US SUMMARY: Energy Stocks In Focus In Mixed Finish
DJIA 10767.77 loss 10.81 dn 0.1%
NASDAQ 2260.95 gain 4.22 up 0.2%
S&P 500 1260.43 gain 1.06 up 0.1%
Dow Future 10778.00 gain 4.00 0.0%
NASDAQ Future 1700.00 0.00 0.0%
S&P Future 1261.25 gain 0.25 0.0%
10-Yr US Treasury: 4.56% up 0.02
(Futures values as of 0550 GMT)
Stocks barely budged Monday, finishing mixed as interest rate worries and a legal setback for Merck & Co. countered momentum from a possible huge acquisition by ConocoPhillips. Prices of Treasurys fell ahead of the Fed meeting.
STOCKS: Forecasts for midweek snowstorms in the Northeast catapulted energy prices on anticipation for increased demand, although OPEC said it will keep producing oil at current record levels before considering whether to scale back next year. A barrel of light crude surged $1.91 to settle at $61.30 on the New York Mercantile Exchange.
The market got an early boost from merger activity, while an upbeat analyst report on Google Inc. paced the tech sector.
Wall Street now awaits the Federal Reserve's decision on interest rates Tuesday. While the Fed is expected to lift rates by a quarter percentage point to 4.25 percent, traders are hoping for indications the rate hikes will end soon. Recent economic strength has prompted worries that the central bank might extend the series of increases.
"People are waiting to see what kind of change in policy language is going to accompany that statement," said Russ Koesterich, senior portfolio manager at Barclays Global Investments. "The question is, if the Fed is approaching (a neutral stance), how will its policy change in 2006?"
Koesterich said he believes the Fed is near the end of its rate tightening, which should help stocks. But if there's "evidence of an increase in core inflation, it's reasonable to assume that the Fed is going to continue hiking rates," he added.
The Energy Department on Monday said crude oil is projected to remain well above $50 a barrel over the next 20 to 25 years because it does doubts OPEC will pump as much oil as previously planned. The report, however, also forecast a sharp price decline for natural gas.
Rising gasoline and heating fuel prices again clouded the outlook for the key holiday shopping season, which Koesterich said remains a foremost concern on Wall Street. Wal-Mart Stores Inc. quelled some fears when it said its December same-store sales are in line with estimates.
ConocoPhillips's $35.6 billion cash and stock deal to acquire Burlington Resources Inc. could jump-start a wave of consolidation as cash-rich energy companies snap up smaller natural-gas producers, according to energy analysts and investors.
BONDS: The U.S. Treasury market meandered through Monday's session with a modestly negative bent, as traders and investors braced for Tuesday's Federal Reserve meeting.
Analysts reckon the description of the funds rate as "accommodative" and the pace of future tightening as being "measured" could both be candidates for revision.
Lehman Brothers forecasters noted that changing the statement brings central bankers onto dangerous ground. "Any tinkering with the 'measured pace' language could easily be misconstrued by the market as a sign that the Federal Reserve was about to end the tightening cycle," they told clients.
ASIAN SUMMARY: Tokyo Stocks Little Changed; Gold Down
USD-Yen 119.80 gain 0.10 up 0.08%
AUD-USD 0.7562 gain 0.0010 up 0.1%
Nikkei 225 15725.77 loss 12.93 dn 0.1%
Hang Seng 14902.31 loss 82.09 dn 0.6%
Taiwan Index 6261.18 loss 5.11 dn 0.1%
S.Korea Kospi 1333.22 loss 0.01 0.3%
JGB Yield 1.5950% unchanged
(All values as of 0550 GMT)
STOCKS: Japanese stocks were mixed Tuesday with the market's main index slipping from a fresh five-year high reached the session before.
Investors moved cautiously ahead of the release of Japan's business outlook, a quarterly survey by the Bank of Japan due Wednesday. While they bought commodity stocks on higher commodity prices, brokerages and banks fared less well.
BONDS: Prices of Japanese government bonds were flat as the latest 20-year auction saw good demand and proceeded smoothly.
Japanese Finance Minister Sadakazu Tanigaki said Tuesday that he will do his utmost to limit new issuance of government bonds to Y30 trillion next fiscal year, which starts in April.
OTHER NEWS: China's value-added industrial output in November rose 16.6% from the same month last year, slightly higher than the average forecast in a Dow Jones Newswires survey of 16.3%.
GOLD: While gold is at risk of a moderate post-Christmas seasonal pullback, it is in longer term uptrend based on a capping of supply from mines and expectation of more jewelry purchases in China, says JP Morgan, which sees an average gold price of $558 in 2006, $609 in 2007. Spot gold is down $5.20 at $522.60/oz.
OIL: Crude prices slipped 19 cents to $61.11 after climbing by almost $2 a barrel on Monday.
EUROPEAN OUTLOOK: Markets On Holding Pending Fed Verdict
Euro-USD 1.1958 gain 0.0006 up 0.05%
Stlg-USD 1.7735 loss 0.0025 dn 0.2%
USD-Franc 1.2900 gain 0.0003 up 0.02%
(All values as of 0550 GMT)
European markets are unlikely to see much movement ahead of the Fed's rate announcement after the close.
STOCKS: Investors are likely to remain on the sidelines for much of Tuesday anticipating the Fed's rate rise and signals it might loosen its tight grip on policy. Oil stocks could benefit from strong crude prices.
U.K. spreadbettor CMC Markets is calling the FTSE-100 up 5 points at 5507, the DAX up 4 5305 and the CAC up 7 at 4680.
More money from the U.S. could target big-caps again on Wednesday to continue the December market advance.
"It's a big-cap rally generally. If you believe the brokers there's a lot of money coming over from the U.S. - their market is pretty (shaky) at the moment," said Julian Pendock, fund manager at Bedlam Asset Management.
European markets ended mixed Monday, as gains from French media companies on a possible combination of pay television operations were offset by weakness in the oil sector.
BONDS: Government debt prices are likely to see narrow trading Tuesday ahead of German data and the Fed meeting.
"I don't see major movements ahead of the Federal Reserve's monetary policy meeting on Tuesday," said JP Morgan's fixed-income strategist Gianluca Salford.
"There's a lot of uncertainty in the market, and any hints suggesting the Fed's tightening cycle may come to an end will be bond supportive," J.P. Morgan's Salford said.
In the euro zone, the release of the German ZEW sentiment indicator Tuesday may be able to briefly distract investors' interest from developments in the U.S.
"The data out of the euro zone are quite important at the moment as the European Central Bank has repeatedly made clear that its future policy depends on the strength of the euro-zone recovery," Salford said. "The data will give a better idea on whether further interest rate hikes are in the pipeline."
The consensus of economists polled by Dow Jones Newswires is for an increase in the indicator to 41.0 after last month's 38.7.
On the data front, U.K. investors will watch out for domestic consumer prices Tuesday, forecast to have risen 0.1% on the month in November and 2.2% on the year. A tamer figure could raise hopes of another interest rate cut by the Bank of England.
European government bond prices were higher Monday on modest gains in U.S. Treasurys after Friday's sharp selloff.
FOREX: The euro is holding its prior gains as traders hold their positions before the Fed meeting, which could produce a more dovish statement.
Market watchers said the main driver behind dollar selling has been worry that policymakers on the Federal Open Market Committee might soften their stance on future interest rate increases when they meet Tuesday.
Sophia Drossos, currency strategist at Morgan Stanley in New York, said the dollar selling ahead of the Fed has come mostly from accounts with short term investment horizons. But the pace of the move, she said, has forced other investors into the market. That has helped break important technical levels which has lent fresh momentum to the move.
Nonetheless, Drossos believes the move may be overdone.
"We don't think the statement will come across in a way that is dovish enough to validate the selloff we've seen in the dollar," she said.
With the European Central Bank having raised rates for the first time in five years on Dec. 1, the interest-rate story looks as if it may turn against the dollar in 2006.
The dollar fell broadly Monday, amid concern the Federal Reserve might signal it is nearing the end of its interest rate tightening cycle in its policy meeting Tuesday. The selling helped the euro touch a fresh six-week high versus the dollar, and the single currency also posted a new all-time high versus the yen of Y143.62, according to EBS. The pound also rose to a seven-week high versus the dollar, and the Canadian dollar posted a fresh 14-year high versus its U.S. counterpart.
