While you were sleeping: Inflation fears take toll

Friday 12th March 2010

A spike in inflation in China took its toll on investors in both Europe and the US, leading equities lower as demand for raw materials was put under review.

If China moves to curb rising prices with higher interest rates, there is a fear that it will lessen demand for a range of commodities and curb the global economy’s recovery.

At midday, the Dow Jones Industrial Average had slid 0.19%, the Standard & Poor’s 500 was 0.32% lower and the Nasdaq Composite had shed 0.26%.

The markets were led lower by big multinational industrials including Deere & Co, AK Steel Holding Corp and Caterpillar Inc. On the plus side were Google Inc, IBM Corp and Citigroup Inc.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ rose 2.05% to 18.95.

In Europe overnight, the Dow Jones Stoxx 600 edged 0.3% lower to 257.6.

Among national benchmarks, The UK’s FTSE 100 declined 0.41%, while Germany’s DAX and France’s CAC 40 fell 0.14% and 0.37% respectively.

Among the stocks that fell were BHP Billiton, Xstrata Plc, Kazakhmys Plc, Lagardere and Geberit AG. The stocks which helped offset those losses included BMW, Volkswagen, Porsche SE and Pirelli & C.

The Chinese government said consumer prices rose 2.7% last month, to their highest in 16 months. At the same time, industrial output increased and new loans were higher than forecast.

Consumer prices rose 2.7% in February from a year earlier, the National Bureau of Statistics said today, compared with the 2.5% median estimate of 29 economists surveyed by Bloomberg News. Production rose 20.7% in the first two months of 2010, the most in more than five years.

At the same time, the U.S. today reported that its trade deficit unexpectedly narrowed in January, which some economists interpreted as a sign that the US consumer was continuing to struggle.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.09% to 80.37.

The euro was up 0.07% at US$1.3668, and against the yen, the dollar was up 0.03% at 90.54.

Harvard University Professor Martin Feldstein told Bloomberg Television the euro’s 4.6% drop against the dollar this year has been “panic selling” stemming from the financial crisis in Greece.

Despite recent rumblings about the U.S. dollar's global ranking, S&P said in a report overnight that the greenback would retain its reserve position.

The greenback was “the world’s most accepted currency,” even after the global recession that began in the U.S., John Chambers, chairman of the S&P sovereign ratings committee, wrote in a report released today.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, fell 0.5% to 273.25.

Concerns about Chinese demand took oil lower, and concerns about inflation bolstered gold.

U.S. crude for April fell 22 cents to US$81.87 a barrel by 12.17pm, after touching US$83.03 on Wednesday, the highest level since oil's 15-month high of US$83.95 on January 11.

London ICE April Brent fell 33 cents to US$80.15 a barrel.

Spot gold was bid at US$1,107.30 an ounce at 1555 GMT, against US$1,107.85 late in New York on Wednesday. Earlier it fell as low as US$1,100.04 an ounce.

US gold futures for April delivery on the COMEX division of the New York Mercantile Exchange eased US$1.40 to US$1,106.70.

South Africa's statistics service said the country's gold output fell 18.2% year-on-year in January, according to Reuters.

Businesswire.co.nz

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