US & World Daily Markets Financial Briefing 18-07-2006

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Stocks climb on earnings, PPI data

NEW YORK - Stocks surged in early trading Tuesday, boosted by positive wholesale inflation data and upbeat earnings from Coca-Cola Co., Johnson & Johnson and Merrill Lynch & Co.
   
Solid second-quarter results brightened Wall Street's mood after an earlier disappointing round of reports. Dow Jones industrials Coca-Cola and Johnson & Johnson both posted better-than-forecast earnings, while Merrill Lynch also topped analyst estimates.
   
Mild wholesale price data further calmed investors worried about inflation and interest rates. While the Labor Department's producer price index grew 0.5 percent in June, core PPI -- excluding volatile energy and food costs -- rose just 0.2 percent to match expectations.
   
Meanwhile, the energy market remained on edged about continued conflict in the Middle East, helping crude futures bounce back from a steep drop on Monday. A barrel of light crude gained 89 cents to $76.19 on the New York Mercantile Exchange.
   
In the first hour of trading, the Dow rose 63.71, or 0.59 percent, to 10,811.07.
   
Broader stock indicators also rose. The Standard & Poor's 500 index was up 4.74, or 0.38 percent, to 1,239.23, and the Nasdaq composite index gained 14.28, or 0.7 percent, to 2,052.00.
   
The PPI report, however, pushed bonds lower, with the yield on the 10-year Treasury jumping to 5.11 percent from 5.07 percent late Monday.

Stocks in focus
   
After Tuesday's close, International Business Machines and Yahoo Inc. report how they did in the last quarter.
   
Investors in the tech sector will be hoping the companies don't do as poorly as French IT consulting group Atos Origin, which tumbled 19 percent after warning that revenue and margins wouldn't be as strong as forecast. Atos Origin blamed British customers' unwillingness to commit to spending. It follows a warning from heavyweight German computer software company SAP last week.
   
Meanwhile, Target is expected to decline after lowering its same-store sales forecast for July to 3 percent-to-4 percent growth, from a previous 4 percent-to-6 percent growth forecast.
   
Electronics contract manufacturer Sanmina-SCI also may see pressure after cutting its earnings forecast.
   
Overseas, Heineken climbed after the Dutch brewer said sales of Premium Light in the U.S. are off to a better start than it had originally forecast.

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Dollar slips back off highs after soft US core PPI for June

LONDON - The dollar slipped back off recent highs against the euro and the yen on news that wholesale prices in the US, which exclude food and energy costs, rose by less than many anticipated during June.
   
Though the Labor Department reported that the headline rate, which includes food and energy, rose by 0.5 pct between May and June, more than the 0.3 pct anticipated, the core rate rose by the expected 0.2 pct.   
   
Because the core rate did not surprise on the upside, as many analysts thought, analysts said there's potential for a relatively soft CPI number tomorrow that could soothe concerns at the US Federal Reserve.
   
The market's focus of attention is squarely on tomorrow, when the CPI data for June are published and then followed by the half-yearly testimony to Congress of Ben Bernanke, the US Federal Reserve chairman.
   
As a result the market largely ignored stronger than anticipated US capital inflows data from the US Treasury Department. It reported that foreign net purchases of US long-term securities were 69.6 bln usd in May from an upwardly revised 51.1 bln in April and expectations of a modest increase to 55 bln.
   
The market is looking for clear guidance from Bernanke about whether the Fed will raise the cost of borrowing again at its August meeting.
   
Expectations of a Fed rate hike in August diminished substantially recently to around a 65 pct probability after the Fed's policy-makers recently published a relatively dovish statement, alongside its decision to lift its key Fed funds rate a quarter point for the seventeenth consecutive occasion to 5.25 pct.
   
That focus on the US has kept euro/dollar within tight ranges despite an extremely disappointing survey of Germany's economy, the euro zone's largest.
   
The ZEW research institute said its German economic expectations index dropped to +15.1 points in July from +37.8 in June, partly due to the high oil price. The fall was way below expectations of a more modest decline to +34.0.
   
Following the data's release, the euro fell below 1.25 usd from 1.2528 usd, but soon recovered, as the market doubts the weak data will derail another interest rate hike from the European Central Bank on August 3.
   
Earlier this month, ECB president Jean-Claude Trichet hinted that the central bank will hike rates by a quarter point at its early-August meeting to 3.00 pct. He said the central bank will continue to exercise "strong vigilance" with regard to potential inflationary risks in the euro zone as economic recovery gathers pace and oil prices remain high.
   
Elsewhere, the pound was boosted by news that inflation in the UK increased far more than anticipated during June, as well as a stronger than expected survey of the housing market from the Royal Institution of Chartered Surveyors.
   

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The European Markets 12.00 BST

London - At 12.00 noon, the FTSE 100 was down 28.0 points at 5,672.1, off morning lows of 5,658.3, with the wider market also negative.

Frankfurt - At 11.39 am, the DAX 30 index was 20.38 points or 0.38 pct lower at 5,396.58, having moved between 5,373.44 and 5,436.61 so far this session.
   
The MDAX was at 7,383.74, down 20.23 points or 0.27 pct, while the TecDAX was at 585.74, down 5.49 points or 0.93 pct. The DAX futures contract was at 5,423.50, down 26.00 points or 0.48 pct, while bund futures were at 116.02, down 0.16.

Paris - At 12.52 pm, the main CAC 40 index was trading 23.48 points or 0.49 pct lower at 4,726.50, off a low of 4,715.612, on light volume of 1.32 bln eur.
   
Of the CAC-40 shares, 29 were lower and 10 were higher. Arcelor stock remained withdrawn from the index pending the outcome of Mittal Steel's merger offer. On the Matif, July CAC-40 futures were trading down 27.5 points or 0.58 pct at 4,726.5.

Stockholm - At 12.25 pm, the OMX Stockholm index was down 0.92 pct at 288.35, while the OMX Stockholm 30 index was down 0.83 pct to 891.89. Turnover was 7.683 bln skr.
   
Among the key sub indices, materials were down 2.81 pct, industrials down 0.45 pct, financials down 1.67 pct, and information technology down 0.21 pct.

Madrid - At 12.55 pm, the IBEX-35 index was down 34.8 points at 11,144.6, after trading in a range of 11,129-11,197 on turnover of 764 mln eur.
   
Telepizza soared 0.31 eur or 10.84 pct to 3.17 after it got three full bids at improved prices, led by Ballve's Foodco, which offered 3.21 eur a share.
   
FCC was up 2.30 eur or 4.07 pct at 58.75 after agreeing to acquire the waste disposal operations of the UK's WRG Acquisitions for 1.4 bln stg.

Milan - At 12.49 pm, the Mibtel index lost 0.32 pct to 26,962 points and the S&P/Mib was down 0.35 pct at 35,161, while volumes were 1.16 bln eur.
   
Fallers outnumbered gainers 166 to 115, while 12 shares were flat.

Helsinki - At 12.24 pm, the OMX Helsinki 25 was 0.26 pct lower at 2,335.82 and the OMX Helsinki was up 0.30 pct at 8,211.59. Turnover was 259 mln eur.
   
TietoEnator was among the biggest decliners, losing 3.77 pct to 19.90 eur, the first time it has crept below the 20 eur mark since autumn 2003.

Athens - At 11.45 am, the ASE General Index was up 0.35 pct at 3,518.95 points, with the blue chip index gaining 0.32 pct to 1,919.96 points. Mid caps were up 0.56 pct at 3,768.43 and the small cap index was flat at 666.62 points.
   
The banking sector is once again in the spotlight, with the shares of NBG gaining 0.50 pct to 28 eur, Alpha Bank down 0.11 pct at 18.58 eur, Eurobank up 0.38 pct at 21.24 eur and ATE Bank flat at 3.54 eur.

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Asian shares close lower, Tokyo at five-week low

HONG KONG - Shares across the Asia-Pacific region closed lower, with sharp falls in Tokyo and Seoul, and Japan's benchmark Nikkei index ending at a five-week low, dealers said.
   
Tokyo shares fell on investor fears over high oil prices and Israel's conflict with Lebanon - despite a pullback in crude prices overnight, they said.
   
Some downbeat quarterly results and profit warnings from US companies also contributed to the gloom in the market, dealers added.
   
They said the market is nervously awaiting the quarterly earnings reports of US high-technology firms such as Yahoo Inc, Apple Computer Inc and Microsoft Corp, due out later this week.
   
The blue-chip Nikkei 225 Stock Average closed down 408.00 points or 2.7 pct at 14,437.24, its low for the session. It was the Nikkei's weakest finish since June 14, when it settled at 14,309.56.
   
The broader TOPIX index of all first-section issues closed down 46.43 points or 3 pct at 1,475.28, its own low for the session.
   
Australian shares ended lower as investor sentiment failed to recover from the recent sell-off after metal prices fell overnight and concerns over oil prices lingered, dealers said.
   
The S&P/ASX 200 lost 32.9 points or 0.66 pct to close at 4,923.3. The benchmark indicator closed at the day's low and below a high of 4,965.6.
   
Hong Kong shares were lower in afternoon trade after a weak performance on Wall Street overnight and the sharp drop in Tokyo, dealers said.
   
They said investors are concerned about moves by Chinese authorities to rein in economic growth after the release of data showing China's economy grew by a higher-than-expected 11.3 pct in the second quarter of this year.
   
At 3:30 pm, the Hang Seng Index was down 10.40 points or 0.06 pct at 16,052.92.
   
In mainland China, A-shares in Shanghai and Shenzhen finished slightly higher on continued bargain-hunting with real estate developers and machinery manufacturers in demand, dealers said.
   
The Shanghai A-share Index added 1.41 points or 0.08 pct to 1,770.93 and the Shenzhen A-share Index was up 2.23 points or 0.50 pct at 451.29.
   
Seoul shares closed sharply lower, as China's stronger-than-expected second-quarter GDP sparked fears it will move further to slow its economy, dealers said.
   
Most stocks failed to rebound as continued selling by foreign investors offset bargain hunting, sending the KOSPI index to a three-week low, they added.
   
The KOSPI index closed down 21.71 points or 1.73 pct at 1,233.42, off a high of 1,243.58 and a low of 1,233.08.

Asian Bourse Round-Up

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Gold edges up in volatile trade amid ongoing Middle East crisis, firm usd

LONDON - Gold prices edged higher following sharp falls yesterday, as trading continued to be volatile amid escalating violence in the Middle East and a firming US dollar.
   
At 1.56 pm, spot gold, which earlier hit a high of 654.45 usd an ounce, was quoted at 653.05 usd against 650.20 usd at the time of the COMEX market close in New York yesterday.
   
Other precious metals traded mixed. Spot silver was at 11.16 usd against 11.04 usd, platinum was at 1,229.00 usd against 1,236.00 usd while palladium was at 317.00 usd against 314.00 usd.
   
Prices closed lower in New York yesterday, having descended from two-month highs touched in Asian trade, as profit-taking set in amid a report, later denied, that Israel's offensive in Lebanon could be over within days.
   
Dollar gains also sparked some selling after the close yesterday, with volatile trade continuing in the Asian session today as Japanese investors returned from their holidays.
   
"With investors now seeking safety in the dollar rather than gold, it looks as if further rallies may be used to liquidate longs (sellers), rather than generate fresh gains," said TheBullionDesk.com analyst James Moore.
   
The dollar was largely unchanged against the euro and the yen in European trade, although it has been posting strong gains recently amid the escalating violence in the Middle East.
   
Israeli jets continued to strike Lebanon today with a blistering new wave of the air raids that have killed at least 230 people since last Wednesday and sent tens of thousands of Lebanese and foreigners fleeing for their lives.
   
TheBullionDesk.com's Moore said: "While tensions in the Middle East still have the scope to trigger further price spikes" in gold, he believes the metal will trade between 610-655 usd as the summer holiday slowdown begins.
   
Gold hit a 26-year-high of 730 usd in mid-May on increased geopolitical tensions, high oil prices and an uncertain outlook for the dollar, but a brutal sell-off soon ensued.
   
The sell-off sent gold down to 543 usd by mid-June, but it has since recovered and analysts believe long-term prices should continue higher as supply remains limited while demand is being boosted by central bank buying.

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