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Financial Focus: 18th January 2011

UK inflation-danger forces BoE to consider rate hike soon;
German finance minister calls for restraint in bail-out reforms;
CEO takes indefinite sick leave as Apple reports earnings;
Sterling worst performing major currency since October;
Coal at 2-year high as floods hit Australian mines.

NEWS:
The Bank of England will be watching today’s inflation data for December with interest, as the cost of oil and food is likely to keep the figure at November’s six-month high of 3.3%. An increase to 4% over the coming months is quite possible due to VAT increases, which could prompt the Bank of England to move its historically low interest rate of 0.5% up to cope with inflation.

Wolfgang Schauble, Germany’s finance minister, urged restraint as he arrived in Brussels for a meeting of the Eurozone finance ministers, insisting that the recent improvement in the bond market has eased pressure for an immediate overhaul of Europe’s bail out fund. Jean-Claude Juncker, Luxembourg’s PM who heads the group, is looking to “accelerate the work” on giving the fund new powers, and indicates that the reform package would be ready at the end of March.

Investors are watching the reaction of Wall Street to the news that Apple’s CEO is taking medical leave for the third time since 2004. US futures were sharply lower on the news yesterday, but Stateside markets have not been tested yet as they were closed for the Martin Luther King public holiday.

EQUITIES:
Asian stocks rallied overnight after Monday’s falls, led by energy and technology companies, and optimism that profit growth can be sustained. The MSCI Asia Pacific Index advanced 0.5%, ending the two-day decline.

The FTSE 100 is seen opening around 20 points higher today, reversing yesterday’s losses and moving the index above the 6,000 level once again. Monday saw the FTSE come under pressure from miners and banks, whose declines could not be overcome by positive mergers and acquisition activity. Ironically, miners are likely to lead the FTSE back up, with record iron ore output numbers from Rio Tinto headlining overnight.

US attention will be on earnings with investors paying particular attention to Steve Job’s sick-leave notice as Apple and Citigroup report today.

CURRENCIES:
Although the euro was showing signs of strength overnight, it weakened against 13 of its 16 most active peers and slid to $1.3283 from $1.3294 yesterday. Fears that European finance ministers are not in agreement over a more robust bail-out mechanism will put more pressure on the common currency.

Despite rising to a two-month high against the dollar yesterday, Sterling emerged as the worst performing major currency since October, weakening against all 16 of the most-traded currencies – an unenviable statistic that puts it below the ailing euro in terms of performance.

ENERGY:
Power station coal prices rose for a seventh week to a more than two-year high and steelmaking coal gained 5.7% after heavy rain and flooding curbed output in Australia, the world’s biggest exporter of the fuel.

COMMODITIES:
Gold is set to rise this year, but a respected analyst believes that it will struggle to reach last year’s stellar heights as the Eurozone crisis declines and authorities around the world start to look at tightening monetary policy. The precious metal edged higher through the night, with healthy physical demand in Asia and a lower dollar providing support. While silver, last year’s star, is down 8% this year, it gained 0.5% during Tuesday morning’s trading.

DATA AT 0745 GMT (FT.COM)
FTSE 100: 5,986 -0.27%
S&P 500: 1,293 +0.74%
Eurofirst 300: 1,157 +0.07%
Nikkei 225: 10,519 +0.15%
Shanghai Comp: 2,709 +0.09%
Dow: 11,787 +0.47%

$ per €: 1.3347 +0.42%
$ per £: 1.5943 +0.37%
¥ per $: 82.44 -0.34%
¥ per €: 110.03 +0.08%
€ per £: 1.1943 -0.05%

WTI Crude: $91.30 -0.26%
Brent Crude: $97.69 +0.27%
Gold: $1,366 +0.44%
Copper: $4.37 -0.66%
Corn: $6.56 +1.04%

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