S&P warns of inflation risks PATIENCE may not be a virtue for Asian central banks cautious of tightening policy, debt watcher Standard & Poor’s (S&P) yesterday said as it urged monetary authorities in the region to consider moving much more swiftly to address inflationary risks. In a report titled: "How Will Asian Sovereigns Respond Now That Inflation Is Back?", S&P warned that inflation expectations could be kindled if banks tolerated the rise in prices and increased interest rates too gradually. "The optimal policy mix to combat inflation is likely to be different in each economy," S&P said. "But we believe that monetary authorities can only succeed in taming inflation expectations if they show their willingness to tighten monetary conditions in a preemptive manner," it added. While Asian central banks were said to have been ahead of developed country counterparts in terms of tightening, S&P said the process had started just last year and rate hikes remained small compared to the sharp cuts implemented at the height of the global financial crisis. The Bangko Sentral ng Pilipinas (BSP), along with its Indonesian counterpart, was cited as among those which had delayed rate hikes to this year. Indonesia finally raised its benchmark rate last Feb. 4 after keeping it at a record low for 18 months but the BSP last week said it was not yet time to raise its own policy rate, also kept at a record low since July 2009. BSP officials were not immediately available for comment yesterday. While inflation forecasts for this year and 2012 were raised last week, monetary authorities said they remained well within the 3-5% target range set for both years. BSP Governor Amando M. Tetangco, Jr. has said that containing inflation remained the predominant policy thrust. The rise in consumer prices hit 3.5% in January, up from 3% in December. This prompted the BSP to raise its 2011 forecast to 4.4% from 3.6%, within the 3-5% full-year target. Analysts currently expect the Bangko Sentral to start tightening late in the first semester. S&P, in its report, said "Inflation expectations among consumers may rise swiftly if central banks tolerate inflation and raise interest rates too gradually, especially in economies where inflation had been high before the global slowdown." "Central banks may need to tighten monetary policy decisively to avoid this," it added. Sovereign creditworthiness could suffer if monetary authorities do not act with dispatch, the debt watcher warned, pointing to the experience of Vietnam where prioritization of economic growth above price stability led to inflation hitting nearly 30% in 2008. Among the policy options available to central bank, said S&P, are keeping nominal interest rates at sufficiently high levels to discourage expectations of higher future inflation, allowing currencies to appreciate, and even imposing capital controls. "History suggests that it’s much easier to lose consumers’ confidence in price stability than regain it," S&P said. "In the interest of macroeconomic stability, some Asian central banks may have to stand ready to react much more forcefully to emerging inflation than they have so far." |
Most U.S. Stocks Rise as Egypt, China Optimism Offsets Valuation Most U.S. stocks rose, sending the Standard & Poor’s 500 Index to an almost 32-month high, as optimism about Egypt’s democratic transition plan and China’s jump in exports overshadowed concern valuations climbed too far. Schlumberger Ltd. and Freeport-McMoRan Copper & Gold Inc. rallied at least 2.3 percent on optimism about Chinese demand for commodities. Netflix Inc. jumped 7.1 percent after Caris & Co. raised its price-estimate for the DVD-rental company. Wal- Mart Stores Inc., the world’s biggest retailer, dropped 1.6 percent as JPMorgan Chase & Co. cut its recommendation on the shares. GameStop Corp. slumped 2 percent after the video-game retailer was downgraded at Piper Jaffray Cos. About seven stocks gained for every six that fell on U.S. exchanges. The S&P 500 advanced 0.2 percent to 1,332.32 at 4 p.m. in New York, the highest level since June 2008. The Dow Jones Industrial Average lost 5.07 points, or less than 0.1 percent, to 12,268.19. “This is a profit-driven recovery on top of good economic figures,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, who helps manage $252 billion. “Does the overbought condition change the fundamental backdrop? I’d say not at all. China has been giving indications that growth will not slow. In Egypt, we see some relief but a lot depends on whether they do what they’re planning to do.”
The difference between two-year note yields and the Federal Reserve’s target for overnight lending between banks was 58 basis points, after widening to 60 basis points on Feb. 8, the highest level since May. President Barack Obama is due to submit a budget to Congress today. “The indicators are signaling expansion, which is good and weighs on the Treasury market,” said Karsten Linowsky, a strategist at Credit Suisse Group AG in Zurich. “Retail sales is a key figure because the consumption component in the gross domestic product is very large.” Two-year note yields increased less than one basis point, or 0.01 percentage point, to 0.84 percent at 7:21 a.m. in New York, according to BGCantor Market Data. The price of the 0.625 percent security maturing in January 2013 dropped less than 1/32, or 31 cents per $1,000 face amount, to 99 18/32. Benchmark 10-year note yields advanced two basis points to 3.65 percent. The two-year note yield climbed to 0.86 percent on Feb. 9, the highest level since May 28. U.S. government securities maturing in more than a year have handed investors a 1.3 percent loss this month, the worst performance of 26 sovereign-bond markets tracked by the European Federation of Financial Analysts Societies and Bloomberg. The MSCI World Index of stocks have gained 2.6 percent. |
Oil Falls to Lowest Level Since November on Fuel Supply, Egypt Oil tumbled in New York to the lowest level since November amid an abundance of fuel in the U.S. and as tensions eased in Egypt after the ouster last week of President Hosni Mubarak. Crude dropped 0.9 percent after the Egyptian army dissolved parliament and suspended the constitution yesterday to meet opposition demands. U.S. total fuel supplies have risen every week this year as gasoline stocks climbed to a 20-year high and oil at Cushing,Oklahoma, reached a record in January. Prices also fell after breaking technical support at $85.11 a barrel. “There’s a considerable fundamental overhang in this market, and as the geopolitical premium bleeds out, it’s going to be difficult for the market to maintain these levels,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. Oil below $85.11 is “back in the congestion zone from October and November of last year.” Crude oil for March delivery fell 77 cents to settle at $84.81 a barrel on the New York Mercantile Exchange, the lowest level since Nov. 30. Futures are up 14 percent from a year ago. Oil for April delivery dropped 40 cents, or 0.5 percent, to $88.73. Gasoline inventories rose 4.66 million barrels in the week ended Feb. 4 to 240.9 million, the highest level since March 1990, according to the Energy Department. |
Sources: Bloomberg, Reuters, www.inquirer.net, www.philstar.com, www.bworldonline.com, www.cnnmoney.com
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