UK inflation may surpass 3 percent

A recent survey by Bloomberg News has revealed that the median of 39 forecasts indicated that inflation is likely to reach 3.2 percent which will be the highest rate since 1997.

As a result of this trend, analysts are signalling that Bank of England Governor, Mervyn King, may have to write to the Chancellor to explain the situation and why interest rates may not be enough to fend off inflation and avoid a recession.

According to the forecasts from the Confederation of British Industry, the economy is heading for its worst performance since 1992 and the battle Mervyn King faces fighting off record food and fuel prices and the faltering economy, simply cannot be ignored.

The Monetary Policy Committee has acknowledged the fact that the above-target inflation could create a high medium-term inflation expectation, as well as future inflationary pressures.

This has affected consumer confidence, as well as having political implications as support for Prime Minister Gordon Brown’s Labour government, is at its lowest ebb since polling began in 1943.

In a recent poll by YouGov Plc, 73 percent of people surveyed said that their financial position will worsen over the course of the year.

BHP leads miners higher as metals prices gain

Gains in metals prices once again helped equities markets in the Asia-Pacific region higher Wednesday.

In Australia, BHP Billiton (ASX: BHP; LSE: BLT; NYSE: BHP; JSE: BIBLT) rose to a two-week high and led other miners higher, while in China refiners saw gains.

Banks in the region were down on the session but shippers saw gains on the possibility that recent declines in shipping rates will reverse.

The main exception to the gains came in India, where the Sensex dropped 1.75 percent to 15,422.31; otherwise, the Taiex added 0.19 percent to 8,217.58, the Straits Times Index was up 0.39 percent to 3,040.09, the Hang Seng was 1.16 percent higher to 23,325.8, South Korea’s Kospi index gained 1.34 percent to 1,774.13, and the Shanghai Composite jumped 5.24 percent to 2,941.12.

In Australia, the S&P/ASX200 was 0.38 percent higher to 5,443.2 while the Sydney Ordinaries added 0.44 percent to 5,550.3.

Tokyo’s markets were also higher on the session, with the Nikkei 225 adding 0.73 percent to 14,452.82 while the Topix index was up 0.55 percent to 1,409.64 and the Mothers market gained 0.69 percent to 621.78.

The real estate sector saw gains, with Mitsubishi Estate (TYO: 8802) heading to a two-week high, while the semiconductors sector rose after NEC Electronics (TYO: 6701; NAS: NIPNY) received a “buy” recommendation, up from “neutral”, from Goldman Sachs (NYSE: GS).

Carmakers saw gains while insurers were the day’s biggest losers in Tokyo.

European equities declined on the session.

The FTSE Eurofirst 300 was down 1.47 percent to 1,250.2, with Frankfurt’s Dax falling 0.99 percent to 6,728.91 as the Paris CAC-40 was 1.44 percent lower to 4,618.75 and the IBEX dropped 1.97 percent to 12,631.5.

There were only six gainers on the CAC-40 and four on the Dax, mostly in the utilities sector, while banks, the semiconductors sector, and steel makers were lower and carmakers were mixed.

In London, the FTSE 100 fell 1.79 percent to 5,756.9 while the FTSE 250 dropped 1.94 percent to 9,534.8.

The oil sector was down on declined in oil prices, led by Royal Dutch Shell (LSE: RDSA, RDSB; NYSE: RDS.A, RDS.B) and BP (LSE: BP; NYSE: BP; TYO: 5051; TSX: BP.U), while the real estate sector was down on a downgrade for the entire sector from Credit Suisse (SWX: CSGN; NYSE: CS).

Banks and supermarkets were also lower, while gainers included medical device manufacturers and the pharmaceutical sector.

New York equities markets were lower in mid-afternoon trade, with the Dow Jones Industrial average down 1 percent to 12,038.99 at just past 2 p.m.

At the same time, the Nasdaq Composite had dropped 1.08 percent to 2,431.18 and the S&P 500 was 0.94 percent lower to 1,338.2.

Investment banks declined after Morgan Stanley (NYSE: MS) reported that earnings were down 57 percent in the most recent quarter and on investor comments in Monaco that there are more write downs to come related to the credit crisis.

Carmakers and railroads saw declines, while the parcel delivery sector was lower after FedEx (NYSE: FDX) reported a loss in its fiscal 4th quarter.

Jaguar Land Rover announces 600 new jobs

Jaguar Land Rover has announced it is to create 600 jobs with the majority to be based at its development centre in Warwickshire.

The news follows the £700 million investment a few weeks ago when the brands were bought by India’s top vehicle maker, Tata Motors for £1.2 million.

The recruitment drive is designed to attract engineers to develop new technology aimed at reducing vehicle emissions.

Furthermore, Jaguar Land Rover is introducing a graduate programme for over 80 graduates who will join the business in the autumn.

The graduates will be involved in a number of activities and events over their 2-year development period, while at the same time integrating themselves into their chosen department.

Commenting on the recruitment drive, newly-appointed CEO David Smith, said the new jobs demonstrate Jaguar Land Rover’s confidence in our future.

The company is entering an exciting era with new models and ambitious technologies. This is a great time to be a part of the British car industry and is an exciting time for Jaguar Land Rover, added Mr Smith.

Jaguar Land Rover’s HR Director, Des Thurlby, added that the company has a bright future and is a very attractive place to work for the best in our industry here in the UK.

The company has locations at Solihull and Castle Bromwich in the West Midlands, Whitley in Coventry, Gaydon in Warwickshire and Halewood in Merseyside.

Crude oil prices rise on disruptions, Nigeria news

After being down for most of the day, crude oil prices rose at the close of the session on news of supply disruptions due to bad weather in Iraq and Kuwait and on new problems in Nigeria, where white-collar oil industry workers have threatened to strike against Chevron (NYSE: CVX) and a militant group said it would not participate in a peace summit next month.

The Energy Information Administration reported that crude oil stockpiles in the US were down 1.2 million barrels to 301 million barrels last week, less of a decline than was expected, while gasoline stockpiles also dropped 1.2 million barrels against an expected rise, while distillates added 2.6 million barrels to storage, more of a gain that had been anticipated.

Meanwhile, US President George W. Bush asked Congress to permit more domestic drilling for oil to lessen dependence on foreign oil and bring down prices, but Democrats in Congress rejected the call.

Near the close of floor trade on the New York Mercantile Exchange, July contracts for West Texas Intermediate crude had added $2.68 to $136.69 per barrel while Brent crude had gained $1.91 to $135.63 per barrel on the ICE Futures Europe in London.

Nymex July gasoline was up 2 cents to $2.44 per gallon while August heating oil was down 5 cents to $3.80 per gallon and August natural gas also gained 2 cents to $13.06 per million British thermal units.

Most metals prices were higher Wednesday.

August gold was up $6.20 to $893.10 per troy ounce in New York while July silver was 26 cents higher to $17.33 per troy ounce and July platinum gained $27.60 to $2,091.90 per troy ounce.

Base metals prices were higher as well, with the exception of nickel, which fell to $23,150 per tonne in London.

Copper added 9 cents to $3.74 per pound in New York while three-month copper was up $155 to $8,243 per tonne in London on cuts in production in Peru due to protests there.

Lead jumped $20 to $1,885 per tonne while zinc gained $100 to $1,970 per tonne, aluminium added $55.50 to $3,092 per tonne and tin gained $525 to $22,550 per tonne.

Grains prices were mixed in afternoon trade.

December wheat on the Chicago Board of Trade was up 6 cents to $9.45 per bushel and CBOT December corn gained 4 cents to $7.80 per bushel, but November soybeans dropped 10 cents to $15.43 per bushel.

Pound gains on euro, USD

The pound strengthened Thursday on a report from the Office for National Statistics which revealed that UK retail sales were up 3.5 percent in May against an expected decline and after the governor of the Bank of England said that the Bank will do anything necessary to return UK inflation to its 2 percent target.

In midday trade in New York the pound traded at 78.51p to the euro and it took $1.9742 to buy a pound.

The US dollar was stronger in relation to the euro as the gains in UK retail sales sent investors selling the euro in order to buy the pound, with the greenback trading at $1.5500 to the euro as gains were limited by another contraction in manufacturing activity in the Philadelphia region in June.

The Swiss franc was weaker in relation to the euro and the US dollar after the Swiss National Bank left interest rates there steady at 2.75 percent and after the Bank’s president made comments indicating that he expects inflation there to return to its 2 percent target.

The franc traded at SFr1.6223 to the euro and at SFr1.0467 to the US dollar at midday in New York.

Gains in commodities prices sent the Australian and New Zealand dollars higher in relation to the US dollar, with the greenback trading at 94.97 cents US to the Australian dollar and at 76.13 cents US to the New Zealand dollar.

2,440 jobs go at Imperial Tobacco after take-over

Imperial Tobacco Group has announced it is to cut 2,400 jobs worldwide following its acquisition of French-Spanish tobacco firm Altadis back in January.

Imperial Tobacco is the world’s fourth-largest cigarette company and purchased Altadis for 12.6 billion euros (£9.9 billion).

The restructure will be implemented over the next 3 years and will result in the closure of six factories within its portfolio of 58 sites.

The group will axe 870 jobs in Spain, 250 in Germany and 100 in Russia as well as 1,060 jobs in France.

The tobacco giant said its factory in Nottingham will axe 210 jobs, while its cigar factory in Bristol, which employs 75 people, will close down and cigar production will be transferred to Spain.

However, the restructuring will create in an additional 200 jobs in Poland.

A spokesperson for the group said it was regrettable that the Bristol factory had to close but the industry is under a severe amount of pressure.

Iain MacLean, of the Unite union, said it’s early days but we will be fighting for every job and there will be absolutely no acceptance of any compulsory redundancies.

Together, the firm’s brands include Lambert & Butler, West and Gauloises.

Crude oil, base metals, grains prices all decline

Crude oil prices fell Thursday after China announced that it will raise fuel prices starting on Friday.

The reports of the price hikes said that the price of gasoline will go up 16 percent and the price of diesel will rise by 18 percent, while prices for aviation kerosene and electricity will also rise.

July contracts for West Texas Intermediate crude had dropped $4.74 to $131.94 per barrel by the end of floor trade on the New York Mercantile Exchange, while Brent crude was down $2.61 to $133.83 on the ICE Futures Europe exchange in London.

Nymex July gasoline futures were down 9 cents to $3.38 per gallon while August heating oil was also down 9 cents, to $3.76 per gallon and August natural gas dropped 28 cents to $12.92 per 1,000 cubic feet.

Besides the news from China, gains for the US dollar as well as comments from Iraq several Western oil companies that will return them to activity there helped push prices lower, while little attention was paid to another attack on an oil facility in Nigeria.

In separate reports, the US Energy Information Administration reported that natural gas inventories were up by 57 billion cubic feet last week while the US Transportation Department reported that demand for gasoline fell in the United States in April as Americans drove 1.4 billion fewer highway miles compared to the same month last year.

Most precious metals prices rose Thursday while most base metals prices fell on the session.

August gold was up $10.50 to $904 per troy ounce in New York, while July silver added 13 cents to $17.47 per troy ounce but July platinum dropped $36.10 to $2,055.80 per troy ounce.

September copper was up 3 cents to $3.78 per pound in New York while three-month copper added $71 to $8,310 per tonne in London, but otherwise base metals prices saw declines.

Zinc was down $65 to $1,925 per tonne on a substantial gain in inventories, while aluminium was $20 lower to $3,072 per tonne, lead fell $38 to $1,822 per tonne, tin was $75 lower to $22,375 per tonne and nickel dropped $650 to $22,350 per tonne.

Grains prices were also down, with September wheat on the Chicago Board of Trade falling 23 cents to $8.98 per bushel on reports that Oklahoma’s winter wheat yield will likely be up from last year.

CBOT December corn was down 18 cents to $7.61 per bushel, while November soybeans dropped 21 cents to $15.21 per bushel.

U.S. Dollar Headed for Record Bullish Week

The U.S. currency is heading for its biggest weekly gain since March 2005 against the European currency as the dollar benefits both from past Bernanke’s statements and the current expectations for G8 meeting.

Many reasons stand behind such a fast dollar appreciation this week — among them Fed’s intention to raise the interest rate to fight the inflation and the Treasury Secretary Henry Paulson’s statement that the U.S. may buy out its currency on the Forex.

Consumer price index is also coming out in U.S. at 12:30 GMT today — the reading above the expected 0.5 percent gain will definitely push dollar farther up as the bullish expectations on the interest rate will prevail then.

The U. S. dollar has also its best week since February 1999 against the Japanese yen. Financial officials from Europe say that they are satisfied with the current dollar’s appreciation as it benefits their national exporting companies.

More investors become confident that the Federal Reserve’s next step will be increasing the interest rate. The only questions that they are asking is when and by how much.

Finance ministers from the Group of Eight nations are meeting today and tomorrow in Osaka, Japan to discuss the global problems. Some currency traders believe that the important statements regarding the U.S. dollar may be made there with a positive feedback for the greenback.

EUR/USD fell today from 1.5452 to 1.5401 with a daily low at 1.5386 as of 8:03 GMT. GBP/USD remained virtually unchanged today opening at 1.9455 with a close at 1.9447 so far; the daily low was at 1.9428. USD/JPY rose from 107.87 to 108.00 today.

Bernanke’s Warning On Inflation Boosted Dollar

The dollar rallied across the board after Fed Chairman Ben Bernanke unexpectedly warned of inflation risk via satellite before International Monetary Conference Central Banker’s Panel in Spain. He said the central bank is “attentive to the implications of changes in the value of dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate”. This is the first time Bernanke highlighted the impact of dollar weakness on rising inflation, indicating that the central bank is not going to cut rates again. The dollar gained around 1% to 105.54 versus the yen. The euro slipped almost 200 pips from 1.56 to as low as 1.5412 against the dollar.

Interest rate futures on the Chicago Board of Trade showed a nearly 70% chance that the Fed will raise interest rates above 2.00% by the end of this year.

A report released later pushed the greenback even higher. US factory orders rose 1.1% in April, beating the estimate of 0.1%. In the same month, durable goods orders fell 0.6% as expected while core durable goods orders rose 2.4%.

Dollar Firm on Data

The dollar remained firm after a sharp rally yesterday in reaction to Fed Chairman Bernanke’s warning on inflation.

The currency extended its gains today as several economic reports came out better than expected. US ADP job report showed 40 jobs were added in private sector in May, beating the estimate of a 30k fall. We are awaiting the non-farm payrolls report from the Labor Department due this Friday to take the pluse of the nation’s whole job market.

Other US data released today include the first quarter productivity, which rose 2.6% versus the estimate of 2.5%, and May non-manufacturing ISM, which came out at 51.7 above the estimate of 51.0.

Euro Rallied on Trichet Comments

The euro rallied broadly after ECB President Trichet delivered surprisingly hawkish comments following a widely expected unchanged rate decision.

Trichet indicated that some ECB officials argued for rate hike later this year, and the central bank is in a state of “heightened” alertness” over inflation. His comments added to expectations for a rate move on its July meeting. The euro rose sharply from around 1.54 to as high as1.5562 versus the dollar, and gained more than half a cent to a 9-day high at 0.7956 versus the sterling. Also the euro advanced against the yen to test a key resistance at 165.

As Trichet’s statements dominated the market, other data released today were largely ignored. The Bank of England also left its interest rates unchanged at 5.0%. US weekly jobless claims fell 15k to 357k and continuing jobless claims fell slightly to 3.093m. The dollar edged up initially after the data but the following Trichet’s talk erased its gains quickly.

Dollar Slid after Jump in Unemployment Rate

The dollar slid across the board after a report showed US unemployment jumped to the highest since 2004. US non-farm payrolls fell 49k in May, in line with the estimate of a 50k loss. However, unemployment rate shot up from 5.1% to 5.5%, the largest month increase since 1986. The report showed the nation’s job market is still very weak and there is no sign that the market will turn in short term. After the report, the euro rose immediately from 1.5580 to 1.57 and extended its gains later. The dollar dropped 1 cent to close to 105.

The euro remained firm on higher expectations for a July rate hike after ECB President Trichet’s ultra hawkish comments yesterday. However, one thing should be aware of is that recent data all pointed to a slowing economy in euro zone. A report released this morning showed Germany industrial output dropped unexpectedly.

Canada job report for May was also released today. Unemployment rate was unchanged at 6.1% and jobs change lowered from 19.2k to 8.4k.

USD Rallies on Jawboning, Housing Data

The dollar rallied sharply against the majors at the start of the week as traders focused on US economic reports released in the morning, breaking through the 106-level versus the yen. Propping the greenback higher today was an unexpectedly stronger report on pending home sales, prompting speculation that the struggling US housing market may be bottoming. Pending home sales for April surged to 6.3%, far exceeding estimates for an improvement to -0.5% from -1.0% a month earlier.

Key highlights from the US economic calendar include the April trade balance, June consumer sentiment, the Fed’s Beige Book, retail sales, business inventories, and May CPI. Markets will focus closely on the US trade deficit and gauge the impact of soaring energy prices in recent months. Consensus estimates anticipate the deficit to expand to $60.0 billion, up from $58.21 billion from March. Retail sales are seen reversing the 0.2% decline in April, rising by 0.4%. Meanwhile, core retail sales are expected to remain unchanged at 0.5%.

The greenback also found support from US Treasury Secretary Paulson and NY Fed President Geithner, who both left open the option for central bank intervention. Nonetheless, we interpret the risk for government intervention in the currency market to prop up the dollar to be minimal, particularly given its staunch criticism of China’s currency regime.

Dollar Rallies on Bernanke

Jawboning in recent sessions has propped the greenback sharply higher across the board, with the currency hovering near 107.40 against the yen and 1.5450 versus the euro. The verbal intervention of late consisted of commentary from Fed officials and US Treasury Secretary Paulson, which strongly benefited the dollar in tempering expectations for a continued policy of benign neglect in the currency’s steep declines.

With the G8 Finance Ministers meeting looming, traders will focus closely on any comments hinting at the possibility of concerted intervention by the global central banks. Although intervention remains highly improbable, US Treasury Secretary Paulson yesterday kept that option open if necessary. Paulson addressed the issue of China’s currency today, saying although he believes China needs to allow its currency to strengthen more rapidly, it was not ready for a market determined currency. He also said the dollar should not be the scapegoat for record level oil prices. Meanwhile, US Under Secretary of International Affairs McCormick said no formal discussion of currencies is expected at the G8 meeting this upcoming weekend, but it will likely be mentioned at the meeting. He said that currencies have played a “minor role” in the recent spike in oil prices. McCormick expects it to take some time to work through housing market and capital markets issues, but sees growth to accelerate in the US before year-end.

Fed Chairman Bernanke, in a speech given late Monday evening, all but confirmed that the FOMC will leave policy unchanged barring any unexpected shocks to the financial system with the dangers to a “substantial downturn” in the economy having subsided somewhat and burgeoning upside risks to inflation. Bernanke said “the FOMC will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as inflation”. Dallas Fed President Fisher echoed a similar tone today, saying the downside risks facing the US are not as severe as initially feared but will need time to recover. Fisher said the Fed is cognizant of the negative currency feedback loop and that a weaker dollar can lead to further inflationary pressures, which weaken the dollar further. He said that recent survey signals on inflation expectations have not been positive and will not tolerate fuelling inflationary expectations.

Greenback Relinquishes Gains

The greenback relinquished some of yesterday’s gains versus the euro and yen in the Wednesday session amid a dearth of US economic data. The calendar picks up on Thursday with several key reports including CPI, retail sales, weekly jobless claims and business inventories. The markets remain focused on sentiment over central bank rate decisions as comments from ECB officials continue to point toward at least one more rate hike.

GBP Recovers from Data Triggered Losses

The sterling has clawed back above the 1.96-handle against the dollar and back toward the 0.79-level versus the euro in early New York trading. The pound whipsawed lower overnight following lackluster economic data from the UK, which included the May claimant count, April ILO unemployment rate, and April trade balance. The unemployment claimant count rose to 9.0k in May, exceeding forecasts for 8.0k from 7.2k in April – marking its fourth monthly consecutive rise. The quarterly average earnings report fell to 3.8%, down from 4.0% from the previous year. Meanwhile, the trade deficit in April expanded to 7.594 billion pounds compared with forecasts for the deficit to shrink to 7.35 billion from 7.44 billion pounds in March.

Retail Sales Prop the Dollar

The greenback extended its gains versus the majors, rallying above the 108-level against the yen and 1.5380 versus the euro. The main catalyst for today’s move was a larger than expected improvement in May retail sales, with the headline reading improving by 1.0%, exceeding calls for a 0.5% increase from a 0.2% decline in April. The excluding autos retail sales jumped to 1.2%, versus estimates for an improvement to 0.7% from 0.5%. Weekly jobless claims crept higher to 384k, versus 357k in the previous week while April business inventories improved to 0.5% from 0.1% a month earlier.

With market sentiment anticipating the FOMC to shift to a tightening bias near the end of the year, traders will continue to closely scrutinize incoming US economic data. Philadelphia Fed President Charles Plosser echoed a similar tone to recent Fed comments, saying the FOMC needs to take preventive measures to ensure that “inflation does not get out of control”. Plosser said the current risk to inflation is serious and the Fed needs to act preemptively to contain it.

Economic data due out on Friday will provide additional clues on how quickly the Fed may need to move to contain inflationary pressures. The May CPI reading is expected to edge up to 0.5% from 0.2% a month earlier, and hold steady at 3.9% from the previous year. Core CPI is forecasted to rise to 0.2% from 0.1% in April and remain unchanged at 2.3% from a year earlier. Traders will also focus on the June University of Michigan consumer sentiment survey, which is expected to slip further to 59.5, versus 59.8 in May – which would be a fresh 18-year low.