US & World Daily Markets Financial Briefing 19-12-2006

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WALL STREET OUTLOOK Down on inflation data, Oracle and Hovnanian earnings UPDATE

NEW YORK - US stock futures are pointing to a lower open after the latest producer-price report reignited concerns about inflation, with disappointing quarterly results from Oracle Corp and home builder Hovnanian Enterprises also weighing on sentiment.

Dow futures were down 35 points at 12,501, Nasdaq 100 futures were down 13 points at 1,798 while S&P 500 futures dropped 4.10 points at 1,430.70.

Yesterday, stocks ended lower for the first time in four sessions as a move to consolidate recent gains got the better of a positive start fuelled by 81 bln usd in takeover deals.

Stock futures extended early losses after US inflation at the wholesale level rose by its sharpest amount in more than thirty years in November, while prices outside of energy and food rose by the largest amount in more than twenty five years, the Labor Department said.

The department's Producer Price Index, which measures inflation pressures before they reach the consumer, rose 2.0 pct last month, sharper than the 0.5 pct rise economists had expected and the the largest drop since November 1974.

The headline PPI fell 1.6 pct in the prior month after falling 1.3 pct in September.

The core-rate of wholesale inflation, which excludes volatile food and energy prices, rose by more than six times the expected rate, surging 1.3 pct in November.

The report came as something of a surprise to investors, especially after consumer price data last week showed inflation contained at the retail level.

On a more positive note, housing construction increased in November even though applications for permits to build new homes dropped for a 10th straight month.

The Commerce Department reported that construction of new homes and apartments rose last month by 6.7 pct to a seasonally adjusted annual rate of 1.588 mln units. Analysts had been expecting a rebound following a 13.7 pct plunge in construction activity in October.

The dollar pared losses against the euro and the British pound and turned higher against the Japanese yen as the strong inflation data all but dashed hopes of an early cut in interest rates.

Gold futures benefited from the metal's status as an inflation hedge, with the benchmark February contract rising 2.40 usd to 620.30 usd an ounce.

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On the bond market, Treasury prices fell, sending yields higher. The benchmark 10-year note was last down down 6/32 at 100 4/32, with its yield at 4.61 pct.

Crude futures were down on continued concerns over mild weather forecasts in the key US Northeast heating region. Falls were limited, however, by worries that tomorrow's US inventory data will show further declines.

New York light-sweet crude for January delivery was last down 40 cents at 61.81 usd in electronic trading.

In company news, shares in Oracle Corp fell 83 cents or 4.6 pct to 17.10 usd in pre-market dealings, on concern over a slowdown in the pace of its software sales even as the company posted quarterly results that matched analysts' expectations.

Oracle's software sales in the latest quarter totaled 1.21 bln usd, a 14 pct increase from last year. Management had forecast an increase of 15 to 20 pct.

Investment bank Morgan Stanley, meanwhile, posted forecast-beating fourth-quarter results and announced plans to spin off its Discover credit card business, which reported pretax profit of 1.59 bln usd in the full year, up 72 pct from 921 mln usd last year. Morgan Stanley shares were up 2.3 pct at 82.25 usd in pre-market dealings.

The health of the housing sector will be in the forefront of investors' minds after home builder Hovnanian Enterprises swung to a surprise loss in its fiscal fourth quarter and offered first-quarter and 2007 guidance well below current analyst expectations. Hovanian shares were off 2.8 pct at 34.25 usd ahead of the bell.

Shares in Genentech were down 1.3 pct at 79.94 usd in pre-market trading after government health officials said they are seeking additional safety information from the company on Rituxan following reports that two patients died while taking the drug, which is used to treat non-Hodgkins lymphoma and other conditions.

Genentech and Biogen Idec Inc., which developed the drug co-marketed by Genentech, sent a letter to physicians and prescribers informing them of two deaths from progressive multifocal leukoencephalopathy, a rare nervous system condition, in patients taking Rituxan.

The patients were taking Rituxan for systemic lupus erythematosus, a use for which it is not approved.

Biogen Idec shares fell 1.50 usd, or 3 pct to 48.70 usd in pre-market dealings.

Forex

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European markets at midday

LONDON - Leading shares remained lower at midday, weighed down by selling across mining companies and further weakness in BT Group, while concerns over Asian currencies and indications of a softer opening on Wall Street also deterred buyers, dealers said. By 12.20 pm, the FTSE 100 index was down 39.7 points lower at 6,207.7, while the broader indices were also under pressure.

Volume was above average however, as traders continued to square positions ahead of the festive break, with 1.3 bln shares changing hands in 154,182 deals.

FRANKFURT - German shares were lower midday in relatively quiet pre-Christmas trade pulled down by some profit-taking and negative closes on both Wall Street and the Nikkei indices, dealers said.

At 12.00 pm, the DAX 30 index was 48.43 points, or 0.73 pct, lower at 6,548.82, after moving between a low of 6,529.12 and a high of 6,573.01 this session. The MDAX dropped 84.32 points, or 0.91 pct, at 9,227.09, while the TecDAX fell 8.21 points, or 1.11 pct, to 731.49.

PARIS - Share prices were sharply lower in midday trading, with nearly every blue chip stock in negative territory after heavy losses on Asian markets, sparked by a plunge on Thailand's stock market after the imposition of currency controls led investors to cut exposure to equities across the globe, dealers said.

At 12.41 pm, the CAC-40 index was down 38.55 points or 0.7 pct at 5,491.77, on volume of 1.5 bln eur.

AMSTERDAM - Shares in Amsterdam were flat in midday trade as investors looked to Dow futures which indicated a lower opening of Wall Street, while Boskalis surged following a number of recommendation and price target hikes, dealers said.

At 12.21 pm, the AEX was 0.04 pct or 0.9 points lower at 494.19 after opening at 492.44 and reaching an earlier low of 490.40.

MILAN - Share prices were lower in midday trade, with oil sector plays leading the losses on declining crude oil prices, while AEM outperformed after saying it sees significant synergies from a planned merger with ASM Brescia, dealers said.

At 12.22 pm, the Mibtel index had lost 0.39 pct to 31,681 points and the S&P/Mib had fell 0.37 pct to 41,198, while volumes were 1.65 bln eur.

MADRID - Shares in Iberia Lineas Aereas de Espana SA and Vueling Airlines SA outperformed as traders gauged the effect on the sector of Friday's news that no-frills airline Air Madrid was suspending operations, dealers said.

At 12.55 pm, Iberia was down 0.01 eur at 2.77, off a high of 2.80, on volume of about 466,000 shares, while Vueling was up 0.11 at 32.40, off a high of 32.47, on about 98,000 shares.

ZURICH - Share prices were slightly lower in thin midday trade led down by a weakness among the market's heavyweights and overnight falls on Wall Street, traders said. At 12.25 pm, the Swiss Market Index was 36.00 points lower at 8,788.31, and the Swiss Performance Index down 22.14 points at 6,917.57.

STOCKHOLM - Shares were sharply lower in midday trade on nervousness after the stock exchange in Thailand fell over 15 pct, and on negative Nasdaq futures, brokers said.

At 12.10 pm the OMX Stockholm index was down 0.73 pct at 366.26, and the MX Stockholm 30 down 0.81 pct at 1,129.64. Turnover was 11.908 bln skr.

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Asian shares close mostly lower as investors lock in gains

HONG KONG - Shares across the Asia-Pacific region closed mostly lower as investors ended rallies by deciding to take profits.
   
Tokyo shares closed lower as investors locked in recent gains after the Bank of Japan decided to keep the overnight call rate target unchanged at 0.25 pct, a move that had been widely expected by the market. The Nikkei 225 Stock Average finished down 185.23 points or 1.09 pct at 16,776.88, off a low of 16,754.21.
   
The broader TOPIX index of all first-section issues dropped 19.92 points or 1.20 pct to 1,645.40, off a low of 1,643.05."From this morning the market had already been weighed down by the losses on Wall Street and by Nikko Cordial," said Hiroaki Hiwada, strategist at Toyo Securities.
    
Australian shares finished lower, ending three consecutive sessions of closing at record highs, as investors elected to lock in profits ahead of the Christmas holiday period.
 
Mixed commodity prices coupled with an uncertain outlook for the sector weighed on resource stocks. The S&P/ASX 200 closed down 31.8 points or 0.57 pct at 5,559.7, off yesterday's record finish of 5,591.5, although it briefly touched a new
intra-day high of 5,597.5, just beating yesterday's intra-day record high of 5,597.2. The low for the day was 5,557.1.
   
Hong Kong shares were weaker in afternoon trade on profit-taking after gains over the last three sessions, with China insurers leading the falls. At 3.26 pm the Hang Seng Index had fallen 143.65 points or 0.75 pct to 19,049.26.
   
In mainland China, A-shares in Shanghai and Shenzhen closed up after some late morning weakness, with interest in telecom companies and steel makers. The Shanghai A-share Index added 33.68 points or 1.37 pct to 2,485.79 and the Shenzhen A-share Index was up 2.0 points or 0.36 pct at 558.86.
   
Seoul shares closed slightly lower, ending a four-day rally of more than four pct, as foreign investors emerged to lock in gains. Broad sentiment was relatively immune from the stock market fall in Thailand given its insignificance as a trading partner, although the news apparently called for caution and put a brake on hopes for an year-end rally.
   
The KOSPI index closed down 5.47 points or 0.38 pct at 1,427.76, off a low of 1,425.60 and a high of 1,436.40.

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Oil edges lower on continued concerns over mild weather forecasts
       
LONDON - Oil edged lower on continued concerns over mild weather
forecasts in the key US Northeast heating region. Falls were limited, however,
by worries that tomorrow's US inventory data will show further declines.
   
At 10.09 am in London, the new front-month Brent North Sea crude contracts
for February delivery were down 37 cents at 61.76 usd a barrel, after falling
1.36 usd to close at 62.13 usd yesterday.
   
Meanwhile, front-month New York light sweet crude contracts for January
delivery fell 22 cents to 61.99 usd a barrel, after sliding 1.22 usd to close at
62.21 usd yesterday.
   
Investec analyst Bruce Evers said prices remain under pressure from
yesterday's mild weather forecasts even amid expectations for further stock
draws in tomorrow's US inventory data.
   
Prices lost more than a dollar yesterday as the US National Weather Service
said above average temperatures will persist in the Northeast through to Dec 28,
reducing heating oil demand in the world's biggest consumer of the fuel.
   
Falls were limited, however, by further delays to crude shipments in the
Houston Ship Channel. The channel was shut again due to thick fog, leading with
some refiners to warn of slower fuel production.
   
Evers said while the closure of the channel will likely cause larger than
usual declines in this week's inventory data, it might have a neutral effect on
prices as participants realise the falls are a result of a one off event.
   
Analysts expect tomorrow's data will show crude stocks fell by around falls
of around 2 mln barrels last week, although they remain way above average levels for this time of year.   
   
Distillates, which include the key winter heating oil fuel, are also
expected to have fallen last week even as temperatures remained mild in most of
the US.
   

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