FYI | May 21 2007
By Greg Peel
As the trade imbalance between China and the US continues to move in only one direction there is is growing groundswell of protectionist rumblings on Capitol Hill – thoughts which are being echoed in Europe. While China continues to make small steps towards easing the problem, such as a slight upward adjustment in its currency peg range on Friday, the data just keep indicating that China is fighting a losing battle, not a winning one.
Thus the world will watch with interest when Chinese Vice Premier Wu Yi and US Treasury Secretary Henry Paulson meet over Wednesday and Thursday. While such talks tend to be more symbolic than proactive, the situation is nevertheless reaching some sort of boiling point. It is also concerning the world that resultant Chinese asset inflation is fuelling an ever growing stock market bubble in Shanghai, where every day more and more Chinese discover the supposed joys of investing.
There’s little else to keep Wall Street occupied on the economic data front this week. The Richmond Fed manufacturing index for May is released tomorrow night, while April durable goods, new home sales and initial jobless claims are released on Thursday. Friday sees April existing home sales.
The Dow is about to enter what may well be its eighth consecutive week of gains, fuelled largely by satisfactory profit reporting and ongoing M&A activity, as well as a bit of a boost from a bouncing US dollar. CNNMoney points out that between mid-April and early May the Dow rose in 24 of 27 sessions – the longest up-stretch in 80 years. While many on the Street are calling for a correction, the fact that many are probably means it won’t happen just yet. China, however, has become the market to watch.
It’s fairly quiet in Australia this week as well. Tomorrow brings April new motor vehicle sales and Wednesday May skilled vacancies, along with the Westpac leading index of economic activity for the March quarter. New Zealand brings out its inflation expectations survey on Wednesday and trade balance on Thursday. On Friday we learn Japan’s CPI.
On the stock front, Rio Tinto (RIO) is holding a uranium summit in London tonight from which analysts are anticipating news on expansion of Rio’s uranium projects in Australia and Africa. The stock suffering the highest takeover anticipation in the market could well find its contribution from uranium mining soaring well above the current 5%. Wednesday will also be interesting, as the ACCC brings down its decision on the OneSteel (OST)-Smorgon (SSX) merger. On Friday APN News & Media (APN) shareholders meet to vote on its takeover offer, if the meeting isn’t canceled in advance.
An 80 point rally in the Dow on Friday prompted a strong response from the SPI Overnight which finished up 65 points. Base metals prices bounced somewhat after a scare the day before, and gold held its ground, trading back over US$660/oz which has now become a technical resistance level. Oil was up slightly, but its news of refinery maintenance shut-downs in the US that has sent gasoline prices back to record highs just ahead of the summer driving season that has inflation watchers aroused once more.