Saturday, January 17, 2009
Jan-16 World Daily Markets Briefing
| by: ADVFN Newsdesk US Stocks at a Glance US Inflation Evaporates In 08 On Energy, Recession WASHINGTON - U.S. consumer prices barely rose last year by their slowest pace in over a half century, a government report showed, a stunning turn just a few months after inflation hit 17-year highs. Dec Consumer Price Index Key Numbers: Dec Consumer Price Index Key Numbers: Dec Nov CPI Index: -0.7% -1.7% Core Index: Unch% Unch% Energy: -8.3% -17.0% Consensus Overall: -0.8% Core: +0.1% Actual: Overall: -0.7% Core: Unch% Much of the reversal was due to a roughly 75% decline in oil prices from their July peak that has in turn brought prices down for everything from gasoline and home heating to airline fares. But some of inflation's disappearance is also a consequence of the severe economic recession that is causing nervous households to delay spending, which in its worst form could lead to the type of deflationary spiral that gripped Japan in the 1990s. The consumer price index dropped 0.7% in December on a seasonally adjusted basis compared to the previous month, the Labor Department said Friday, after falling at a record pace in November. Economists had expected a 0.8% decline. The core CPI was unchanged. Economists had expected a slight rise. Unrounded, the CPI fell by 0.737% last month, the fifth drop in a row. The core CPI fell 0.015% unrounded. Consumer prices rose just 0.1% compared to December 2007, the lowest calendar-year increase since 1954 and well below the Fed's 1.5% to 2% preference over the long run. The CPI swelled 4.1% in 2007. The core CPI, however, was up 1.8% last year, suggesting the U.S. doesn't yet face economy-wide deflation. Federal Reserve officials have in recent days downplayed the chances of deflation, though they've also said inflation should moderate further. "It seems likely that inflation will move, for a time, below levels that are consistent with price stability," San Francisco Fed President Janet Yellen said Thursday, though she said she's confident any deflationary forces can be contained. Some Wall Street economists think the CPI will soon turn negative on an annual basis given the weakness of the economy and the sharp increases that occurred in early 2008. "We will have to wait a further month before we get headline deflation," said ING Bank economist Rob Carnell, in a note to clients. "But it is coming and may get down to as low as -3%" on an annual basis unless oil prices reverse their recent declines, he said. As long as price declines stay centered in energy and commodities, it's largely a plus for the U.S., especially since it imports most of its oil from abroad. It's when those declines get embedded more broadly in inflation expectations and cause consumers and business already facing a weak economy to delay spending and hiring that they become an economic headache. The Fed has already lowered rates to near zero to prevent that from occurring. The CPI data give the Fed even more latitude to use its balance sheet to stabilize the financial system without worrying about the inflationary effects. The recent plunge in price pressures has also breathed new life into the once-dormant inflation targeting debate. In the minutes of their December meeting, Fed officials said an explicit inflation objective "might help forestall the development of expectations that inflation would decline below desired levels." According to Friday's report, energy prices tumbled another 8.3% in December compared to November and plunged 21.3% for 2008 as a whole, the largest annual decline ever. Gasoline prices plummeted 17.2%. Food prices slid 0.1%. Food and beverage prices were flat. Transportation prices fell for a third month in a row, by 4.4%, as airline fares dropped 1.2%. New vehicle prices fell 0.4% in December and 3.2% for 2008 as a whole, the biggest drop since 1971, reflecting the severe slump in auto sales. Housing, which accounts for 40% of the CPI index, was unchanged. Rent increased 0.2%. Owners' equivalent rent advanced 0.1%. However household fuels and utilities prices tumbled 0.5% while lodging away from home fell by 0.7% as households cut back on non-essential spending. Medical care prices increased 0.3%, while clothing prices fell 0.9%, which may reflect holiday discounting that the most recent Fed Beige Book called "sizable." In a separate report, the Labor Department said the average weekly earnings of U.S. workers, adjusted for inflation, climbed 0.6% in December as higher wages and falling prices offset a decline in hours worked. Forex Bank Bailouts Boost Risk Appetite, Help Euro LONDON -- The latest bank bailouts have boosted global risk appetite and left the dollar falling against most other major currencies Friday. The major exception to this is the yen, which as a low-yielder, suffered even more than the U.S. currency. The euro, meanwhile, was gaining sharply not only on the recovery in appetite for risk but on remarks made by European Central Bank President Jean Claude Trichet suggesting that euro-zone rates won't be reduced all the way to zero. This should help to ensure that the euro still offers a yield advantage over other major currencies.The improvement in market sentiment started to emerge late Thursday as the U.S. Senate approved the second $350 billion tranche of the bank bailout funds earmarked by the Treasury last year. News that Bank of America Corp. was also close to securing its own $20 billion rescue package from the U.S. government also contributed to the sense that the banking system in the U.S. is becoming more secure. News that the Irish government had effectively nationalized Anglo-Irish Bank to prevent its demise under bad debts also helped to ease tensions. As investors' appetite for risk improved, the Dow Jones Industrial Average was able to close a little higher with gains of 0.15%. The Nikkei Index in Japan managed a 2.6% rally. Similar gains were being posted by European stock markets with indications that the improved sentiment is here to stay for now. While the yen is proving to be the prime loser in this environment, the euro is turning out to be the main winner. Although Thursday's decision by the ECB to cut rates by only 50 basis points rather than the 75 points many had hoped for, the single currency has still rallied. Trichet appears to have fueled the single currency's advance by suggesting that the ECB may pause in its rate cutting for now, waiting until its March, rather than its February meeting in three weeks time, to move again. Nevertheless, the ECB president also indicated that the bank would stop cutting rates before they make it all the way down to zero. Rates are now at 2%. By 1030 GMT, the euro had pushed all the way up to $1.3254 from $1.3145 late Thursday in New York, according to EBS. It was also up at Y120.01 from Y118.00. The dollar rose to Y90.51 from Y89.71 but fell to CHF1.1191 from CHF1.1225. The pound soared to $1.4949 from $1.4651. Europe Shares European Shares Make Broad Advance European shares advanced broadly on Friday, with sharp gains from oil producers, mineral extractors and banks following seven straight losses on worries over the health of the financial system. The pan-European Dow Jones Stoxx 600 index climbed 2.6% to 196.19, with all 15 sectors trading in the green. Banks were among the top performers, with Deutsche Bank up 2.4%, Societe Generale up 6% and Santander (STD) up 4.6%. Friday's move for the Stoxx 600 pared sharp losses made this week. Fresh worries about the health of the banking sector had been behind that drop but the sector took back some of those losses on Friday after Bank of America (BAC) received an emergency capital injection of $20 billion and asset guarantees from the U.S. Treasury. Both Bank of America and Citigroup (C) reported hefty quarterly losses on Friday. "The bad news is that Bank of America needed more capital and the guarantees. It would be worse if they weren't getting it," said Bernard McAlinden, strategist at NCB Stockbrokers. The Times (of London) newspaper reported that the U.K. government is considering fresh measures to get banks lending, including capital injections, and could make an announcement early next week. Late Thursday, the Irish government stepped in to nationalize Anglo Irish Bank , after shares in the lender tumbled in this week's banking-sector turmoil. Rival Allied Irish Banks fell 13.8% on Friday. "If the market believes that the state can and will step in to keep the banks functioning, then the market doesn't necessarily read across that the ongoing problems in the banking sector are reinforcing ongoing problems in the rest of the economy," said McAlinden. "You could still be bottoming in that environment," he noted. On a national level, the French CAC-40 index rose 3.4% to 3,097.77, the German DAX 30 index advanced 3% to 4,468.18 and the U.K. FTSE 100 index climbed 2.8% to 4,235.87. Oil producers and metal extractors were trading strongly on Friday, with Total (TOT) shares up 5%, Royal Dutch Shell (RDSA) shares up 2.8% and Rio Tinto (RTP) shares up 9%. Other advancers included Belgium-U.S. supermarket operator Delhaize (DEG), up 8.6%. The firm's sales rose 15.8% in the fourth quarter of 2008, following comparable store sales growth of 2.9% in the U.S. and 2.7% in Belgium. Delhaize also stuck to its 2008 operating profit guidance. Dutch rival Ahold was also doing well, up 7.3%. Ahold said that its fourth-quarter net sales climbed 12.9% to 6.6 billion euros after a solid performance in all markets. Sales were strong over the holiday period in both the United States and the Netherlands, Ahold said. Shares in French supermarket giant Carrefour climbed 4%. The firm said late Thursday that fourth-quarter sales rose 0.7% to 25.47 billion euros and also stuck to its fiscal year guidance for 2008. Asia Markets Asian Shares End Higher, Pare Weekly Losses Asian markets rose Friday to recover some of the lost ground from the previous session as a weaker yen aided Japanese exporters and investors pinned hopes on an economic stimulus package from the incoming U.S. administration. Bargain buyers also snapped up technology shares such as Hynix Semiconductor and Inotera Memories. Chinese banks, which fell heavily in recent days as some large investors cashed out by selling their stakes, rallied during the session, helping Hong Kong rise despite market heavyweight HSBC Holdings suffering a downgrade by a broker. "It seems people aren't as worried about selling from strategic holders, as most of them have already offloaded their shares ...but some large investors are trying to keep the heavyweight stocks pinned down to depress the market," said Andrew To, head of sales at Taifook Securities. Japan's Nikkei 225 ended 2.6% higher at 8,230.15, Australia's S&P/ASX 200 gained 0.6% to 3,550.90 and South Korea's Kospi climbed 2.2% to 1,135.20. Hong Kong's Hang Seng climbed 0.1%, while China's Shanghai Composite added 1.8% and Taiwan's Taiex added 0.8%. India's Sensitive Index added 3.1% while Singapore's Straits Times gained 1.5%. Despite the day's gains, most regional indexes ended lower for the week, with the Nikkei losing 6.9%, the Kospi shedding 3.9% and the Hang Seng sliding 7.8%. "The current environment of elevated risk aversion, global central bank rate convergence and the transition to a new presidential administration continues to make capital preservation a priority for market participants," said analysts at UBS. Friday's gains in Asia followed an erratic session in the U.S., where the Dow Jones Industrial Average dropped under the key 8000 level early, before rebounding to end 0.2% higher, helped by House Democrats unveiling details of an $825 billion plan to stimulate the economy. Auto stocks in Tokyo rose, with Toyota Motor climbing 6%, Honda Motor soaring 8% and Nissan Motor adding 3.8%, benefiting from a slightly weaker yen which makes exports cheaper. Technology shares also gained, with Hynix soaring 5.8% in Seoul and Inotera climbing 6.9% in Taipei. Also helping the Taipei market were shares of AU Optronics, which rose 3.6%, and Chi Mei Optoelectronics, which gained 3% on news their respective chairmen were attending a forum in China, aiming to drum up business. Resource stocks were higher too, with BHP adding 3.4% in Sydney after its U.S.-listed shares gained Thursday. Rio Tinto was up 2.8% with its fourth quarter production report largely as expected. Woodside, however, fell 1.5% after announcing the suspension of its OceanWay gas project off the California coast, citing market conditions. Steelmaker Posco slipped 0.3% in South Korea on disappointing fourth-quarter results. Financial shares fell after Moody's put the credit ratings of 10 South Korean banks on watch for a potential downgrade, with KB Financial down 1.6%. In Hong Kong, HSBC fell 2.7% as Goldman Sachs cut its stock rating to sell from neutral and lowered its share-price target. Earlier in the week, Morgan Stanley lowered its share price target on HSBC. But Chinese lenders advanced as fears that strategic investors may sell down their shares or exit eased, with Bank of China gaining 4.6% and China Construction Bank climbing 3.7% in Hong Kong. In Shanghai, Bank of China rose 1.7% and CCB shares jumped 4.1%. In Mumbai, shares of Tata Consultancy Services slipped 1.4% a day after the software major announced a lower-than-expected 1.6% increase in net profit due to the global economic downturn and foreign exchange losses. New Zealand's NZX-50 ended up 0.3%, while Malaysia's main index slipped 0.1% and Philippine shares were off 0.3%. Indonesian shares were 1.1% higher. The Japanese yen weakened, a reflection of modest risk appetite, but currencies were sticking to tight ranges. The U.S. dollar was around Y90.41, higher than Y89.71 late in New York. The euro rose against the dollar, to $1.3227, from $1.3145, and well off its overnight low of $1.3032 after the European Central Bank cut interest rates by half a percentage point. February Nymex crude oil futures were 25 cents higher on the Globex platform at $35.65 a barrel, after falling $1.88 in New York. Metals Gold Pushes Higher On Equities and Euro LONDON -- Spot gold climbed higher along with the euro, global equity markets and crude oil prices Friday in relatively quiet trade. Traders said gold would likely remain subdued until U.S. economic data were released later in the day, which will likely be supportive. At 1030 GMT, spot gold was trading at $823.60 per troy ounce, up 0.8% on Thursday's close. Silver was 1.4% higher at $823.60/oz. Platinum rose 1% to $932/oz, and palladium was up 2% at $ /oz. Asian and European equity markets were both higher, buoyed by the Dow's close overnight and news that Bank of America would receive $20 billion in capital from the government and backstop losses on up to $118 billion of its assets. The equity gains lent strength to gold, reflecting the importance of equity markets to currencies and gold at the moment, said Dresdner Kleinwort analyst Peter Fertig in Frankfurt. Analysts said U.S. industrial production, consumer price index and consumer confidence data will likely be the biggest swing factor in financial markets Friday. Gold's direction "crucially depends on what impact (the data) will have on stock markets and crude oil prices," said Fertig. "All in all, we expect it to be supportive." Although gold was recovering from this week's earlier selloff Friday, UBS reiterated its short-term forecast for gold to trade down to $800/oz. Demand from physical investors and India remains weak, the bank said, although it cautioned "a returning safe haven bid for gold could change our outlook quickly." Labels: Forex Analysis, Forex Trend, Market Analysis, Market Trend, World Market |
posted by Matbank at 1:32 PM
