Sun, Aug 13, 2006 - Page 10 News List

US markets down on inflation fears

PRICE PRESSURES Investors have the heebie-jeebies about weak US growth and inflation led by rising fuel prices, forcing major markets down more than 1 percent


Wall Street's major indexes closed down on the week on Friday, as investors braced themselves for fresh updates on inflation in the coming week.

In the week to Friday, the Dow Jones Industrial Average fell 1.4 percent to 11,088.03, while the technology-stacked NASDAQ market closed down 1.3 percent on the week at 2,057.71.

The broad-market Standard and Poor's 500 shed 1.0 percent to 1,266.74 points.

Traders said the market closed lower on Friday, despite a strong 1.4 percent rebound in last month's retail sales, as investors fretted over US economic growth going forward and inflationary pressures, which have been stoked by rocketing fuel prices.

Updates on producer and consumer inflation are due for release in the coming week, on Tuesday and Wednesday respectively.

"The direction now is leaning toward the downside based on the fact that the level of growth in the US economy is unclear and the direction of the market is uncertain," said Marc Prado, an analyst at Cantor Fitzgerald.

"Next week we'll keep a close eye on energy and there's a lot of inflation data coming up. I don't think the Fed has done [yet] for the rates hikes," observed Art Hogan, an analyst at Jefferies and Co.

Wall Street economists are calling for headline producer price inflation (PPI) to rise 0.3 percent last month and expect "core" PPI to gain 0.2 percent, following respective gains of 0.5 and 0.2 percent in June.

Consumer price inflation (CPI) for last month meanwhile is anticipated to rise 0.4 percent following a 0.2 percent gain in June, while the "core" CPI is seen rising at a similar 0.3 percent pace as in June.

The "core" readings exclude volatile energy and food prices.

Any sharper-than-expected gains are likely to be attributed to soaring energy prices, if the numbers do not come in as expected, traders said.

Although oil prices dipped in the past week following the alleged plot to bomb US-bound airliners which British police claimed they had foiled, they closed up slightly higher Friday and remain near record highs.

New York's main oil futures contract, light sweet crude for delivery next month, closed up US$0.35 at US$74.35 a barrel.

And although the Federal Reserve suspended its long campaign of interest rate hikes in the past week, holding its fed funds rate steady at 5.25 percent, some analysts believe rising inflation will force the Fed to unleash fresh hikes.

"Data over the next few weeks should help decide this debate. If we are right, inflation data will remain strong and the FOMC [Fed] hawks will take to the airwaves," analysts at Lehman Brothers said in a note to investors.

"Resurgence in energy prices should bump up the headline reading for July's producer price index [PPI] by 0.6 percent, the largest increase since April's 0.9 percent rise," the analysts said.

Market participants said they will also be waiting for a fresh update on July housing starts in the coming week as evidence mounts that the housing market is cooling.

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