Early World Summary: OIL PRICE SHOCK RATTLES SHAREMARKETS 07:39, Friday, 1 April 2005
Sydney - Friday - April 1: (RWE Australian Business News)
US sharemarket investors have been shaken overnight after reputable investment group Goldman Sachs suggested that oil could reach $105 a barrel.
The oil market seemed to react to this assertion immediately with May crude climbing $1.41 to settle at $55.40 barrel on the New York Mercantile Exchange.
The record high so far has been $56.70 barrel on March 17, the highest since trading began in 1983
Traders brushed aside some good economic data which showed inflation is not a real problem at this stage and keep the Fed from speeding up interest rate rises.
Wall Street's Dow settled 37 points lower while the S&P 500 slipped less than a point.
The Nasdaq composite fell 6 and the 100 index lost 9.
The major driver was the statement from the Goldman Sachs Group after it said that a higher price would be needed to underline the need to reduce energy consumption.
It claims US refineries lack capacity to make enough fuel which ironically was ignored after the Energy Department highlighted the fact that 5.4 million barrel rise in stockpiles last week which was double analysts estimates and the biggest rise since October.
Other analysts say nobody really knows what is going to happen in the short term but in the long term oil supplies will not cover demand from China and India unless major new oil discoveries are made or alternative energy sources emerge.
On the economic front the combination of subdued core inflation for February and the surprise initial jobless insurance benefits claims rise of 20,000 to 350,000 for the latest week, have reduced the chances of a larger rate rise at the Fed's May meeting.
Rate futures trading point to a 25 basis point increase on May 3 with the chances of double that figure dropping by about 17 per cent from 30 per cent earlier in the session.
Meanwhile the Commerce Department's personal consumption expenditures index rose by 0.3 per cent in February, above the forecast of a 0.2 per cent rise.
The core PCE rose by only 0.2 percent, in line with predictions.
Core inflation was steady at an annual 1.6 percent, within the Fed's presumed comfort zone of 1 to 2 per cent.
The Commerce Department reported that personal spending rose 0.5 per cent in February while incomes rose a less-than-expected 0.3 per cent.
The National Association of Purchasing Management-Chicago said its Business Barometer rose to 69.2 this month, the highest since July 1988, from 62.7 in February.
A measure of prices paid fell to 68.2 from 70.1, while an employment gauge was the highest since December 1983.
But US factory orders factories rose less than forecast in February, capped in part by a drop in demand for automobiles and appliances.
In the market Qwest Communications International Inc.has lifted the stakes in the battle for MCI Inc. It has lifted its bid to $9.07 billion, compared with Verizon Communications Inc bid of $7.64 billion.
In currency markets the greenback has eased , helping gold to rally $1.80 to $428.70 oz on the COMEX spot.
The Aussie dollar barely moved at US77.27c after trading in a narrow range overnight.
Treasuries looked better reflected by the 10 year cash paper yield up 6 points to 4.485 per cent.
WALL STREET ... settled 37.17 points lower at 10,503.76 on the Dow Jones Industrial Average index. The broadly-based S&P 500 finished 0.82 behind at 1,180.59. The Nasdaq composite ended 6.44 points lower at 1999.23 while the 100 index ended 9.1 points down at 1482.53 on the close. Treasuries continued to firm as the US dollar eased. The 10-year cash paper rose 16/32 ticks to 96 4/32, trimming the yield 6 points to 4.485 per cent.
US DOLLAR ... has eased against major currencies. The greenback is selling at 107.10 yen, down from 107.48 at the previous close in NY. The euro is at 1.2966 (prev 1.2943) and sterling is 1.8902 (prev 1.8803). The greenback is at 1.1963 Swiss francs (prev 1.1972).
AUSTRALIAN DOLLAR ... has barely moved on the greenback. It is changing hands at US77.27, down 1 point on last night's local close. High for the session was US77.77c and low was US77.21c. Crosses were mixed. The yen is at 82.74 (prev 82.88) 0.5961 euros (prev 0.5962) and 40.88 pence on sterling (prev 41.04).
EUROPEAN SHAREMARKETS ... closed mixed. In London, while the blue chip FTSE 100 Index eased 0.13 per cent, the more broadly-based FTSE 250 Index of mid-cap stocks added 0.66 per cent to close up 47 points at 7130.50. The world's biggest caterer Compass Group saw its shares slide 5.01 per cent to 241.5p following a statement by the company that revenue growth in the UK will be in line with expectations in fiscal 2005, with sales to rise 6 per cent. However, Compass added that trading in the rest of Europe will remain mixed. Also a significant decliner, maker of orthopedic devices Smith & Nephew reported receiving a subpoena in a US investigation into agreements between replacement knee and hip manufacturers and surgeons. Smith & Nephew shares dropped 4.69 per cent to 497.5p on the news. On the upside, Shire Pharmaceuticals shares jumped 7.56 per cent to 604.50p on news that its restructuring, particularly in the United States, was well under way with the selection of a new US headquarters at the Chesterbrook Corporate Center in Tredyffrin, Pa. The number of research and manufacturing centres in North America run by the company last year, are to be cut from 14 to 4 during 2005.
On the Continent, local markets gained a little support from French GDP data which was raised to 0.9 per cent for the fourth quarter, seasonally adjusted, from its previous estimate of 0.8 per cent. The most active stock on the Paris bourse, Alstom SA, fell sharply, losing 2.94 per cent to 0.66 euros on 71 million shares traded. Exane BNP Paribas downgraded the heavy engineering firm's stock rating to "neutral" from "buy", but did upgrade Alstom's target price to 0.73 euros from 0.65 euros. Exane said that Alstom's restructuring seemed to be on track but hinted at a possible future merger with Siemens or Areva. Shares of French luxury group LVMH gained 1.23 per cent to 57.70 euros following its statement that the impact of IFRS accounting standards will be minimal on its reported revenue and operating profit. German tyre and car parts manufacturer Continental climbed 5.52 per cent to 59.83 euros after reporting that its full-year net profit more than doubled on the basis of strong demand right across all of its business units.
At the finish, London's FTSE 100 index slipped 6.30 to 4894.40, Paris's CAC 40 firmed 3.17 to 4067.78 and Frankfurt's DAX edged up 1.25 to 4348.77. Amsterdam added 0.58, Madrid fell 21 and Zurich dipped 3.
METALS ... were mostly firmer, helped by an easing greenback. Spot gold rose $1.80 to $428.70 oz while the June contract gained $1.60 to $431.10 oz on COMEX. Silver continued to improve advancing 3.3c to $7.18 oz on the May contract. The new active July platinum contract rose $2.60 to $867.60 oz on NYMEX. New York May copper posted a record high after adding 1.05c to 150.25c lb. Closing three months prices on the LME were copper $3282 tonne, tin $8125, lead $982, zinc $1370, aluminium $1971 and nickel $15,850 tonne.
Three-month London Metals Exchange official bid prices were firmer. Copper rose $38 to $3262 tonne, lead added $21.50 to $984, zinc edged up $34 to $1364.50 while tin improved $145 to $8090. Nickel gained $395 to $15,770 and aluminium ended $18 in front at $1961 tonne.
OIL ... settled $1.41 higher at $55.40 barrel for May crude on the New York Mercantile Exchange . High for the session was $56.10 and low $54.90 barrel. The June contract ended $1.63 ahead at $56.42 barrel while the high was $56.95 and low $55.90 barrel. The forecast of Goldman Sachs that oil could reach $105 barrel made the obvious impact on the market despite the Energy Department yesterday disclosing that distillate stockpiles climbed 5.4 million-barrels last week. In the UK, the May Brent crude-oil futures contract rose $2.60 to $54.69 a barrel on the International Petroleum Exchange. Brent futures reached $56.15 a barrel on March 17, the highest since the contract was introduced in 1988.
