US & World Daily Markets Financial Briefing 20-07-2006

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Stocks gain on Apple, Honeywell earnings

NEW YORK - Stocks edged higher in early trading Thursday as upbeat earnings from Apple Computer Inc. and Honeywell International Inc. helped Wall Street build on steep gains in the prior session.
   
The better-than-forecast results from Apple and Honeywell overshadowed a $123 million quarterly loss at Ford Motor Co., which suffered from falling sales and restructuring costs. Pfizer Inc. also posted a lower profit, although its year-ago results were boosted by tax gains.
   
Investors had little reaction to a drop in weekly unemployment claims, but they were awaiting minutes from the latest Federal Reserve meeting for more clues about interest rates.

On Wednesday, the Dow Jones industrials surged 212 points after Fed Chairman Ben Bernanke said the economy was moderating and inflation was contained; his comments fed hopes that the central bank could be near an end to its string of rate hikes.
   
In the first hour of trading, the Dow Jones industrial average gained 18.17, or 0.17 percent, to 11,029.59.
   
Broader stock indicators also advanced. The Standard & Poor's 500 index was up 1.78, or 0.14 percent, at 1,261.59, and the Nasdaq composite index added 0.40, or 0.02 percent, to 2,081.11.
   
Bonds slipped after the prior session's advance, with the yield on the 10-year Treasury note edging up to 5.07 percent from 5.06 percent late Wednesday.

Stocks in focus

Apple's updated laptop line and popular iPod music player drove up its third-quarter profit nearly 48 percent, countering fears that the company is losing its luster. Apple climbed $6.69 to $60.79.
   
Dow Jones industrial Honeywell said its earnings swelled 73 percent on higher sales, prompting the manufacturer to raise its full-year guidance. Honeywell rose 42 cents to $38.66.
   
Ford swung to a loss last quarter, hurt by a shift from trucks to lower-margin vehicles. Ford slid 6 cents to $6.27.
   
Dow component Intel saw its earnings slide 57 percent as competition forced the chipmaker to cut its product prices. Intel lost 69 cents to $17.80.

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Pound drifts higher, supported by robust UK data

LONDON - The pound continued to drift higher, bolstered by renewed expectations of a Bank of England rate hike before the year ends after a string of robust UK data.
   
The flurry of UK data today, ranging from retail sales to mortgage lending and money supply all registered strong growth. And, they came on the heels of a jump in inflation earlier this week.
  
A strong bounce-back in food and drink purchases helped retail sales in the UK increase for the fifth consecutive month during June, the first such sequence since January 2004, official figures showed today.
   
Figures from the Office for National Statistics revealed that retail sales, which account for around a third of total household spending, rose by 0.9 pct on a seasonally-adjusted basis in June from May. The rise tops expectations of a 0.2 pct increase.
   
On a year-on-year basis, sales were 3.7 pct higher, against expectations of a 2.8 pct gain.
   
That the pound has not responded more vigorously to the numbers may reflect the fact that the currency had already enjoyed considerable gains in the last few days after the stronger-than-expected inflation release, he added.
   
On Tuesday, it was revealed that the annual CPI rate leaped to a 9-month high of 2.5 pct in June.
   
Also out today, the Council of Mortgage Lenders, which accounts for about 98 pct of all residential home loans, said mortgage lending hit a new peak in June, surpassing the previous record in May. The numbers were backed by data from the Building Societies Association and to a lesser extent from survey figures released by the British Bankers Association.
   
Elsewhere, the dollar weakened after a brief come back early on, amid by speculation that US rate setters will not hike interest rates in August.
   
US Federal Reserve chairman Ben Bernanke's testimony to the Senate yesterday was widely seen as dovish. He highlighted that cooling US growth levels may well help ease inflation.
   
But the selling overnight was too aggressive leading to fresh inflows into the dollar today.
   
Markets are starting to bet that the Fed will pause from its rate hiking cycle which started way back in mid-2004, at its next meeting on August 8. But upcoming data, such as the US jobs report on August 4, will also play a vital role in determining expectations.
   
The benchmark fed funds rate now stands at 5.25 pct, having risen from as low as 1.00 pct back in 2004.

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Asian shares close sharply higher on Bernanke comments

HONG KONG - Shares across the Asia-Pacific region closed sharply higher following US Federal Reserve chairman Ben Bernanke's comments to the US Congress overnight, which raised hopes that US interest rate rises would soon end, dealers said.
   
Tokyo shares finished sharply higher, with the benchmark Nikkei 225 index jumping more than 440 points, as concerns about possible further US rate hikes eased and Wall Street surged, dealers said.
   
Lower oil prices in New York for a third straight day yesterday also provided the market some cheer, helping spur renewed interest from foreign investors, who turned net buyers for the first time in 11 trading days.
   
The blue-chip Nikkei 225 Stock Average closed up 446.58 points or 3.1 pct at 14,946.84, after touching a high of 14,962.13.
   
The broader TOPIX index of all first-section issues closed up 53.17 points or 3.6 pct at 1,528.59, its high for the day.
   
"Investors interpreted Bernanke's remarks as a sign that the central bank's rate hike cycle may be nearing an end, so even though there may be an additional hike in August, there will be a pause at the following meeting," Hideo Mizutani, chief strategist at SBI Securities said.
   
Dealers said the market brushed aside US June consumer price data as investors focused on Bernanke's testimony.
   
Australian shares closed sharply higher as investors were buoyed by an easing of inflationary concerns in the US which saw Wall Street surge overnight, dealers said.
   
They said investor sentiment lifted following Bernanke's testimony resulted in global sharemarket gains in what is being termed the "Bernanke bounce".
   
The S&P/ASX 200 advanced 96.4 points or 1.97 pct to close at 4,996.5. The benchmark indicator closed at the day's high and well above a low of 4,931.9.
   
Hong Kong shares were much higher in afternoon trade following other markets, with interest rate-sensitive property and banking stocks leading the gains, dealers said.
   
At 3:27 pm the Hang Seng Index was up 367.84 points or 2.29 pct at 16,465.36.
   
In China, A-shares in Shanghai and Shenzhen finished higher as investors hunted for bargains following yesterday's sharp falls, with banks and metal listings in favor, dealers said.
   
The Shanghai A-share Index added 10.40 points or 0.60 pct to 1,740.09 and the Shenzhen A-share Index was up 3.09 points or 0.70 pct at 443.69.
   
Seoul share prices closed sharply higher in a broad rally following Bernanke's speech, dealers said.
   
The top ten large caps, including Samsung Electronics, surged on program buying sparked by foreign investor purchases of futures, sending the KOSPI index sharply higher and above 1,270 points, they added.
   
The KOSPI index closed up 39.65 points or 3.21 pct at 1,273.30, off a high of 1,273.42 and a low of 1,260.89.

Asian Bourse Round-Up

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Oil rebounds from steep falls, underpinned by strong gasoline demand

VIENNA, Austria - Oil prices rebounded from three days of steep falls, as the sell-off that followed speculation Israel's offensive in Lebanon will not engulf the region ran out of steam, and as strong gasoline demand in the US provided support.
   
At 2.37 pm, September-dated Brent contracts were up 73 cents at 74.63 usd, after losing 46 cents yesterday to settle at 73.90 usd. Meanwhile, August-dated US light crude futures were up 55 cents at 73.25 usd.
   
Prices fell yesterday after US data showed a surprise week-on-week rise of 1.5 mln barrels in gasoline stocks. Market expectations were for a fall of about 700,000 barrels in gasoline.
   
The data came amid a sharp sell-off stemming from the view that Israel's offensive in Lebanon, which took prices to record levels above 78 usd last week, will remain localised.
   
Analysts said while the market still held this view, it had all but finished extracting the geopolitical premium, with oil prices now lower than they were when the conflict began last Wednesday.
   
Gasoline stocks are under intense scrutiny because demand usually peaks at this time of the year as vacationing Americans hit the country's highways en route to their holiday hot spots.
   
Bank of Ireland analyst Paul Harris said "volatility is likely to persist" in oil markets "with the risks remaining to the upside" even though the markets are less concerned about the conflict in Lebanon.
   
This is in part because even without that conflict spreading across the region, oil prices remain underpinned by supply risks associated with the Iranian nuclear dispute.
   
Iran today again rejected international demands it freeze its controversial nuclear programme and warned the UN Security Council against choosing a "path of confrontation".
   
In a statement read on state television, nuclear negotiator Ali Larijani also said Iran would take until Aug 22 to reply to an international offer of incentives in exchange for a halt of uranium enrichment.   
   
World powers meeting last week referred the crisis over Iran's nuclear programme back to the Security Council after the country failed to respond to their incentives offer on time.
   
The referral raised the possibility of sanctions, and analysts are concerned Iran, the world's fourth-largest crude producer, could halt oil sales in retaliation for any UN action against it.
   
Western powers believe Iran is trying to build a nuclear bomb, which Tehran denies, saying its nuclear programme is for civilian purposes.

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Gold consolidates gains made on back of Bernanke comments

LONDON - Gold steadied after dipping earlier, as the yellow metal consolidated gains made on the back of comments yesterday by US Federal Reserve chairman Ben Bernanke, which generated optimism about a pause in monetary tightening.
   
At 11.14 am, spot gold, which earlier hit a low of 636.10 usd an ounce, was quoted at 642.05 usd against 641.60 usd at the time of the COMEX market close in New York yesterday.
   
Other precious metals were also steady. Spot silver was at 11.07 usd against 11.08 usd, platinum was at 1,224.00 usd against 1,222.00 usd while palladium was at 314.50 usd against 310.00 usd.
   
Gold gained 2 pct yesterday after comments from Bernanke that a slowing US economy should moderate inflation were taken by the market to mean the Fed will soon pause its series of rate hike increases.
   
It has consolidated those gains today, and analysts said the metal should continue from these levels to trade sideways to slightly higher, citing ranges of between 615 and 655 usd.
   
"Gold has held steady ... however the dollar, oil and newswires will continue to be closely monitored and will provide much of the markets direction in the coming sessions," said TheBullionDesk.com analyst James Moore.
   
The dollar posted steep falls yesterday following the Bernanke comments and, while it has since rebounded slightly today, it remains weaker overall, having given back most of the gains made earlier in the week.
   
A weaker dollar supports gold as it increases its appeal as a safe haven asset or hedge against inflation. Geopolitical tensions also increase gold's safe haven appeal.
   
Gold hit a two-month high of 676 usd on Monday on safe-haven buying as violence between Israel and Hezbollah militants in Lebanon raised fears of a wider, regional conflict.
   
Looking ahead, Standard Bank said in a note "gold should continue to be bolstered by the geopolitical instability in the Middle East region, with the Middle East situation and the Iranian nuclear standoff leading the headlines."
   
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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