CORRECTION WALL STREET OUTLOOK Up on better-than-expected housing, inflation

CORRECTION WALL STREET OUTLOOK Up on better-than-expected housing, inflation

	Published : Tue, 17 Apr 2007 14:26 By : Agencies Print this Story

(Correcting February housing starts figure)

LONDON (Thomson Financial) - Wall Street is looking at a higher open on better-than-expected housing and inflation data, with strong quarterly results from Coca-Cola and Johnson & Johnson underpinning gains.

Spread bettors IG Index expect the Dow Jones Industrial Average to open around 26 points higher at 12,745.

'The market took some comfort in the CPI numbers and on earnings it's been so far, so good,' said John Hughes, managing director at Epiphany Equity Research.

Hughes said the inflation report combined with better-than-expected housing data and a good start to the earnings season have eased some of the fears that have been dogging the market in the first quarter.

Investors have been worried that corporate profits have been hurt by a slowing economy brought about in part by a flagging housing market while inflationary pressures remain preventing the Federal Reserve from lowering interest rates.

Yesterday, stocks ended higher as better-than-expected profits at Citigroup and a healthy increase in consumer spending renewed investors' optimism about the economy and offered the Dow industrials a triple-digit gain.

There was good news on the inflation front after retail prices rose less than expected in March.

The consumer price index rose 0.6 pct, a touch below the 0.7 pct increase economists had expected. Core retail inflation, which excludes volatile food and energy prices, rose 0.1 pct in March, also a tick below expectations of 0.2 pct.

The data comes just a few days after a producer price report showing inflation moderating at the wholesale level.

There was also some unexpected good news on the housing sector.

Housing starts, which record the number of new homes on which builders have started work in a given month, rose to a seasonally adjusted annual rate of 1.518 mln in March from a revised 1.506 mln in February, according to IFR Markets.

Building permits, which are viewed as a gauge for future house-building activity, also rose a seasonally-adjusted annual rate of 1.544 mln from 1.532 mln in the prior month.

Economists had been expecting housing starts to fall to 1.485 mln and permits to 1.51 mln usd.

Meanwhile, industrial production in March is expected to have moderated in March, with IFR Markets forecasting a 0.1 pct rise after a 1 pct increase last month.

Capacity utilization is seen dipping to 81.9 pct from 82 pct. Rising capacity utilization levels tend to spark worry about inflation as factories struggle to keep up production levels to match demand.

Philadelphia Fed president Charles Plosser is scheduled to speak about the economic outlook at 13.30 BST while New York Fed president Timothy Geithner will talk about currencies at 17.30 BST.

Oil prices rose on expectations that tomorrow's US supply data will show a fresh drop in weekly gasoline stocks ahead of the summer driving season, with supply disruptions also lending support.

New York light sweet crude for May delivery was last up 46 cents at 64.07 usd a barrel.

The US dollar fell further against its major counterparts after the inflation data reduced the odds of any increase in US interest rates anytime soon.

It wallowed at a 15-year low against the pound as a stronger-than-expected rise in UK inflation took the British currency above the 2 usd level for the first time since 1992.

The rise in inflation fuelled speculation the Bank of England will have to lift interest rates.

The euro also notched up gains against the dollar after an upbeat survey on German economic expectations.

At the last check, the euro was up 0.3 pct at 1.3560 usd while sterling had shot up 0.8 pct to 2.004 usd. Against the yen, the greenback had fallen 0.3 pct to 119.39

Coca-Cola kicked off a heavy day for blue-chip earnings. The soft-drink giant's shares were up 0.9 pct at 50.70 usd in pre-market dealings after it posted a quarterly profit and sales that topped Wall Street expectations. A 3 pct drop in unit case volume in North America was offset by a 9 pct rise internationally.

Johnson & Johnson shares rose 3 pct to 64.89 usd in pre-market dealings as it became the third drugmaker after Merck and Eli Lilly to post strong quarterly results.

Fellow Dow members IBM and Intel Corp are all slated to release earnings along with Yahoo Inc.

Shares in Black & Decker are likely to move higher in early trading after the power tool maker said late yesterday that it expects first-quarter sales and earnings to exceed previous expectations.

The company, however, cautioned that a tepid US economy poses a challenge for the rest of the year.

Mark.Cotton@thomson.com

mc1/jsa/mc1/jlc/mc1/jlc

The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News.