and the Swiss Performance Index was down 66.07 at 6,660.32 points.

Stockholm - Shares remained in slightly negative territory in midday trade, little changed from morning levels, with Swedish Match suffering large losses in the wake of negative news included in the autumn budget yesterday. At 12.40 pm, the OMX Stockholm index was down 0.56 pct at 348.24 points, while the OMX Stockholm 30 index was down 0.71 pct at 1,085.49.

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Asian shares close lower on stronger currencies, NKorea nuclear fears

HONG KONG - Shares across the Asia-Pacific region closed lower on stronger regional currencies and reports that North Korea might be preparing for a second nuclear test.
   
Tokyo shares closed lower as investors opted to grab profits ahead of the release tonight of semiconductor giant Intel Corp's quarterly results.
   
The Nikkei 225 Stock Average closed down 81.17 points or 0.49 pct at 16,611.59, off a low of 16,561.26. Yesterday, the index ended at 16,692.76 points, its best finish since May 11.
   
The broader TOPIX index of all first-section issues was down 8.10 points or 0.49 pct at 1,637.95, off a low of 1,632.63.
   
The dollar's retreat against the yen, sparked by a mixed US manufacturing report and the announcement by Russia's central bank of plans to diversify its currency reserves, also weighed on the equity market.
   
Also undermining sentiment were comments by Foreign Minister Taro Aso that Japan has information that North Korea may be preparing for a second nuclear test.
   
Youzou Asai, market analyst at Naito Securities, said Japanese investors want to first see Intel's results and how the US market will react since Wall Street usually has a tendency to move in the opposite direction after the world's largest computer chip maker reports its earnings.
   
"Investors here are getting worried about the rapid rise in the US stock market where the Dow keeps hitting a new record close almost everyday and they now feel that the US market may need to take a breather," Asai said.
   
"And they strongly feel that the announcement of Intel's results could be the trigger."
   
Australian shares finished lower as investors took profits after solid gains in the market over the past week while interest rate concerns weighed on the banking sector.
   
The market bucked a strong lead from US shares where the Dow Jones closed at another record and moved closer to the 12,000 point level. However, dealers said solid gains in metal and oil prices overnight supported miners and energy stocks.
   
The S&P/ASX 200 fell 29.7 points or 0.56 pct to close at 5,281.3, above the day's low of 5,277.5 and below the high of 5,334.2.

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Hong Kong shares were flat in afternoon trade as investors fretted that Industrial and Commercial Bank of China's huge ongoing initial public offering will suck more liquidity from the market in coming days.
   
ICBC's IPO has attracted orders worth more than 42 bln hkd from retail investors on the first day of its H-share retail offer yesterday, representing an over-subscription level of 7 times for that portion, according to leading Hong Kong brokerages.
   
At 3.30 pm the Hang Seng Index was unchanged at 18,009.85 points.
   
In mainland China, A-shares in Shanghai and Shenzhen closed lower led by banking and airline stocks amid liquidity worries due to the Industrial and Commercial Bank of China IPO.
   
The Shanghai A-share Index fell 7.73 points, to 1,852.95 and the Shenzhen A-share Index was down 0.82 points at 461.17.
   
Seoul shares closed lower with investors scared by reports that North Korea may be preparing a second nuclear test. The won's strength against the Japanese yen and US dollar also added to the downside, hurting major exporters including car makers and steel makers.
   
The KOSPI index closed down 5.42 points or 0.4 pct at 1,351.30, off a low of 1,339.89 and a high of 1,360.56.

Asian Bourse Round-Up

For a full list of closing figures, click here

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