DB says they "are worried that monetary policy is excessively accommodative in light of the likely trajectory of inflation. Early-stage price pressures are mounting based on various survey data," such as Philly Fed and Empire, as well as early stage PPI data. They see Q1 GDP at +4.5% and say "businesses are having greater success passing cost increases along to customers. In time, this will show up in firmer consumer inflationin fact, this trend already appeared to be emerging in the January CPI."
WTI ending at $86.35, up $1.36 and in the upper end of the day's $84.38/86.50 range.
Stocks have spent the past 30 minutes drifting sideways along session highs. Treasuries are also still up comfortably, such that the yield on the benchmark 10-year Note is a couple of basis points below 3.60% and the yield on the 30-year Bond is only little more than a single basis point above 4.65%.
He said "job growth has been disappointing" and "core inflation has been running well below this 2% (Fed mandate) rate for about two years."
The dollar dropped the most in seven trading days against the yen as initial unemployment-benefit claims rose more than estimated last week and two-year Treasury yields reached the lowest level in more than a week, damping the appeal of dollar-denominated assets.
Yields on the U.S. two-year note fell as much as six basis points, or 0.06 percentage point, to 0.76%, the lowest intraday level since Feb 8. Ten-year note yields fell as much as seven basis points to 3.55%, the lowest since Feb. 4.
Jobless claims rose to 410,000 in the week ended Feb. 12, exceeding the 400,000 median forecast, Labor Department data showed today in Washington.
The U.S. consumer price index increased 0.4% for a second month, exceeding the 0.3% median estimate of economists, another Labor Department report showed.
Federal Reserve officials differed last month over whether more signs of strength in the U.S. recovery would warrant reducing or slowing record monetary stimulus even as they affirmed disappointment with job growth, according to meeting minutes released yesterday. The Fed has held its key interest rate at zero to 0.25 percent since December 2008 and is buying $600 billion of Treasuries in its latest round of a tactic called quantitative easing.
“You want to see data that suggests shifts in monetary policy views, and CPI was in the right direction but nothing that gets the Fed off its current stance,” said Sacha Tihanyi, a currency strategist at Bank of Nova Scotia in Toronto. “The U.S. dollar has been under pressure for the past 24 hours.”
The Swiss franc gained versus all of its 16 most-traded peers and the yen rose against most as Iranian state-run television said the nation will send two warships through the Suez Canal, adding to the refuge appeal of the currencies.
A recent flurry of buying has taken the broad market into positive territory, but gains are only minimal at this point. Financial issues and telecom stocks have been slow to follow; both sectors are down about 0.1%.
Semiconductors are seeing some of the strongest interest in recent trade. That has the Philadelphia Semiconductor Index up 1.0%. NVIDIA (NVDA 24.50, +1.12) is a leader in the group after it actually started the session in the red. The company's latest quarterly report featured a strong revenue forecast.
Nomura says Philly Fed index surged 16.6 pts in Feb to a 7yr high of 35.9 and shows "significant and broad based gains across nearly all dimensions of economic activity." But they say "a rebound from a weather related slowdown in activity accounted for much of this surprising increase," even though result is encouraging
Prices paid 67.2, new orders 23.7 vs 23.6, employment 23.6 vs 17.6.
Text: "growth in the region's manufacturing sector picked up this month. Most of the broad indicators showed an improvement over their readings in January, and employment among reporting firms increased. Increases in input prices continued to be widespread this month, and slightly more firms reported increases in prices for their own manufactured goods. The survey's broad indicators of future activity suggest that firms expect a continued expansion in activity over the next six months."
U.S. stocks were headed for a weak opening Thursday, as investors digest the latest reports on inflation, unemployment claims and regional manufacturing activity.
Meanwhile, anti-government protests in Bahrain turned violent Thursday, as the unrest that started in Tunisia and Egypt last month has spread across the region. But investors are not too concerned about geopolitical risks for now.
U.S. stocks finished at their highest level in more than two years Wednesday, propelled by a $20 billion merger in the pharmaceutical sector and a batch of solid corporate earnings.
Economy: The government's weekly report on the number of people filing for jobless benefits jumped to 410,000 for the week ended Feb. 12, which was close to expectations.
The consumer price index for January rose 0.4% month-to-month seasonally adjusted, compared to expectations of a 0.3% increase. The core CPI - which excludes food and energy prices - rose 0.2% month-to-month, compared to an expected increase of 0.1%.
Also on tap for the morning is the preliminary Philadelphia Fed index for February, a regional reading on manufacturing. The index is forecast to rise to 21.0, up from 19.3.
Companies: Shares of Dr. Pepper Snapple Group (DPS, Fortune 500) edged up in premarket trading, after the soft drink company reported an 11% increase in diluted quarterly earnings of 49 cents per share. The company said that net sales rose 4% in the quarter, to more than $1.4 billion.
Shares of Williams Partners (WMB, Fortune 500) jumped 13% in premarket trading, despite reporting quarterly net income of 29 cents per share - matching the year-ago quarter. The company raised its guidance for 2011-2012 to reflect higher commodity prices and the acquisition of Barnett Shale.
After the closing bell, Nordstrom (JWN, Fortune 500) is expected to post earnings per share of $1 on revenue of $2.82 billion.
EUR/USD holds volatile after CPI report. Euro posted highs on $1.3585 before retreated to current $1.3560. Offers reported earlier at $1.3575/85 now largely absorbed, more supply seen around the overnight high.
09:00 EU(16) Current account (December) unadjusted, bln -0.1 - -5.4 (-6.0)
09:00 EU(16) Current account (December) adjusted, bln -13.3 - -10.5 (-11.2)
11:00 UK CBI industrial order books balance (February) -8% -10% -16%
11:00 UK CBI industrial output balance (February) 23% - 17%
The yen rose amid speculation unrest will keep spreading in the Middle East, boosting demand for the safest assets.
Japan’s currency reached the lowest in nearly three weeks versus the euro after a security crackdown left at least three people dead in Bahrain. Egypt’s Suez Canal said no Iranian warships have applied to pass through the waterway, a day after Israel said Iran was sending two vessels to Syria.
The Swiss franc appreciated versus all but one major currency. The pound strengthened as Bank of England policy maker Andrew Sentance said interest rates should rise. Sentance today said BOE policy makers can’t be “relaxed” about the currency’s level.
“We see this conflict in the Middle East clearly spreading to other countries now, and we have this issue of the Iranian warships entering the Suez Canal,” said Ulrich Leuchtmann, head of foreign-exchange strategy at Commerzbank AG. “This is a positive signal for those currencies that are perceived as safe havens, which is especially the yen and, to a smaller degree, the Swiss franc.”
Demonstrations stretched into a third day in Bahrain, with protesters demanding democracy and the ouster of Prime Minister Sheikh Khalifa bin Salman al-Khalifa, a member of the royal family who has held the post for four decades. Police and protesters also clashed in Yemen and Libya.
Oil traded near the highest in more than two years in London amid concern crude shipments will be disrupted.
EUR/USD held within the range, limited by $1.3535/90.
GBP/USD tested highs on $1.6144 before back to $1.6110. Later rate recovered to $1.6135.
USD/JPY held within the Y83.50/70 range.
A busy US calendar starts at 1330GMT, with the release of 12 Feb week Jobless Clains and the January CPI data.
Initial jobless claims are expected to rise 22,000 to 405,000 in the February 12 survey week.
Consumer prices are expected to rise 0.3% in January. Core CPI is forecast to rise only 0.1%.
At 1500GMT, the February Philly Fed survey is released, along with the January leading indicator data.
The Philadelphia Fed index is expected to rise to a reading of 21.0 in February after falling slightly in January.
The index of leading indicators is forecast to rise only 0.1% in January.
Also at 1500GMT, Federal Reserve Chair Ben Bernanke is to testify before the Senate Banking Committee on Dodd-Frank reforms, with other regulators.
Ahead of CPI report analysts at Pierpont Securities say: "The key question for Jan CPI is whether core prices continue to move up slowly or accelerate further." A +0.2% could be "a shot across the bow for an FOMC that just marginally lowered its core inflation projections for both 2011 and 2012. The headline CPI may have increased by 0.3% in January, driven mainly by a jump in gasoline and heating prices."
EUR/GBP remained in a tight range in Asia after the strong climb back yesterday from stg0.8367 lows. But cross came under pressure in Europe slipping to stg0.8398 on sales before settling around stg0.8404. Bids remain at stg0.8395/05.
The dollar was soft on Thursday, bruised by worries over rising tension in the Middle East and as subdued U.S. economic data helped keep U.S. bond yields down.
The greenback fell on Wednesday after Israel said two Iranian warships planned to sail through the Suez Canal en route to Syria, calling the step a "provocation".
The news rekindled fear that a regime change in Egypt could make the entire region unstable.
Although the dollar has tended to be bought at times of crisis in the past, the market's knee-jerk reaction was to sell the dollar.
U.S. industrial output data fell short of market expectations, one day after retail sales data disappointed investors.
The minutes of the Federal Reserve's previous policy meeting suggested the bank remained unhappy with the job market's recovery and the consensus was still firmly aligned with completing the planned purchase of $600 billion in government bonds.
"Although rising inflation in the world has led some investors to speculate there could be a rate hike by the Fed, such expectations will likely prove to be premature", said Junya Tanase, a strategist at J.P. Morgan Chase Bank. "The risk of inflation varies from country to country. In the United States, inflation is still not an imminent risk and U.S. interest rates are starting to tick down. That's capping the dollar," Tanase said.
But traders also said the greenback's fall is seen as being limited as the euro suffers from lingering worries over debt.
Golden-cross of 5- & 100-DMAs as gold closed above the 55-DMA yesterday. Initial resistance seen as the daily Bollinger band top and Jan 27 res line at $1382.3/1385.5. Initial support seen from the 55-DMA at $1372.90. Strong supp seen around the 5- & 100-DMAs and Jan 28 sup line.
GBP/USD posts a day's high of $1.6141 after comments from BOE Sentance gives sterling a boost and trips stops through $1.6125. Euro-sterling slips accordingly to a low of stg0.8402 on the day. GBP/USD currently holds around $1.6130.
The dollar fell against most of its major counterparts after U.S. builders began work on more homes at an annualized rate than forecast in January and manufacturing rose, fueling appetite for higher-yielding assets.
U.S. builders broke ground on 596,000 homes at an annualized rate last month, according to Commerce Department data. The median forecast was for a rate of 539,000.
Manufacturing rose 0.3 percent in January, data from the Federal Reserve showed. Overall industrial production unexpectedly declined 0.1 percent as utilities, which had a decline in demand because of milder temperatures, and mining fell, the figures showed.
The Swiss franc briefly gained versus the euro after Israel said two Iranian warships plan to sail through the Suez Canal and called the move a “provocation.” The pound slid against all of its most-traded counterparts after Bank of England Governor Mervyn King said inflation will peak this year and ease in 2012, damping speculation interest rates will rise.
Staff economic ests were revised up and members "expressed greater confidence that the econ recovery would be sustained and would gradually strengthen." Some
said strength in winter data, such as more exports and auto sales, could prove temporary, thus medium term econ to remain restrained. Some worry about energy/commodities as upside inflation risks, but others said pass-thru is small and large resource slack will restrain prices.
FOMC central tendency ests for econ & inflation were rev up, as mkt expected, but at expense of '12 ests. 2011 real GDP now +3.4%-3.9% (vs 3.0%-3.6% in Nov est); 2012 real GDP now +3.5%-4.4% (vs +3.6%-4.5% Nov).
Unemployment rate now 8.8%-9.0% in '11 (vs 8.9%-9.1% Nov est) and 7.6%-8.1% in '12 (vs 7.7%-8.2% Nov), still gradually declining. PCE core inflation seen +1.0%-1.3% in '11 (vs 0.9%-1.6% in Nov est) and +1.0%-1.5% in '12 (vs 1.0%-1.6% Nov), up a tad but little changed overall.
Japan’s Nikkei 225 Stock Average gained for an eighth day, extending its longest winning streak in 18 months, after the yen weakened and as brokerages raised investment recommendations on some companies.
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