Market Updates

Inflation Fallacy; Global Markets Cautious

Mukesh Buch
15 Aug, 2009
New York City

    For all those who believe inflation is benign and under control may need to think again. The inflation index in the last eight years has jumped 25% in addtion to the surge of 100% in the previous decade. Dole Food filed $500 million offering to repay debt. BB&T surges on a deal to acquire Colonial.

[R]4:30 PM New York, 9:30 PM London, 6:30 AM Sydney – For all those who believe inflation is benign and under control may need to rethink. The inflation index in the last eight years has jumped 25% and in the previous decade surged more than 100%. Dole Foods filed $500 million offering to repay debt. BB&T surges on probable deal with Colonial.[/R]

While the headlines across media outlets suggests the inflation is benign and under control according to the latest read from the Department of Labor. But the view on inflation can be drastically different when measured since the beginning of the decade.

On a seasonally adjusted basis the consumer price index was unchanged in July following a 0.7% increase in June. The index declined 2.1% from a year ago month, the biggest fall in 59 years.

The consumer price index in year 2000 hovered at 172.2 and since then has catapulted to 215.3 at the end of July. The prices in the eight years and seven months have jumped 25%. In the previous ten year period, price index surged more than 100%.

Industrial production increased 0.5% in July. Aside from a hurricane-related rebound in October 2008, the gain in July marked the first monthly increase since December 2007.

Dole Foods files for $500 million public offering. The tight debt markets may have forced company to seek relisting of the stock after staying private for nearly six years. Dole will use proceeds to repay debt maturing in 2010 and 2011.

Colonial BancGroup Inc, the subject of criminal probe and hit with loan losses tied to real estate is in a deal with BB&T Corp. The deal if completed may involve the sale of branch network and deposits to Winston-Salem, North Carolina based bank.

The BB&T stock jumped 9.4% on the news after it was reported in the Wall Street Journal which did not name any sources.

Barnes & Noble plunges after negative comments from a broker. Abercrombie & Fitch Co declares quarterly dividend. Nordstrom second quarter sales decreased 6% and net profit fell 27%. Rambus surges 10% in weak chip sector stocks.

Porsche agreed to sell 10% stake to Qatar and the sovereign fund will also acquire options in Volkswagen AG. Volkswagen plunged 15% after it agreed to acquire Porsche. Hochtief AG gained after it plans to spin off its portfolio holdings in airports and toll roads.

UK home possessions in the second quarter increased but at a slower pace compared to the first quarter. For the year the industry association still estimates possessions to rise to 65,000. Man Group sells remaining stake in MF Global to Nomura.

Japanese demand for services increased 0.1% in June as the economic stimulus spurs the demand across the economy. Commodities and resource linked stocks jumped on the expectations of higher Chinese demand. Container ship lines attempt to lift rates ahead of the busiest shipment season.

India may be forced to lower its economic target in the current year near 6%. Weak monsoon, rising food prices and resurgent world energy prices may slow the economic expansion. The stocks in India may face head-winds on stretched valuations.

Governor Stevens of the Reserve Bank of Australia may tighten the rates from the historic lows nearly ten months ago. Australian dollar gained in the backdrop of comments and rising sentiment in the stock market. Leighton surged after positive earnings outlook. PMP reported annual loss.

North American Markets

Dow Jones Industrial Average increased 76.79 or 0.8% to a close of 9,321.40, S&P 500 Index decreased 8.64 or 0.9% to 1,004.09, and Nasdaq Composite Index edged lower 23.83 or 1.2% to close at 1,985.52. Toronto TSX Composite Index increased 2.82 or 0.03% to 10,828.38.

Of the stocks in S&P 500 index, 65 increased, 429 declined and 6 were unchanged.

Nordstrom Inc led the decliners in the S&P 500 index with a loss of 6.6% followed by losses in JC Penney Company of 6.5%, in Wynn Resorts Ltd of 6.2%, in Genworth Financial of 5.5% and in Office Depot Inc of 5.4%.

BB&T Corp led gainers in the S&P 500 index with a rise of 9.1% followed by gains in Regions Financial Corporation of 8.3%, in Tenet Healthcare of 7.9%, in Autodesk, Inc 4.7%, in Abercrombie & Fitch Co of 3.7% and Avery Dennison Corporation of 3.4%.

South American Markets Indexes

Mexico Bolsa Index decreased 300.06 or 1.1% to 27,855.43 Brazil Bovespa Stock Index dropped 485.92 or 0.9% to 56,562.06.

Argentina Merval Index decreased 1.9%. Chile Stock Market Select index edged lower 0.1%, Peru Lima General Index edged lower 0.6% and Colombia IGBC General Index fell 0.2%.

Europe Markets Review

In London FTSE 100 Index closed lower 41.49 or 0.87% to 4,713.97, in Paris CAC 40 Index decreased 29.12 or 0.83% to close at 3,495.27 and in Frankfurt DAX index lower 92.00 or 1.70% to close at 5,309.11. In Zurich trading SMI decreased 1.42 or 0.02% to close at 5,985.30.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 80.14 or 0.76% to 10,597.33, Hang Seng index in Hong Kong increased 32.03 or 0.15% to 20,893.33 and CSI 300 index in China lower 96.36 or 2.80% to 3,344.46. ASX 200 index in Australia increased 25.10 or 0.57% to 4,461.00. The FTSE Bursa KL Composite index in Malaysia closed higher 2.38 or 0.20% to 1,188.57.

The Kospi Index in South Korea increased 26.77 or 1.71% to close at 1,591.41. SET index in Thailand closed lower 1.43 or 0.22% to 654.25 and JSE Index in Indonesia decreased 9.62 or 0.40% to 2,386.86. The Sensex index in India decreased 106.86 or 0.69% to 15,411.63.

Commodities, Metals, and Currencies

Crude oil decreased $2.93 to close at $67.59 a barrel for a front month contract, natural gas decreased 8 cents to $3.26 per mBtu and gasoline decreased 7.33 cents to 194.59 cents.

Wheat futures closed up 0.25 cents in Chicago trading to $5.092 a bushel. Sugar decreased 0.23 cent in trading at 21.98 cents a pound. Soybean future closed down 37.25 cent to $9.81 a bushel.

Gold decreased $7.40 in New York trading to close at $949.50 per ounce, silver closed down $0.31 to $14.68 per ounce and copper for the front month delivery decreased 8.55 cents to $2.84 per pound.

Dollar edged higher against euro to $1.42 and closed down against the Japanese yen to 94.80.

Yield on 10-year U.S. bonds declined to 3.57% and with 30-year maturities were unchanged to 4.43%.

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