Weekly News Roundup - Mar 6 2011

Fed says companies starting to hike prices

In its latest Beige Book survey on the state of the US economy, the Federal Reserve said that manufacturers and retailers across all 12 of the central bank's districts are passing on rising commodity prices to consumers. "Manufacturers in many districts conveyed that they were passing through higher input costs to customers or planned to do so in the near future," the survey found. "Retailers in some districts mentioned that they had implemented price increases or were anticipating such action in the next few months," the report said.



But, the world's largest economy continues to grow at a moderate pace, it added. Overall, the US economy was improving at a modest to moderate pace, the Beige Book report concluded. Most districts reported that conditions in their regions were improving, according to the Beige Book. Only the Chicago region reported that the pace of growth was not quite as strong as late last year, it added.

Labor markets were seen as improving modestly, the Beige Book said. Three districts reported that temporary jobs were being converted into permanent hires, it added. According to the latest Beige Book report, manufacturing growth was solid and service activity was strengthening. Commercial real estate improved in several districts, the Beige Book survey said. Retail activity increased in almost all districts, although snowstorms limited activity in some regions, it said.

ECB chief Trichet hints at rate hike next month

The European Central Bank (ECB) President Jean-Claude Trichet took most economists and markets by surprise when he hinted that he may opt for a rate hike in the central bank's policy meeting next month to contain spiraling inflation. At his monthly news conference in Frankfurt, Trichet said a move at the central bank’s next meeting was possible, but not a certainty. The 23-member Governing Council never commits to a rate move ahead of time, he said, adding that a decision will depend on incoming data. Trichet also said that the ECB's decision to leave rates unchanged on Thursday was "unanimous."

He added that any subsequent move to hike interest rates would "certainly not" be the start of a "series" of increases in borrowing costs. Trichet warned that "strong vigilance" was required in order to contain upside risks to price stability. The use of the phrase "strong vigilance" was interpreted by most experts as an indication that a rate hike is coming. Trichet also omitted language seen in recent ECB statements describing current interest rates as "appropriate," which had been taken to mean that rates will remain on hold. He also said the central bank would continue to fully meet demand for loans from commercial banks across the euro zone over the next three months.

China's manufacturing PMI slows in February

China's manufacturing output continued to expand in February but moderated somewhat from the previous month in the wake of the series of monetary tightening steps taken by the central bank. At the same time, input prices remained elevated, maintaining pressure on the policymakers to contain inflation while keeping the growth momentum going as well. The Purchasing Managers’ Index fell to 52.2 last month from 52.9 in January, the China Federation of Logistics and Purchasing said, the third monthly decline. February’s reading compared with the median forecast of 52.0.

The latest PMI report marked the 24th straight month that the widely tracked index was above the threshold of 50, which separates expansion from contraction. The release also showed that a sub-index for input prices rose to 70.1 in February from 69.3 in the previous month, suggesting a continued increase in raw-material prices at factories. A second, competing survey, the HSBC China Manufacturing PMI, fell to a seven-month low of 51.7 in February from 54.5 in January.

Eurozone mfg PMI near 11-year high; UK hits record

Manufacturing sector maintained a very strong momentum last month in the eurozone as well as in the UK, two separate surveys revealed. Another report showed today that inflation in the euro area inched up while unemployment rate edged lower. Activity in the eurozone manufacturing sector accelerated at its fastest pace in nearly 11 years in February, the final reading of the Markit manufacturing purchasing managers index (PMI) confirmed. Manufacturing PMI rose to 59.0 from 57.3 in January, confirming an earlier estimate and marking the highest level since June 2000. A reading of more than 50 indicates expansion while a figure of less than 50 signals contraction.

Growth was seen across the region but was mainly led by Germany, Austria and the Netherlands. But, inflationary pressures continued to build, with input costs and output prices both rising at record rates, according to Markit.

Meanwhile, the UK manufacturing activity in February expanded at a record pace, according to the Markit/CIPS PMI for the sector published. Manufacturing PMI was at 61.5, unchanged from January's record high. At the same time, inflationary pressures stayed high, as input prices rose at a nearly record rate.

Inflation in the euro zone rose at a 2.4% annual rate in February, up from 2.3% in January, the European Union statistics agency Eurostat reported in a preliminary estimate. The reading was in line with expectations. The ECB's target is near but just below 2%. Separately, the unemployment rate in the euro zone slipped to 9.9% in January from 10% in December, Eurostat reported. Economists had forecast the jobless rate to hold steady at 10%.

Reserve Bank of Australia leaves rates steady

The Reserve Bank of Australia (RBA) left its key interest rate unchanged, saying that a stronger currency and moderation in wage growth are helping to contain inflation. RBA Governor Glenn Stevens held the overnight cash rate target at 4.75%, as forecast by all economists. The Australian central bank expects inflation to stay within its target range of 2% to 3% over the next year, he said in a statement in Sydney. "Inflation is consistent with the medium-term objective of monetary policy," Stevens said. "These moderate outcomes are being assisted by the high level of the exchange rate, the earlier decline in wages growth and strong competition in some key markets, which have worked to offset large rises in utilities prices."

Rajat Gupta charged with insider trading charges

The Securities and Exchange Commission slapped a civil charge of insider trading against Rajat Gupta, one of America’s best-known management consultants. Among other things the SEC alleges that Gupta tipped off Galleon, a hedge-fund management firm, about a US$5bn investment that Warren Buffett made in Goldman Sachs in 2008. The SEC also accused Gupta of giving . Rajaratnam confidential information about Procter & Gamble Co. Gupta served as a board member in Goldman and P&G. Galleon is alleged to have reaped US$18m as a result of various information it received from Gupta. A former head of McKinsey, Gupta advises the UN on management reform.

Gupta called the charges baseless. Goldman Sachs CEO Lloyd Blankfein agreed to testify for the US government at the upcoming trial of Galleon founder Raj Rajaratnam. Prosecutors have charged Sri Lanka-born Rajaratnam with 14 counts of securities fraud and conspiracy in the biggest insider trading case. The criminal trial of 56-year old Rajaratnam is scheduled to start on March 8 in a Manhattan federal court. The investigation has led to guilty pleas from 19 of 26 defendants. Gupta, who had previously left Goldman, stepped down from P&G's board on March 1. His lawyer has said Gupta did nothing wrong.

News Corp. to take full control of BSkyB

Rupert Murdoch’s News Corp. announced that it would spin off the news operations of British Sky Broadcasting, paving the way for its full acquisition of the satellite broadcaster. It already owns 39% in BSkyB. News Corp. is Britain’s biggest newspaper publisher. Under its proposal News Corp. will take a 39% stake in a publicly listed Sky News, finance it for 10 years and guarantee its editorial independence. The US$33bn media giant intends to buy the remaining 61% stake for 700 pence a share or about £7.8bn (US$12.7bn). The UK government through its department for culture, media and sports cleared a major obstacle in the full acquisition of BSkyB by News Corp. by accepting the latter's undertakings on media plurality concerns.