(Headlines - scroll down for full stories)
1. Copper Prices Rebound as New Home Sales Rise
2. Jobless Claims Show Minimal Increase
3. United Arab Emirates Narrowing Dollar Reserves
4. Miller's Legg Mason Value Trust Ends 15-Year Streak
5. Bernanke Proves Naysayers Wrong
1. Copper Prices Rebound as New Home Sales Rise
Copper prices rose for the second consecutive day yesterday after new home sales
figures in the U.S. released for November were higher than expected, raising
expectations that demand for the metal may rebound.
So far, the price of copper has gained 43 percent this year. The 3.4 percent
increase in new home sales last month was higher than the 1.6 percent gain
economists predicted. Since builders are the biggest users of copper — the
average U.S. home contains about 400 pounds of the metal — any uptick in new
home sales has a domino effect on the price of copper.
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Win Chung, a trader at Triland USA Inc. in New York, estimated prices may trade
from $2.87 to $2.95 a pound through next week.
Copper futures for March delivery rose 3.6 cents to $2.914 a pound on the Comex
division of the New York Mercantile Exchange. On Dec. 26, prices rose 0.8
percent.
Prices though are still down 28 percent from a high of $4.04 in May.
On the London Metal Exchange, copper for delivery in three months gained $55, or
0.9 percent, to $6,380 a metric ton.
With U.S. demand for copper showing signs of slowing, the price of copper has
dropped in the last three weeks.
Copper prices have gained more than fourfold in the past five years, partly as a
result of demand from China, the world's largest copper user. But economic
expansion in the U.S., which ranks second in usage, slowed in the third quarter
to a 2 percent annual rate after home building took a nose dive and fell the
most in 15 years.
Commenting on the supply-and-demand scenario, an independent analyst said the
supply of the metal is increasing and demand is slowing. The market has been
slightly oversold.
In fact, copper prices have dropped in the last three weeks in reaction to signs
of slowing U.S. demand.
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2. Jobless Claims Show Minimal Increase
The number of Americans filing applications for unemployment benefits edged up
slightly last week but remained at a level indicating the job market is holding
up well in spite of the slowing economy.
The Labor Department reported Thursday that 317,000 newly laid-off workers filed
for jobless benefits last week, an increase of 1,000 from the previous week.
That was better than the rise of 8,000 that had been expected.
Even though the economy has slowed significantly this year under the weight of a
slumping housing market and weaker consumer spending, employers have been
reluctant to lay off workers.
The four-week moving average for claims edged down last week to 315,750, the
lowest level in seven weeks.
The nation's unemployment rate stood at 4.5 percent in November, up only
slightly from a five-year low of 4.4 percent in October as employers added
132,000 workers to their payrolls.
There were pockets of weakness, reflecting the problems being faced in housing
and manufacturing, where automakers are struggling with sluggish sales.
Construction companies cut 29,000 jobs, the most in three years, and
manufacturing shed jobs for a fifth straight month.
The overall economy slowed to a growth rate of just 2 percent in the
July-September quarter and many analysts believe activity will remain sluggish
in the final three months of the year. The slowdown was led by weakness in
housing, which had been one of the economy's standout performers.
For the week ending Dec. 16, jobless claims had risen by 10,000 to a total of
316,000, after adjusting for seasonal variations. A total of 39 states and
territories had reported declines in jobless claims while 14 states and
territories had increases.
The biggest increases were in Kentucky, up 9,002 because of higher layoffs in
the auto and rubber and plastic industries. California reported an increase of
6,012 and Tennessee had an increase of 2,342.
The biggest declines in claims for the week of Dec. 16 occurred in Illinois,
down 7,870; Ohio, down 4,180; and Indiana, down 4,146.
The state data, which is not adjusted for seasonal variations, lags by a week
from the national jobless claims numbers.
© 2006 Associated Press.
Editor's Note:
3. United Arab Emirates Narrowing Dollar Reserves
The wilting U.S. dollar is pushing the United Arab Emirates, a close U.S. ally,
to convert 8 percent of its foreign exchange reserves into the healthier euros,
the central bank governor said on Thursday.
The Emirates' nearly $25 billion currency reserves are currently 98 percent
dollars. That percentage will drop to 90 percent in six to nine months if the
bank's directors approve the switch as is expected, Central Bank governor Sultan
bin Nasser al-Suwaidi said.
The sale itself is a small one, worth about $2 billion. But the implications of
a cash-rich friend of Washington selling off its dollars is a sign that central
banks elsewhere may be looking to cut losses from a dollar widely expected to
slip further in 2007.
"It's a prudent move and it's indicative of broader thinking," said Simon
Williams, HSBC's chief Middle East economist. "It's another factor that will
exert downward pressure on the dollar."
The dollar fell to $1.3132 euro in European trading on Thursday, compared with
$1.3123 in New York on Wednesday.
A bigger worry for the U.S. Federal Reserve Bank is that the six energy-rich
Gulf Arab countries may consider converting dollar holdings in their far larger
government investment funds, which Williams said keep more than $1 trillion
under management. Gulf governments typically do not release the compositions of
those funds.
"If they're moving those assets out of the dollar on the same scale, that's a
much bigger deal," Williams said.
The six Gulf Cooperation Council countries — the Emirates, Saudi Arabia, Kuwait,
Qatar, Bahrain and Oman — enjoy a collective current account surplus of around
$220 billion this year, which must be invested in foreign assets.
With a faltering dollar, Williams said a smaller amount of that energy surplus
will flow into U.S. assets.
"A good chunk of that will still flow toward the U.S., but less than in the
past," he said. "The Fed will be watching this very closely."
Other countries, including Russia, Venezuela, Indonesia and Iran also have
decided to cut their dollar reserves or, in Iran's case, start pricing oil in
the European currency.
During OPEC's Nigeria summit this month, OPEC President Edmund Daukoru said the
organization was "not rushing into other currencies." But since global oil
purchases are made in dollars, the shrinking dollar slashes the purchasing power
of oil exporters.
The Emirates decision to sell off its dollar holdings comes against a backdrop
of strain in its normally warm relations with Washington.
Many here were upset earlier this year when the U.S. Congress blocked the sale
of U.S. port operations to Dubai-based DP World - a move that officials here
said smacked of anti-Arab bias. Since then, talks on a free trade pact between
the Emirates and Washington have also faltered.
© 2006 Associated Press.
Editor's Note:
4. End of 15-Year Streak: Miller's Legg Mason Value Trust Lags S&P 500
For the first time in 15 years, Bill Miller's Legg Mason Value Trust gain of 6.7
percent trailed the increase posted by the S&P 500 — 16.5 percent.
The Legg Mason fund has beaten the S&P 500 every year since 1991, increasing at
an average annual rate of 15.8 percent, compared with 11.9 percent for the U.S.
stock benchmark.
But 2006 doesn't seem to have been Miller's year.
The mutual fund is the worst performer of 108 so-called "multicap value" funds
tracked by Bloomberg that buy stocks managers perceive as being cheap. According
to Bloomberg.com, Miller's fund, which holds fewer than 45 stocks, was hurt by
Amazon.com Inc. and UnitedHealth Group Inc.
Miller also manages the $6.7 billion Legg Mason Opportunity Trust, and that's
also trailing the S&P 500 this year with its 14.2 percent return.
One analyst who tracks the fund industry observed that Miller's fund "is not the
right portfolio for 2006. Perhaps it will be the right portfolio in 2007."
Legg Mason currently oversees $891 billion after buying Citigroup Inc.'s
asset-management unit a year ago in exchange for its brokerage business.
However, says Bloomberg.com, shares of Legg Mason have declined 21 percent this
year because the company was slow to produce promised cost savings from the
Citigroup deal. Fund sales consequently decreased.
Analysts aren't discouraged though at Legg Mason's performance and remain
optimistic the fund may rebound next year. Legg Mason dropped 19 percent in 2002
when the S&P declined 22 percent. The following year it jumped 44 percent,
outperforming the benchmark by 15 percentage points.
Editor's Note:
5. Bernanke Proves Naysayers Wrong, Earns Inflation Credibility
With just days to go until the end of 2006, Federal Reserve Chairman Ben S.
Bernanke is ending the year with more credibility in the markets than he had
when he took office in February.
Early on, doubts abound about Bernanke's commitment to fight inflation and
charges that he was too candid about his policy. But investors now are giving
the Fed chief a vote of confidence.
The yield on the benchmark 10-year Treasury note has dropped to 4.65 percent
from 5.25 percent in June, even though Bernanke stopped raising interest rates
in August with inflation above his declared comfort level.
Traders now are confident that Bernanke will keep prices under control. In fact,
they're counting on rate cuts in 2007.
Indeed, the Fed chairman's prediction that inflation would gradually diminish is
coming true. The Fed's preferred price gauge rose 2.2 percent in the year
through November, down from 2.5 percent in August. The core personal consumption
expenditures price index was unchanged from October.
In addition, one gauge of inflation expectations that Fed officials keep their
eyes on — the difference between the yield on 10-year Treasuries and Treasury
Inflation Protected Securities (TIPS) — has dropped during the past six months.
Just yesterday it was down 2.26 percent from the year's high of 2.74 percent in
May.
JP Morgan Chase & Co.'s chief economist Bruce Kasman said, "The Bernanke Fed
showed us that they're both committed to their inflation objective in the medium
term" and "more flexible in how they're going to respond in a real-world
environment."
He added that Bernanke's early "missteps" in public statements have become
"rather modest issues. He's been relatively conservative in the way he's
communicated" since then.
Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ in New
York, also gave Bernanke the thumbs up.
"If there were any concerns about the Fed having let the inflation genie out of
the bottle, you cannot see it in the market. I give the current Fed
administration high marks in knowing just when to pause in that long series of
17 consecutive rate hikes."
Neal Soss, chief economist at Credit Suisse in New York, concurred. "There is a
presumption on Wall Street that the Federal Reserve is a competent institution,
and there is a presumption that the chairman is a competent leader of that
institution. Was it shaken to the point of breaking anything? No, it was not.
Markets are very forgiving in that sense. They have a very short memory."
Editor's Notes:
Editor's Notes:
