Business Blog Posts

Further increases in oil prices may see selling pressure intensify in regional markets which have only recently begun to recover from a sharp selloff in the opening weeks of 2011.

Higher prices will pose fresh headaches for authorities already struggling to re-establish their inflation-fighting credentials in the face of rising food prices.

"I would be worried if the unrest spreads to Saudi Arabia," said Benson Wang of Commodity Broking Services in Sydney.

Brent crude oil futures and U.S. crude futures both vaulted more than $1/bbl to $103.75 and $87.39 per barrel respectively, while gold prices inched higher, adding to last week's gains of nearly 3 percent.

Anti-government protesters rallied in Tripoli's streets at the weekend, tribal leaders spoke out against leader Muammar Gaddafi, and army units defected to the opposition as oil exporter Libya endured one of the bloodiest revolts to convulse the Arab world.

The MSCI's index of Asia Pacific shares outside Japan .MIAPJ0000PUS slipped by half a percent after posting its best weekly performance in two months last week. The energy sub-index .MIAPJEN00PUS rose 0.5 percent, the outperformer for the day.

The Nikkei .N225 ended 0.1 percent higher.

Beijing's latest move to tighten policy in the form of raising banks' required reserves saw Shanghai .SSEC and Hong Kong .HSI stocks slip early, but Shanghai later reversed the losses, rising about 0.6 percent.

"There are few buying or selling cues in the domestic market. Investors will likely stay alert to geopolitical news that could affect markets across the world," said Hikaru Sato, a senior technical analyst at Daiwa Securities Capital Market.

"The Middle East continues to be a focus, while there are concerns about China."

Asia-ex Japan equity funds saw the biggest weekly outflows in the second week of February in three years while Japan funds posted their biggest weekly inflow in four years, data from fund tracker EPFR Global showed.

Moreover, concerns that a breathtaking rally in U.S. stocks in recent weeks, which has boosted the region's developed markets such as Australia .AXJO and Tokyo .N225 may be nearing a close, also weighed on sentiment.

U.S. markets are shut on Monday for a public holiday.

China's benchmark short-term money market rate soared more than 300 basis points on Monday after Beijing on Friday raised required reserves for banks by 50 basis points to a record 19.5 percent.

Earnings expectations have risen since October for companies in the Standard & Poor's 500 index of big businesses, according to Thomson Reuters data. Lofty stock market indexes reflect that optimism.

Private surveys of manufacturers and small businesses show both confidence and hiring intentions improving.

Food companies and clothing retailers are pushing through price increases to try to offset rising commodity costs, a bold bet that consumer spending will be strong enough to accept higher prices.

Yet the government's most closely watched economic indicators -- employment and gross domestic product -- still show frustratingly sluggish growth.

Steven Ricchiuto, chief economist for Mizuho Securities USA, said one reason for the disconnect between Wall Street and the government data is where companies are making their money.

"Part of it is global versus domestic. If I'm doing well in my foreign business and that's driving up my profitability.... then I'm a happy camper," Ricchiuto said.

The flip side is that many companies relying on domestic consumption are struggling, particularly services businesses such as restaurants, movie theaters or hair salons that have taken a hit as consumers pull back on discretionary spending.

Earnings results this week from some of the world's biggest retailers will show just how well they managed costs -- and consumer restraint -- during the holiday shopping season.

Expectations are low for Wal-Mart, which is due to report its quarterly results on Tuesday. It has posted six consecutive declines in quarterly sales at its U.S. discount stores.

Reports from Home Depot, Lowe's and Sears will give insight into homeowners' spending, an important measure when the housing market remains one of the biggest trouble spots for the U.S. economy.

The S&P Case-Shiller report on house prices, slated for release on Tuesday, is expected to show prices fell yet again in December, according to a Reuters poll. A separate report on January existing home sales, coming a day later, is also expected to look weak.

INFLATION OR REFLATION?

Those retail reports merit close scrutiny for clues on both consumer spending and inflation. It is no secret that commodity-sensitive companies are feeling the pinch from rising costs and are keen to share some of the burden with shoppers.

Campbell Soup said on Friday it faced rising costs for grains, oils, sweeteners and steel cans, and expected "better pricing" in the second half of the year. Many other companies have raised prices or found other ways to cut costs, perhaps by substituting cheaper fabrics for cotton or reducing the amount of food per package.

Wall Street posted its third consecutive week of gains with the S&P 500 now up 6.8 percent for the year and more than 20 percent in just six months.

"I've never seen a market like this," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont, a market watcher for 35 years.

"I'm showing, by every technical and quantitative standard I have, this market is at extreme levels. But no matter where we start out in the morning, buyers come in."

The trend of stocks starting off lower in the morning session but ending higher by the afternoon has been ongoing for weeks as investors view the small dips as reasons to buy.

But there is a perceptible level of anxiety in the market. Trading volume has been exceptionally low recently and the CBOE Volatility Index .VIX, Wall Street's so-called fear gauge, is up on the week despite the gains in stocks.

The index is usually inversely correlated to the S&P 500, and a rise in the VIX typically means a drop in the stock market.

The VIX, which ended at 16.43, up 4.7 percent on the week, is still historically low but substantially higher than in recent months. That suggests investors see more share gyrations ahead.

The driving force behind the rally is the money that poured into riskier assets like stocks in the last quarter of 2010 after the U.S. Federal Reserve pledged to keep interest rates low.

"With so much momentum in the market, we are likely to see some sideways consolidation next week but nothing more than that," said Ryan Detrick, technical analyst at Schaeffer's Investment Research in Cincinnati, Ohio.

LOW VOLUME=SIGNS OF FATIGUE

About 7.13 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq on Friday, below last year's estimated daily average of 8.47 billion.

Stocks have been struggling to match last year's trading levels, hovering in the 7 billion range this week. On Thursday, the volume was the second-lowest of the year at 6.7 billion shares, and Monday's session was the lowest of the year with a mere 6.6 billion shares.

"This is a sign that the market is tired, and unless we see an uptick in this volume," the level of investor anxiety will not retreat, Detrick said.

U.S. markets are closed on Monday for the Presidents Day holiday.

French Finance Minister Christine Lagarde, who chaired the Group of 20 talks, said the deal nevertheless represented a significant step toward better coordination of economic policies worldwide to help prevent another financial crisis.

"It wasn't simple. There were obviously divergent interests but we were able to reach a compromise on a text that seems to us to be both balanced and demanding in its implementation," she told a news conference.

Ministers and central bank governors agreed on a list of indicators including public debt and fiscal deficits, private savings and borrowing, the trade balance and other components of balance of payments such as net investment flows.

But at Chinese insistence there was no mention of the real effective exchange rate or of foreign currency reserves.

"Reserves have been dropped," Lagarde acknowledged, adding that the deal included a mechanism to take account of exchange rates when assessing the overall balance of payments.

The United States and other western countries accuse Beijing of keeping the yuan artificially undervalued to boost its exports, hence accumulating massive foreign currency reserves that they say distort the world economy.

U.S. Treasury Secretary Timothy Geithner repeated after the talks that China's currency "remains substantially undervalued" and its real exchange rate had not moved much despite a slow appreciation since a reform last June.

"There is broad consensus that the major economies, not just Europe, Japan and the United States but also the large emerging economies, need to allow their exchange rates to adjust in response to market forces," he said.

The world's number two economy, which overtook Japan this week, has resisted Western pressure to substantially revalue its currency to help rebalance global growth.

China's trade surplus has shrunk of late, perhaps explaining why it prefers that measure.

Western and Japanese officials said the indicators would in practice cover balance of payments and foreign reserves, even if those terms had been omitted to assuage Beijing. Chinese Finance Minister Xie Xuren left without speaking to reporters.

"We needed to be inventive about wording in the communique in consideration for a country that did not want to use the term 'current account balance'... The statement lists components of the current account balance," Japanese Finance Minister Yoshihiko Noda told reporters.

NO SPECIFIC GOALS

Lagarde said the indicators were not binding targets but would lead to the drafting of guidelines for coordinated economic policies to reduce distortions, and then to a mutual assessment process.