US & World Daily Markets Financial Briefing 23-10-2006

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Stocks fluctuate ahead of Fed meeting

NEW YORK - Wall Street fluctuated in early trading Monday as investors traded cautiously ahead of the Federal Reserve's decision on interest rates later this week. In early trading, the Dow Jones industrial average rose 20.41, or 0.17 percent, to 12,022.78. Blue chips have been on a three-month run, and passed the 12,000 point level for the first time last week.
   
Broader stock indicators declined. The Standard & Poor's 500 index fell 1.08, or 0.08 percent, to 1,367.52, and the Nasdaq composite index 1.05, or 0.04 percent, to 2,341.25.

The Russell 2000 index of smaller companies fell 0.67, or 0.09 percent, to 761.46.

Bonds fell, with the yield on the benchmark 10-year Treasury note rising to 4.83 percent form 4.79 percent on Friday. 
   
Although there was another wave of earnings reports, the results tended to affect individual stocks rather than the overall market. AT&T Inc. dipped despite the telecommunications company's report of strong third-quarter results and better profits in its wireless business.

Ford Motor Co. handed Wall Street more bad news after it posted a wider quarterly loss, and announced it will restate results since 2001.
   
Regardless of the health of corporate earnings, investors are expected to remain conservative ahead of the Fed's meeting on Wednesday. Policymakers are expected to leave interest rates unchanged, though they could sound a hawkish tone in their accompanying economic assessment because of recent signs of rising inflation.

AT&T reported third-quarter profit rose 74 percent to exceed Wall Street projections, boosted by strong growth at its Cingular Wireless unit. Shares fell 21 cents to $34.23.
   
Ford's restructuring plan caused the nation's second-largest automaker to post its largest loss in more than a decade. The company, which is closing 16 plans and cutting as many as 45,000 jobs, reported a third-quarter loss of $5.8 billion. The stock fell 6 cents to $7.96.

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Dollar solid before US rate decision

LONDON - The dollar retained its relatively firm tone as the market gears up for the latest US rate decision later on Wednesday.
   
Though the Fed is expected to keep its key funds rate unchanged at 5.25 pct for the third consecutive meeting, there will be more interest in the accompanying statement and what concerns are prominent.
   
"The dollar is likely to stay reasonably well supported in the first part of the week with the Fed expected to maintain a hawkish bias and tone in its statement on Wednesday, although rates are expected to remain on hold," said Ian Stannard, currency strategist at BNP Paribas.
   
Stannard also noted that a survey in the Financial Times newspaper said that most US fund managers believe the Fed will resume increasing interest rates in the next six months.
   
Though the dollar is garnering some support ahead of the Fed decision, Stannard thinks it is likely to fade towards the end of the week in the run-up to Friday's preliminary estimate for third quarter US GDP.
      
Daniel Katzive, currency strategist at UBS, thinks the dollar should continue to trade well through the week, "particularly with two other threats to the dollar evident at the end of last week -- carry trade fatigue as Japanese yields rise and a potential rally in crude on OPEC production cut -- now seem less compelling".
   
In the near term, Katzive expects the euro to test key support at 1.2456 usd and maintains his one-month forecast of 1.24, before renewed dollar weakness towards the end of the year.
   
Meanwhile, the pound remains firm against the euro, with a number of analysts crediting sterling's outperformance to a combination of positive M&A announcements and reserve manager demand.

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The European Markets at 11.30 GMT

London - Leading shares continued to dip in slow midday trade, with those remaining in the City - as others departed for school holidays - observed weakness in oil play offsetting M&A fuelled gains in Standard Chartered and Anglo American, with Wall Street adding little direction expected to open flat. At midday, the FTSE 100 was down 8.2 points at 6,146.9, off an opening high of 6,177.7, with the broader indices also down.

Frankfurt - German shares were lower midday in quiet trade as some profit taking dragged the index off earlier highs, although a lower oil price and a bid for Techem were lending support. At 11.55 am, the DAX 30 was 8.05 points or 0.13 pct lower at 6,194.65, while the MDAX was up 42.2 points or 0.5 pct at 8,692.11.

Paris - Shares were marginally lower in midday trade amid a dearth of local news, as investors awaited fresh direction from the US and as Wall Street futures pointed to a mixed open this afternoon. At 11.50 am the CAC- 40 was down 6.20 at 5, 369.83.

Milan - Share prices slipped lower in early trading, led down by oil service stocks Tenaris and Saipem on the weaker oil price. At noon, the Mibtel index was down 0.72 pct at 30,032 points, and the S&P/Mib had shed 0.77 pct at 39,164.

Brussels - Shares were lower late morning, impacted by Wall Street losses at the end of last week, with UCB heading the blue-chip fallers after Goldman Sachs cut its rating on the pharmaceutical group to 'sell' from 'neutral', analysts said. At 11.40 am, the Bel 20 was down 1.23 points or 0.03 pct at 4,172.07.

Madrid - Madrid shares were lower midday with banks outperforming the broad market as the sector continues to release third quarter results. At 12.55 pm the IBEX-35 index lost 45.4 points to 13,515.6, after trading in a range of 13,506-13,597 on turnover of 2.4 bln eur.

Stockholm - Shares edged lower in midday trade, giving up early gains amid signs that Wall Street will open lower on caution ahead of a week that contains both a US Fed rate decision and key US GDP data. At 12.15 pm, the OMX Stockholm index was down 0.14 pct at 351.29, and the OMX Stockholm 30 was down 0.20 pct at 1,092.04.

Brussels - Shares were lower late morning, impacted by Wall Street losses at the end of last week, with UCB heading the blue-chip fallers after Goldman Sachs cut its rating on the pharmaceutical group to 'sell' from 'neutral'. At 11.40 am, the Bel 20 was down 1.23 points or 0.03 pct at 4,172.07. UCB was down 0.39 eur or 0.78 pct at 49.40 eur.

Copenhagen - Share prices were higher in midmorning trade in line with other European markets, with focus on banking stocks and Novo Nordisk ahead of their interim earnings reports. At 11.00 am, the OMXC20 index was 1.35 points higher at 419.02 and the OMXCB Benchmark index was up 1.56 points at 395.67.

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Asian shares close mixed ahead of FOMC meeting

HONG KONG - Shares across the Asia-Pacific region closed mixed, with caution in some markets ahead of the two-day US Federal Reserve policy meeting which begins tomorrow.
   
Tokyo shares reversed early losses to close higher, with investors optimistic that companies will report encouraging earnings for the fiscal first half ended Sept 30. Also, a softer yen spurred buying of exporters' shares.
   
The blue-chip Nikkei 225 Stock Average closed 137.19 points or 0.82 pct higher at 16,788.82, off a high of 16,797.71. The broader TOPIX index of all first-section issues closed 15.24 points or 0.93 pct higher at 1,659.39.
   
Hideo Mizutani, chief strategist at Sieg Securities, said high expectations about the earnings reporting season had been encouraged when Shin-Etsu Chemical raised its forecasts for the fiscal year ending March.
   
"The earnings by Shin-Etsu Chemical supported market expectations about earnings overall. Today's market gains were largely due to their upbeat outlook," he said.
   
Australian shares closed slightly lower as investors were confronted with mixed signals which included the negative lead of lower metal prices on Friday and data showing higher domestic inflation.
   
Data showing higher-than-expected producer inflation for the September quarter failed to spark a sell-off, with ongoing takeover activity and speculation keeping investor sentiment afloat.
   
The S&P/ASX 200 slipped 1.9 points or 0.04 pct to close at 5,333.5, above the day's low of 5,323.6 and below the day's high of 5,345.0.
   
Hong Kong shares were steady in afternoon trade as investors took a cautious stance ahead of the two-day US FOMC meeting. There are also concerns that Industrial and Commercial Bank of China (ICBC) might see a quick sell-off by retail investors on its trading debut on Friday after the lender priced its initial public offering at the top of the indicated range.
   
At 3.25 pm the Hang Seng Index was down 9.13 points or 0.05 pct at 18,104.42.
   
In mainland China, A-shares in Shanghai and Shenzhen closed sharply lower on profit-taking and investor caution ahead of the A-share debut of Industrial and Commercial Bank of China (ICBC) this Friday, dealers said. They noted that banks and drug stocks were among the most heavily sold counters.
   
The Shanghai A-share Index fell 32.54 points or 1.73 pct to 1,848.13 and the Shenzhen A-share Index was down 12.66 points or 2.71 pct at 454.14.
   
Seoul shares ended little changed in thin trade as investors await the result of the FOMC meeting. The market closed almost flat, with foreign investors' heavy sell offs of large cap IT and bank stocks vying with support by retail and institutional
investors.
   
The KOSPI index closed up 0.71 points or 0.05 pct at 1,364.95, after moving between 1,358.93 and 1,369.85.

Asian Bourse Round-Up

For a full list of closing figures, click here

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Gold falls below 590 usd as oil weakens

LONDON - Gold fell below 590 usd as the precious metal, which has been strongly correlated with oil recently, came under pressure from falling oil prices, analysts said.
   
They added firmer US dollar sentiment and weaker physical demand in Asia - a result of the Diwali and Ramadan holidays - was adding further pressure on prices.
   
At 12.36 pm, spot gold, which earlier hit a low of 586.75 usd an ounce, was quoted at 587.40 usd, down from the 591.00 usd level touched when the COMEX market closed in New York Friday.
   
Other precious metals were also lower. Spot silver was down at 11.74 usd an ounce against 11.88 usd, platinum fell to 1,072.50 usd against 1,076.00 usd, while palladium was lower at 319.00 usd against 325.00 usd.
   
Oil prices were lower, A gallon of light sweet crude fell 76 cents to $58.57 on the New York Mercantile Exchange. Friday's sharp falls were extendeds, as traders continued to doubt that OPEC, producer of more than a third of the world's crude oil, will be able to implement its planned 1.2 mln bpd output cuts.
   
The cuts are an attempt by OPEC to defend against falling oil prices.
   
Oil has lost some 25 pct of its value since mid-July. Its downtrend has weighed heavily on commodities like gold, which is seen as a hedge against oil- induced inflation.
   
Gold closed lower on Friday after breaking the critical 600.00 usd level to hit an intra-day high of 602 usd. Analysts said the failure to hold above 600 usd does not bode well for gold.
   
"On the charts, support is seen around 584 usd and could trigger an upside breakout, if not I think the downtrend will continue with the metal potentially slipping back to the 530 usd area," said said TheBullionDesk.com analyst James Moore.
   
He added stronger dollar sentiment might also weigh on gold. Gold often moves counter to the dollar as the metal is bought as an alternate investment to the US currency.

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