US SUMMARY: Prospects For A Fed Rate Hike Sink Assets
DJIA 11168.31 gain 73.88 up 0.7%
NASDAQ 2178.88 gain 14.14 up 0.7%
S&P 500 1270.09 gain 10.25 up 0.8%
Dow Future 11186.00 loss 2.00 0.0%
NASDAQ Future 1583.50 gain 0.50 0.0%
S&P Future 1272.75 gain 0.75 up 0.1%
10-Yr US Treasury: 5.13% up 0.04
(Futures values as of 0450 GMT)
Wall Street closed out an uneasy May with a solid advance Wednesday, even after minutes from the last Federal Reserve meeting indicated that inflation pressures raised the chance of another interest rate hike in June. Treasury prices slid.
STOCKS: Investors have been searching for clarity on the Fed's next move after the central bank said in early May that higher rates could be needed to battle soaring energy prices. The notes from the Fed's May 10 meeting said its inflation expectations have increased somewhat and left only a slight hint of a pause next month.
But Douglas Porter, a senior economist for BMO Nesbitt Burns, saw no major surprises in the minutes given recent signs of economic strength and high oil prices. Stocks tumbled after the Fed report was released but regained their footing shortly after.
Still, "the overall impression the minutes leave is that there's a bit more concern about inflation than in previous minutes," Porter said. "I think it comes across loud and clear that these concerns are starting to weigh heavily on Fed members."
Lower crude futures helped calm the market's inflation jitters. Reports that the United States is ready to join talks with Iran over its nuclear activities eased worries about a supply cutoff and sent a barrel of light crude falling 74 cents to $71.29 on the New York Mercantile Exchange.
In corporate news, Sun Microsystems said it will lay off as many as 5,000 workers over the next six months to help it return to consistent profitability.
Microsoft Corp. will continue to boost spending as it enters new markets and adapts its business to the Internet, Chief Executive Steve Ballmer said. He said Microsoft's capital expenditures and research-and-development costs will rise as it seeks to take on Google Inc. and adapt Windows and its other software to the Web.
BONDS: Treasury prices fell Wednesday and the yield curve flattened following strong data and warnings about inflation pressures in the minutes from the latest Federal Open Market Committee meeting.
After rising early in the session, Treasury markets turned around following a stronger-than-expected Chicago Purchasing Management Index and the declines accelerated after the May 10 FOMC minutes were released.
"Given the risks to growth and inflation, Committee members were uncertain about how much, if any, further tightening would be needed after (the May 10) action," the minutes said.
FOMC members "expressed some concern" about "upside risks" to inflation, according to the minutes, and judged that rising inflation expectations "warranted close monitoring."
It seems the inflation "hawks gained the ascendancy at this meeting," said Dominic Konstam, head of interest rate strategy at Credit Suisse in New York. "The Fed is more cognizant of the need to establish credibility over inflation," he added.
Ian Lyngen, interest rate strategist at RBS Greenwich in New York, said the comments on inflation, the discussion of a possible 50 basis points rate hike and the fact that the Fed had yet to see evidence of a slowdown in growth gave the markets a "hawkish" tone.
"On net, the minutes were balanced emphasizing the fact the FOMC did not know the future path of policy, but some of the debate suggest the Fed was a little more hawkish than the market thought," he said.
The tougher stance on inflation prompted higher odds of a rate hike in June, which rose to around 70% from 60% before the minutes, and a wider tone in risky asset barometers, such as swap spreads and credit derivatives.
ASIAN SUMMARY: Shares Climb As Oil Holds Steady
USD-Yen 112.60 loss 0.01 dn 0.01%
AUD-USD 0.7490 loss 0.0032 dn 0.4%
Nikkei 225 15561.65 gain 94.32 up 0.6%
Hang Seng 15830.60 loss 27.29 dn 0.2%
S&P/ASX 200 5015.20 gain 42.90 up 0.9
Taiwan Index 6903.96 gain 57.01 up 0.8%
S.Korea Kospi 1307.16 loss 10.54 dn 0.8%
JGB Yield 1.8750% up 0.0050
(All values as of 0450 GMT)
Japanese stocks rebounded Thursday after plunging to their lowest levels in three months on Wednesday. Sentiment on the Tokyo market got a boost from Wall Street's overnight gains as investors bought blue-chip exporters, steels, oil and banking issues. Australian shares also rose Thursday after gains on Wall Street and a fall by the Australian dollar. But traders had some doubts about the underlying strength of the rebound.
BONDS: Japan's government bonds reacted little to neutral comments by one central banker.
Hidehiko Haru, a Bank of Japan board member, said the central bank is not in a hurry to raise short-term interest rates, given current economic and price conditions.
"I think it is important for the BOJ to conduct monetary policy in a timely manner, while checking developments in the economy and prices without holding any preconceptions," Haru said. He attributed recent rises in long-term Japanese government bond yields to economic recovery and overseas factors, rather than the BOJ's monetary policy conduct.
METALS: Spot gold continues its slide, off $1.20 at $643.60/oz as the dollar firms and investors worry less about Iran after the U.S. signaled its willing to talk about the nuclear issue. For now, gold is trapped in a $636.10-$675.00 range but longer-term charts suggest renewed slide soon. Copper futures were mixed.
OIL: Prices edged up 6 cents to $71.35 after Iran dismissed the U.S. diplomatic overture.
EUROPEAN OUTLOOK: Stocks Seen Opening Slightly Up
Euro-USD 1.2774 loss 0.0036 dn 0.4%
Stlg-USD 1.8660 loss 0.0043 dn 0.2%
USD-Franc 1.2222 gain 0.0032 up 0.3%
(All values as of 0450 GMT)
Prices of European shares are expected to open little changed, while prices of government debt and the euro are headed lower.
STOCKS: European markets will likely struggle to show gains at the start Thursday, and could decline later if manufacturing data disturbs perceptions of growth and interest rates.
U.K. spreadbettor Cantor Index is calling the FTSE up ten points at 5733, the DAX up four at 5696 and the CAC up six at 4936.
In corporate news, investors holding more than 20% of Arcelor SA's shares signed a petition to force the steelmaker to conduct an extraordinary general meeting in an attempt to stop the company from pushing through an EUR 13 billion ($16.73 billion) deal with Russian rival OAO Severstal, according to people familiar with the effort, as reported in The Wall Street Journal.
European markets ended higher Wednesday, recovering from sharp losses early on, with the telecommunications sector and other defensive stocks leading the charge and with positive trading on Wall Street providing support.
BONDS: Prices of European government debt open under pressure after Wednesday's wave of strong euro-zone data, including inflation and German unemployment.
HBOS Treasury Services chief economist Adam Chester said the larger-than-expected drop in German unemployment cemented expectations that the ECB will hike interest rates 25 basis points June 8.
The futures market is now pricing in a 30% chance of a 50-basis-point move by the ECB, with a few banks, Merrill Lynch among them, forecasting such a move.
Bear Stearns says the risks are rising that the ECB may opt for 50 basis points next week and get the bad news out of the way as quickly as possible.
European government bond prices fell Wednesday as a wave of strong data bites into the safe-haven status that has supported fixed-income markets of late and increases market fears of a more aggressive stance on interest rates from the European Central Bank.
FOREX: The euro is extending losses against the dollar, which gained on solid data and the minutes from the Federal Reserve's May policy meeting. Support comes at $1.2750 and $1.2730, where buying may reappear.
The minutes of the Federal Open Market Committee initially befuddled markets as investors tried to decipher the content, but the dollar soon climbed to intraday peaks, adding to gains won earlier in the New York session.
While some analysts said that the minutes exemplified the uncertainty surrounding the Fed's direction, they noted that July fed funds futures contracts are pricing in roughly a 64% chance of a rate hike in June.
"Broadly speaking, I think the minutes were slightly more hawkish than expected," said Jens Nystedt, currency strategist at Deutsche Bank in New York.
"In my view, the inclusion of that language should be dollar bullish at the margin, as it makes clear that the Fed is watching the dollar decline and factors it in to their decision making," said Nystedt, noting that on May 10, the date of the meeting, the dollar had not even fallen to its lowest levels for the month.
Others in the market, however, gleaned less direction from the minutes.
"I think they managed to keep the market pretty much in limbo as to what they're going to do," said T.J. Marta, senior currency strategist at RBC. "I think it goes to the data dependency issue. We're really going to have to look at the next print of data to get a decent handle on what it is their going to do."
CALENDAR: Thursday, June 1: Manufacturing Indices
GMT Expected Previous
0745 ITA May RBS/ADACI PMI Mfg 56.5 57.0
0750 FRA May PMI Mfg 55.0 55.3
0755 GER May PMI Mfg 57.6 58.1
0800 EU May Euro-Zone PMI Mfg 56.3 56.7
0830 UK May PMI Mfg 53.1 54.1
0900 EU 1Q Euro-Zone GDP +0.6%QQ +0.6%QQ
+2.0%YY +2.0%YY
0900 EU Apr Euro-Zone Unemployment 8.1% 8.1%
1000 GER German construction industry federation
briefs press on outlook for the sector
in Berlin
1100 GER Bundestag finance committee with public
hearing on 2007 tax hike bill in Berlin
1130 US May Challenger Layoffs Survey -8.1%
1200 GER CDU conference on improving Germany's
competitiveness with Chancellor Merkel,
US Deputy Tsy Secy Kimmitt, Austrian
Chancellor Schuessel and German Econ
Min Glos speaking in Berlin
1230 US May 27 Jobless Claims -9K -40K
1230 GER ECB Member Papademos holds press
briefing on Financial Stability Review
in Frankfurt
1230 US 1Q Non-Farm Labor Productivity, revised +3.9% +3.2%
1230 US 1Q Unit Labor Costs, revised +1.8% +2.5%
1245 US Deputy Tsy Secy Kimmitt speaks before
CDU Business Council in Berlin
1250 US Pres Bush speaks on immigration reform
at U.S. Chamber of Commerce in
Washington
1300 US Tsy Under Secy Quarles awards New
Market Tax Credit grants in Columbus,
Ohio
1400 US Apr Pending Home Sales -1.2%
1400 US May ISM Mfg Index 55.5 57.3
1400 US Apr Construction Spending unch +0.9%
1400 US May 20 DJ-BTMU Business Barometer +0.1%
1415 US Pres Bush meets with Cabinet
1430 US May 26 US Energy Dept Gasoline Stocks (in +1.4M +2.1M
barrels)
1430 US May 26 US Energy Dept Crude Oil Stocks (in +300,000 -3M
barrels)
1430 US May 26 US Energy Dept Distillate Stocks (in +1.3M +2.5M
barrels)
1430 US May 26 US Energy Dept Natural Gas Stocks (in +85 +83
billion cubic feet)
2015 US Tsy Secy Snow awards New Market Tax
Credit grants in Philadelphia
2030 US May 27 Money Supply
2350 JPN May Monetary Base -7.2%YY
2350 JPN Jun Money Market Forecast -Y8.97T
N/A GER World Bank Pres Wolfowitz speaks at
German World Bank Forum on "Germany and
the Middle East Change & Opportunities"
N/A US May Chain Store Sales
N/A US May Auto Sales 12.8M 12.8M
Electrocomponents (ECM.LN): FY Earnings
Average pretax profit (JCF, 10 analysts): GBP71.5M (GBP95M)
Note: Analyst at ABN Amro says she will be looking at "costs associated with the new IT system" and how that system is performing as well as "the dividend the company promised."
Johnson Matthey (JMAT.LN): FY Earnings
Average pre-items pretax profit (Co, 11 analysts): GBP218.5M (GBP204.1M)
Forecast range: GBP215.5M - GBP224M
Note: Strong platinum group metal prices and demand seen helping Precious Metal Products results, while the Catalysts Division is also expected to have performed well, especially in Europe. Analysts are looking for comments on group outlook as well as updates on new pharmaceutical products.
Man (EMG.LN): FY Earnings
Average pretax profit and exceptional items (DJ, 11 analysts): $1.26B ($863M)
Forecast range: US$1.19B - US$1.3B
Average performance fees: $410M ($119M)
Note: Performance fees are seen tripling thanks to strong returns at underlying Man funds, particularly in the first three months of 2006. Man's AHL Diversified Futures Fund is up 31% over the last 12 months, although it has lost 4.5% so far in May. Analysts are looking for an update on the integration of Refco futures unit and details on new fund launches.
OAO Vimpel Communications (VIP): 1Q Earnings
Average net profit (DJ, 6 analysts): $152M ($110M)
Average sales: $911M ($641M)
Average EBITA: $430M ($306M)
Note: ARPU seen falling to $6.7 from $7.1 in 4Q 2005 due to seasonally weak usage and roaming.
Pennon Group (PNN.LN): FY Earnings
Average pre-exceptional pretax profit (Co, 13 analysts): GBP104.3M (GBP89M)
Note: Analysts pin the rise on Viridor Waste acquisitions and regulated price increases at South West Water. Expect more details on Viridor's latest Somerset deal, as well as an update on progress with the Greater Manchester PFI bid.
Phonak (PHBN.EB): FY Earnings
Average net profit (DJ, 9 analysts): CHF158.4M (CHF96.9M)
Average sales: CHF859.7M (CHF678.8M)
Average operating profit: CHF203.2M (CHF127.7M)
Note: Operating profit is expected to increase 59% on better profitability stemming from newly launched products. Analysts expect little surprises on Thursday as company just increased its FY 2006 earnings guidance in March but market eyes comments on outlook for upcoming fiscal year 2007.
United Utilities (UU.LN): FY Earnings
Average pretax profit and pre-exceptional items (DJ, 4 analysts): GBP491M
(GBP400M)
Average pre-exceptional EPS: 50.8p (55p)
Note: Analysts pin the rise on price increases in the water business, while upside from several new contract wins in its business management arms will be tempered by start-up costs. Analysts are looking for changes to strategy from new chief executive Philip Green, who speaks to the market for the first time Thursday.
Vedanta Resources (VED.LN): FY Earnings
Average EBITDA (Co, 10 analysts): $1019.25M ($454M)
Note: Gain seen on a combination of prices and volumes for the company's key metals: copper, zinc and aluminum. Market will be watching the results hard after recent falls in mining equities, and the positive earnings and cash-flow "might be a little spark to relight sector,"
OTHER SCHEDULED EVENTS:
Access Commerce (7424.FR): AGM
ACSM (ACSM.MI): AGM
Applied Optical Tech. (ALT.LN): FY Earnings
Balda (BAD.XE): AGM
Cementos Portland Valderrivas (CPL.MC): AGM
Corporacion Financiera Alba (ALB.MC): AGM
DaimlerChrysler (DCX): May US Sales
Deutsche Bank (DB): AGM
Edinburgh Investment Trust (EDIN.LN): FY Earnings
ElringKlinger (ZIL2.XE): AGM
Golden Ocean Group Limited (GOGL.OS): 1Q Earnings
Groupe Minoteries (GMI.EB): AGM
Groupe Silicomp (6379.FR): 1Q Earnings
Headlam Group (HEAD.LN): AGM
Innovata (IOV.LN): 1H Earnings
InterContinental Hotels Group (IHG): AGM & EGM
IWKA (IWK.XE): AGM
Jupiter Dividend & Growth Trust (JOTE.LN): AGM
Koninklijke BAM NBM (33724.AE): 1Q Earnings
Lagardere Groupe (12079.FR): Investor Date
Logista (LOG.MC): AGM
Maelor (MLR.LN): FY Earnings
Manitou B F (3860.FR): AGM
National Bank of Greece (NBG): AGM
Nicox (7413.FR): AGM
Pilkington (PILK.LN): FY Earnings
Plasmon (PLM.LN): FY Earnings
Printing.Com (PDC.LN): FY Earnings
RHI (RHI.VI): AGM
Semperit AG Holding (SEM.VI): 1Q Earnings & AGM
Shanks Group (SKS.LN): FY 2005 Earnings
Sixt (SIX2.XE): AGM
SR.Teleperformance (5180.FR): AGM
Standard Life European Private Equity Trust (SEP.LN): 1H Earnings
Tele Atlas (23394.AE): AGM
Tullow Oil (TLW.DB): Shareholders Meeting
UBS (UBS): Investor Event
Vallourec (12035.FR): AGM
Vedanta Resources (VED.LN): FY Analyst Meeting
Autoliv (ALV): 2Q 2006 Dividend Payment Date
AWD Holding (AWD.XE): FY 2005 Dividend Payment Date
AWD Holding (AWD.XE): FY 2005 Ex-Dividend Date
BAE Systems (BA.LN): FY 2005 Dividend Payment Date
Bondpartners (BON.EB): FY 2005 Dividend Payment Date
Bondpartners (BON.EB): FY 2005 Ex-Dividend Date
Bonheur (BON.OS): FY 2006 Ex-Dividend Date
European Aeronautic Defence & Space (EADS.NV): FY 2005 Dividend Payment Date
Emak (EM.MI): FY 2005 Dividend Payment Date
Fraport (FRA.XE): FY 2005 Dividend Payment Date
Fraport (FRA.XE): FY 2005 Ex-Dividend Date
Ganger Rolf (GRO.OS): FY 2005 Ex-Dividend Date
Generale de Sante (4447.FR): FY 2005 Dividend Payment Date
HES Beheer (35812.AE): FY 2005 Dividend Payment Date
JPMorgan Fleming Claverhouse Investment (IJPIX): 1Q 2006 Dividend Payment Date
La Doria (LD.MI): FY 2005 Dividend Payment Date
MLP (MLP.XE): FY 2005 Dividend Payment Date
MLP (MLP.XE): FY 2005 Ex-Dividend Date
MLP (MLP.XE): Special Dividend Payment Date
Premafin Finanziaria (PFP.MI): FY 2005 Dividend Payment Date
Radiall (5032.FR): FY 2005 Dividend Payment Date
Societa Metallurgica Italiana (SAMZ.RS): FY 2005 Dividend Payment Date
Societe BIC (12096.FR): FY 2005 Dividend Payment Date
Takkt (TTK.XE): FY 2005 Dividend Payment Date
Takkt (TTK.XE): FY 2005 Ex-Dividend Date
Valeo (13033.FR): FY 2005 Dividend Payment Date
Wyeth (WYE): 1Q 2006 Dividend Payment Date
(END) Dow Jones Newswires
