US & World Daily Markets Financial Briefing 19-09-2006

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Stocks drop as housing starts fall

NEW YORK - Stocks dropped in early trading Tuesday after housing starts suffered an unexpectedly steep decline in August. In the first hour of trading, the Dow Jones industrial average fell 19.93, or 0.17 percent, to 11,535.07.
   
Broader stock indicators also dipped. The Standard & Poor's 500 index slipped 1.76, or 0.13, to 1,319.42, and the Nasdaq composite index fell 2.54, or 0.11 percent, to 2,233.21.
   
The pace of housing starts fell twice as fast as expected, reaching its lowest point in over three years. Housing has replaced inflation as Wall Street's biggest worry, with fears that a sharp drop in the housing sector could cause a spike in unemployment and a slowdown in consumer spending.
   
The housing data overshadowed the Labor Department's report that core inflation, which excludes food and energy, fell for the second straight month. The department said prices at the wholesale level edged modestly higher in August as gasoline prices fell. But volatile core inflation fell by 0.4 percent after a 0.3 percent decline in July, the first back-to-back declines in core inflation in more than three years.
   
Both the housing and the inflation data reaffirm the consensus on Wall Street that the Federal Reserve will not raise the nation's benchmark short-term interest rate above its current level of 5.25 percent when it meets Wednesday.
   
Bonds rose as stocks fell, with the yield on the 10-year Treasury note at 4.76 percent, down from 4.81 percent Monday. The U.S. dollar dropped against most other major currencies in European trading. Gold prices rose.
   
Crude oil futures rose. A barrel of light crude was quoted at $64.07, up 27 cents, in electronic pre-opening trading on the New York Mercantile Exchange.
   
The Russell 2000 index of smaller companies was down 2.18, or 0.30 percent, to 726.66.

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Dollar slides amid signs of receding inflationary pressures

LONDON - The dollar slid after news that US inflationary pressures in the pipeline are receding, giving up most of its early gains on the euro.
   
While US inflation at the wholesale level rose slightly in August, prices outside of energy and food fell for the second consecutive month as car and truck prices fell sharply, the Labor Department said Tuesday.
   
The department's Producer Price Index, which measures inflation pressures before they reach the consumer, rose 0.1 pct last month, slower than the 0.3 pct gain analysts had expected. The PPI rose also rose just 0.1 pct in July.
   
More importantly, the core-rate of wholesale inflation, which excludes volatile food and energy prices, unexpectedly fell 0.4 pct in the month after falling 0.3 pct in July. This is the first time the core-rate of wholesale inflation has fallen for two consecutive since November and December 2002. Economists had expected the core rate to rise 0.2 pct in August.

The dollar's today troubles helped the euro come back from a dismal start to the day. The single currency had dropped after a key survey this morning revealed a slump in German economic expectations, raising fears about the outlook for Europe's largest economy over the coming months.
   
The ZEW economic expectations index plummeted to minus 22.2 in September from August's minus 5.6, coming in substantially below analysts' expectations for a much more moderate drop to minus 6.9.
   
The ZEW index has now fallen for eight straight months, with sentiment dragged down by concerns over German exports in the face of a slowing US economy, as well as worries over rising interest rates, a stronger euro and a more restrictive fiscal policy.
   
"The drop reflects a shift towards a more pessimistic assessment for the German economy over the next six months and is now consistent with a downturn in the economy," said Mitul Kotecha at CALYON.
   
The euro reached a low for the day of 1.2655 against the dollar in the wake of the release but has since bounced back to levels around 1.27 usd.
   
The pound, meanwhile, found support from hawkish comments from UK rate setter Kate Barker. In a newspaper interview, Barker expressed surprise at persistent house price gains.

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The European Markets at 11.30 GMT

London - London shares moved lower midday as the Dow is expected to make a cautious start to the day and with British Energy helping to drag the market lower following news of further production problems. At 12.00 pm the FTSE 100 index was off 44.4 at 5,845.8, close to the day's low of 5,843.5. The wider market was also in the red.
   
Frankfurt - Shares were lower in midday trade, hurt by a rise in crude oil prices, a slump in the ZEW economic expectations index and by US futures that pointed to a second day of uninspiring morning trade on Wall Street, as M&A news about TUI and MAN was able to lift them to the top of the DAX 30.
   
At 12.10 pm, the DAX 30 index was 46.69 points or 0.79 pct lower at 5,879.64, having moved between 5,869.57 and 5,930.14 so far this session.

Paris - Share prices were lower at midday amid concerns over tomorrow's Fed rates meeting, with just two CAC 40 stocks resisting the slide, and as Wall Street futures pointed to a fresh decline for US stock. At 11.25 am the CAC 40 index was down 40.85 or 0.79 pct at 5,106.11.
   
Amsterdam - Shares in Amsterdam were down in midday trade as US futures pointed to a lower Wall Street open, and with investors cautious ahead of tomorrow's US Federal Reserve policy meeting. At 12.05 pm, the AEX was down 5.31 points or 1.12 pct to 469.41, after trading in the range 468.76-475.21.

Brussels - Shares were lower in early afternoon trading, with financial group KBC Group leading the blue-chips down, analysts said. At 1.52 pm, the Bel 20 was down 29.31 points or 0.74 pct at 3,956.88.

Madrid - Share prices were lower in line with Europe after worse-than-expected German ZEW data and in cautious trade ahead of the US interest rate decision tomorrow, with blue chips on offer and Enagas and REE higher. At 12.10 pm, the IBEX 35 index shed 61.0 points to 12,226.8, after trading in a range of 12,207-12,291, on turnover of 932 mln eur.

Milan - Share prices were lower in midday trade, with Popolare Italiana leading the decline on speculation it could decide not to go ahead with a merger, while oils were supported by rising crude prices, and Fastweb lifted by talk Vodafone might acquire a stake. At 11.58 am, the Mibtel index had lost 0.70 pct to 28,806 points and the S&P/Mib was off 0.85 pct at 37,604, while volumes were at 1.79 bln eur.

Zurich - Share prices moved lower in thin morning trade, handing back recent gains with a dearth of corporate news and amid nervousness ahead of tomorrow's US FOMC meeting, traders said. At 1.53 pm, the Swiss Market Index was 28.89 points lower at 8,228.86, and the Swiss Performance Index down 20.05 points at 6,415.7.

Stockholm - Shares remained slightly negative in midday trade, weakening a touch from morning levels on deepening profit-taking, with TeliaSonera, and OMX bucking the negative trend on continuing speculation that the government will soon sell its stakes in the companies. At 12.15 pm, the OMX Stockholm index was down 0.50 pct at 331.22 points, while the OMX Stockholm 30 index was down 0.59 pct at 1,025.98.

Helsinki - Share prices were lower at midday, with weakness in Nokia weighing on sentiment, while Perlos recovered some of yesterday's sharp losses on bargain-hunting. At 12.09 pm, the OMX Helsinki 25 was 0.30 pct lower at 2,551.14 and OMX Helsinki was down 0.36 pct at 8,621.86, on 270 mln volume.

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Asian markets close mixed on profit taking; cautious ahead of FOMC meeting

HONG KONG - Shares across the Asia-Pacific region closed mixed as profit takers moved in and investors turned cautious ahead of the meeting of the US FOMC tomorrow night.
   
Tokyo shares closed mixed after a late flurry of profit-taking, which was due to revived concerns that the economy is slowing and which erased gains made earlier in the day, dealers said.
   
The blue-chip Nikkei 225 Stock Average closed 7.35 points or 0.05 pct higher at 15,874.28, off a high of 16,096.18.
   
The broader TOPIX index of all first-section issues closed down 1.45 points or 0.09 pct at 1,591.98, after touching a high of 1,613.02. Financial markets were closed yesterday for a public holiday.
   
Dealers said concern that the economy is slowing was revived by the Japan Department Stores Association announcing during the last trading hour that department store sales last month fell 0.9 pct year-on-year to 514.73 bln yen, declining for the fifth straight month.
   
Investors were also cautious before the FOMC meeting and the release of important US economic data, they added.
   
Earlier in the day, share prices had risen after the results of a government survey showed that average land prices in the Tokyo, Osaka and Nagoya metropolitan areas rose in the year to July 1 for the first time in 16 years, providing what economists say is further evidence that the economy is escaping deflation -- even though, nationally, the average price of land declined again for the 15th year in a row.
   
Australian share prices closed lower as investors sold the major banking stocks, with the negative sentiment flowing to the resources sector despite metal and oil prices rising overnight, dealers said.
   
The S&P/ASX 200 ended down 16.0 points or 0.32 pct to close at 5,056.8, slightly above the day's low of 5,056.7 and against a high of 5,098.4.
   
Hong Kong shares were weaker in afternoon trade on caution ahead of the FOMC meeting, with some profit-taking in property stocks after gains yesterday. At 3.27 pm the Hang Seng Index was down 50.43 points or 0.29 pct at 17,336.78.
   
In mainland China, A-shares in Shanghai and Shenzhen closed slightly higher on some follow-through buying, with banks and metal plays gaining ground.
   
The Shanghai A-share Index rose 2.54 points or 0.14 pct to 1,823.92 and the Shenzhen A-share Index was up 0.43 points or 0.10 pct at 446.79.
   
Seoul share prices closed slightly lower, ending a four-day rally, with institutions locking in recent gains amid uncertainty over the US FOMC meeting.
   
The market moved in a tight range, with only POSCO and a few other blue chips extending gains on continued foreign investor interest, they added. The KOSPI index closed down 0.35 points or 0.03 pct at 1,373.95, off a high of 1,378.99 and a low of 1,371.46.

Asian Bourse Round-Up

For a full list of closing figures, click here

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Gold prices resume downtrend as market awaits Fed meeting

LONDON  - Gold prices fell, retracing yesterday's recovery from steep falls last week, as the dollar rose against the euro after a weak investor confidence reading in Germany and ahead of a US Federal Reserve interest rate meeting which starts later today.
   
Gold often moves counter to the dollar as it is seen as an alternative investment to the US currency. Also, a strong dollar makes bullion expensive for holders of other currencies.
   
"The outlook remains relatively cautious, with the absence of clear trends forcing market participants to look to currency and energy prices for direction," Standard Bank said in a note.
   
It added, while "physical demand is looking sufficiently strong to support the market in the 570's, the market still remains vulnerable to the downside if the demand is satisfied".
   
At 1.34 pm, spot gold, which earlier hit a low of 580.70 usd, was quoted at 582.85 usd, down from 586.75 usd at the time of the COMEX market close in New York yesterday. Other precious metals were mixed.
   
Spot silver was at 10.94 usd an ounce against 11.16 usd yesterday, platinum was at 1,158.50 usd against 1,160.00 usd, while palladium was at 313.00 usd against 310.00 usd.
   
Gold gained nearly 1 pct yesterday, retracing losses of more than 5 pct last week, as oil prices recovered from near 6-month lows, while the dollar fell against the euro.
   
The precious metal has lost about 20 pct of its value since touching 730 usd in May -- the highest level in a quarter of a century -- on concerns about geopolitical tensions and inflation.

Copper flat as market struggles to reverse last week's sell-off

LONDON - Copper prices were flat as the market struggled to extend yesterday's gains, which marked a reversal from last week's sharp sell-off across the commodities complex.
   
At 2.40 pm, LME copper for three-month delivery was unchanged from yesterday's close at 7,450.00 usd. Other base metals were mixed.
   
Lead was up at 1,342.50 usd against 1,335.00 usd, tin edged to 8,950.00 usd against 8,800.00 usd and nickel rose to 26,950.00 usd against 26,600.00 and.     

Aluminium and zinc were lower, however. Aluminium fell to 2,435.00 usd against 2,465.00, while zinc dipped to 3,290.00 usd against 3,330.00 usd.

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