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World Week Ahead: Inflation and 2011

World Week Ahead: Inflation and 2011

(BusinessDesk) December 13 - It’s the final five day trading week of the year in North America and investors are expected to start heading to the holiday sidelines.

Equities in particular have had a solid run recently and they appear to have entered into a steady as she goes phase.

As a result, this week investors are expected to start to position themselves more aggressively for 2011, which is poised to focus on price pressures.

The key fights lie in China where authorities plan to accelerate efforts to check inflation, and in the U.S. where efforts will continue to bolster the economy, and push prices higher to silence deflation talk.

The U.S. Federal Reserve meets for the last time this year on Tuesday in Washington. While no new policy moves are expected, it will be an opportunity for Ben Bernanke and his colleagues to reaffirm plans to buy US$600 billion of bonds through next June.

In line with recent data, a report on Friday showed that consumer sentiment in the U.S. was strong, reflecting an improving labour market. The latest data showed that new claims for unemployment benefits fell more than expected and the four-week moving average slipped to a fresh two-year low.

"We are in the gradual recovery camp and are definitely on the upper side of that now," Pierre Ellis, senior global economist at Decision Economics in New York told Reuters on Friday. "It adds to a growing number of economic indicators that are looking better-than-expected."

The S&P 500 closed on Friday at its highest level since September 2008 and the Nasdaq scored its best finish since late December 2007.

“We’re starting to see reallocation out of safer Treasury assets into riskier equities as investors become more comfortable with growth in 2011,” David Spika, a Dallas- based investment strategist at Westwood Holdings Group Inc., told Bloomberg.

With equities on a steadier path, and an expectation that trading volumes will slow the next few weeks, the focus will shift to the economic outlook and how to position for it.

In the U.S. this week will offer fresh insight on retail sales, consumer prices, homebuilding as well as industrial output. The Fed also will provide a more general update on its perception of the state of the world’s biggest economy.

This weekend China appeared to set its agenda for 2011: maintain steady growth and keep prices in check. It reported on Saturday that consumer prices surged 5.1% last month.

Chinese leaders reiterated their longstanding policy of keeping the yuan "basically stable" at a reasonable and balanced level next year.

"We will further improve the yuan exchange rate formation mechanism and keep the yuan exchange rate basically stable at a reasonable and balanced level," state media said.

It’s been a busy and at times volatile year for investors. A few quieter weeks of trading may top the Christmas wish list of many of them.


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