Global food price rises adds to inflation risks

The United Nations Food and Agriculture Organization (UN FAO) said today that food prices had reached an all time high following the impact of the Egyptian crisis and potential knock on effect to traffic through the Suez Canal.

The FAO measures food prices from an index made up of a basket of key commodities such as wheat, milk, oil and sugar.The index hit averaged 230.7 points in January, up from 223.1 points in December and 206 in November. Ten years ago, the index was at 90, illustrating how prices have soared in the last five years. The FAO's Cereals Price Index, which includes prices of main food staples such as wheat, rice and corn, rose to an average of 244.8 points in January, the highest level since July 2008.

Prices have been driven up by a combination of increasing consumption, stockpiling and speculation. Bad weather has not helped, for example, with Australia badly hit in recent months by flooding and Argentina suffering a prolonged drought hitting beef production.

Rising food costs is bad news for the developed economies with inflation risks  increasing as a result of a general rise in commodity prices e.g. Brent Crude went over $103 dollars today. The Bank of England has a difficult task ahead with the threat of inflation but with sluggish growth.

Big day for markets tomorrow with U.S. employment data

The U.S. Dow Jones recovered to close up 20 points at 12,062.  U.S. Federal Reserve Chairman Ben Bernanke helped to revitalise the U.S. indices after he told reporters that recent economic data suggests that "a self-sustaining recovery in consumer and business spending may be taking hold" and said he expects the economy to grow at a faster pace in 2011. Bernanke minimised inflation pressures, which he said, in addition to a still-high unemployment rate, continues to justify the Fed's accommodative monetary policy and asset purchase program.

The markets will be highly geared tomorrow to the much anticipated U.S. non-farm payroll unemployment data for January. Economists are expecting payrolls to climb by145,000 in January after rising 103,000 in December. Expect a sluggish U.K. market until the news is confirmed before the U.S market open

No news again for Contrarian Investor UK portfolio, but tomorrow's another day!

Not one interesting RNS to get my teeth stuck into today for the Contrarian Investor UK portfolio. Surprisingly for a Falklands Islands oil share, even Rockhopper (RKH), seems to be keeping a firm lid on any rumours on the outcome of its latest drill, be they good or bad. Chief Executive, Sam Moody, Chief Executive, at Rockhopper seems to be keeping a tight ship compared with the likes of Desire Petroleum (DES) where we saw 30%+ swings in the share price on leaks, some more accurate than others. Nothing like that with RKH, a few pence here and there but nothing to write home about.

The FTSE 100 retreated 17 points to finish at 5,983 despite some good news from the U.K. service sector in January (services now represent 75% of the U.K. economy) which seemed to indicate that a double dip recession was unlikely due a further economic contraction in Q1 this year.

Shell dropped 3.3% over disappointment that its $18.6 billion profit in 2010 versus $9.8 billion in 2009 was not even higher due to some refinery output issues. Also analysts were expecting a dividend rise which didn't materialise.  At the other end of the spectrum, Glaxo Smithkline (GSK) rose 3.6% to £11.68 as it announced a £2 billion share buy back and an increase in its dividend of 7% to 65p. Sales for the year to 31 December was down to £28.4bn a 1% decline from the previous year, with its main pharmaceuticals business seeing sales drop 11% due to generic competition for some of its key drugs. Pre-tax profits were down to £4.5bn from £8.7bn.