Investors snapped up shares of technology bellwethers a day after the semiconductor index <.SOXX> fell for a fifth straight day. Apple Inc led the Nasdaq higher, climbing 1.8 percent to $121.59, while the semiconductor index gained nearly 2 percent.

Stocks in defensive sectors such as consumer staples and health care also advanced, with Coca-Cola Co (KO) up 1.6 percent to $44.34 and Pfizer Inc adding 0.8 percent to $15.39.

“What we’ve seen the past three days is not that money’s leaving the market, but just flowing in that (defensive) direction and trying to find the better deal,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.

The Dow Jones industrial average <.DJI> was up 22.86 points, or 0.28 percent, at 8,307.75. The Standard & Poor’s 500 Index <.SPX> added 3.23 points, or 0.37 percent, at 887.15. The Nasdaq Composite Index <.IXIC> gained 12.78 points, or 0.77 percent, at 1,676.97.

Data showed the number of U.S. workers filing new claims for jobless benefits rose to 637,000 and was more than expected in the latest week, according to government data, pushed up by plant shutdowns related to automaker Chrysler’s bankruptcy.

In another report, the Labor Department said prices received by U.S. producers rose at a brisk pace in April, driven by a surge in food costs.

May 14 (Reuters)

The strong export growth should also give China’s central bank more room to maneuver in its battle against escalating inflation at home.

After growing 21.9% in April, Chinese exports climbed 28.1% to $120.5 billion last month, China’s customs bureau reported. Exports to the United States grew 9.1% in the first five months of year, while exports to the European Union climbed 27.4%.

The increases demonstrate that global demand for Chinese goods remains strong, even though many Western markets are battling the fallout of a worldwide financial crisis. Indeed, the export statistics are serving as evidence of an economic theory known as “decoupling,” in which emerging economies in Asia and Europe have developed enough market place muscle to no longer be dependent on the U.S. economy for growth.

And “decoupled” markets can survive – and even thrive – even if the United States were to spiral down into a recession.

The report “suggests that those saying that exports are collapsing are wrong,” Stephen Green, head of China research at Standard Chartered Bank PLC in Shanghai, said in a report.

Trade did grow with the more mature economies of the West. But China got its biggest boost from such emerging markets as India. Two-way trade with India increased by 70% in the first five months of 2008, the fastest rate of growth among China’s Top 10 trading partners.

China is also forging stronger ties with Latin America. In 2004, Chinese President Hu Jintao predicted that Sino-Latin American trade would reach $100 billion by 2010.

In reality, it reached $102.6 billion in 2007, surging 42% from the year before.

The fact that Chinese exports have more than weathered the global financial storm is a huge blow for critics who had earlier predicted this credit-related mess would cause China to stumble.

China’s economy grew by 10.6% in the first quarter of 2008, despite complications stemming from the U.S. credit crunch, the Chinese New Year and the worst ice storm the country had seen in decades.

“We have a lot of evidence to support the decoupling view,” Timothy Bond, Merrill Lynch & Co. Inc.’s (MER) chief Asia economist, said in a research note.

Indeed, the recent surge in exports is proof that China will continue to advance – with all but a complete collapse of the U.S. economy. The growth in sales overseas sales, regardless of what happens in the United States, but they also proved that Chinese trade isn’t dependent on the weakness of the yuan.

The Yuan’s Rebound

For years, the United States and other Western powers have claimed that China has kept its currency, the yuan, artificially low to boost exports. But the yuan gained more than 10% on the dollar in the year through May, and still exports surged.

In the past year in fact, even with the freefalling dollar, China’s trade surplus with the United States has grown from $12.6 billion to$14.3 billion, a gain of 13%. And the fact that exports are accelerating along with the value of the yuan will give China’s central bank some latitude in dealing with inflation.

“Robust export growth could dispel domestic concerns that a stronger yuan is hurting exports too much,” Gene Ma, head economist at China Economic Monitor, told BBC News.

The yuan has appreciated 5% against the dollar so far this year, making Chinese goods more expensive in foreign markets. At its current rate, the yuan will almost certainly improve on the mere 7% gain it posted against the dollar last year. And that will help China control inflation and shift from what its central bank called “heated” growth to a more-sustainable economic expansion.

In fact, the effects of a stronger yuan already can be seen. Consumer inflation slowed to 7.7% in May from 8.5% the month prior, two government officials said Tuesday, citing statistics bureau data.

“Inflation has peaked, at least temporarily,” Ben Simpfendorfer, a currency strategist at Royal Bank of Scotland in Hong Kong, told Bloomberg. “Pork prices have stabilized to some extent. Vegetable prices certainly have.”

Food costs account for 34% of China’s consumer price index, and growth in agricultural prices slowed to 19.3% in May from 24.2% a month earlier, according to the Ministry of Agriculture.

The Consumer’s Viewpoint

Furthermore, the recent surge in oil prices probably won’t affect China’s consumer prices because of generous government subsidies. The government can afford to subsidize the price of fuel and is likely to continue to do so, Mark Williams, an economist at Capital Economics Ltd., said in a recent report.

“Even if international oil prices remained at their current levels, the total net subsidy bill for the year would probably amount to less than half of one percent of GDP,” Williams wrote in a June 5 report. “The costs of keeping prices down are still manageable given the strength of China’s state sector. Officials are wary of anything that could raise inflation expectations.”

And even though as producer prices climbed an astonishing 8.2% in May, inflation could still recede in the second half of the year – in part because figures will be compared with prices from last year when food prices soared uncontrollably.

“The worst is behind us now,” Paul Tang, an economist with the Bank of East Asia Ltd. (OTC ADR: BKEAY) in Hong Kong, told Bloomberg. “The question is more about at what pace the improvement is going to be realized in coming months.”

Source: China’s Export Machine Shifts Into High Gear, Even as U.S. Market Decelerates

Every business is affected by oil. As long as crude oil remains above US$80-$85 per barrel, I’m staying defensive in stocks. The market is slowly beginning to discount another difficult period ahead for corporate earnings.

With oil prices soaring nearly 40% in just three months, companies are going to start revising their expectations for the next 3-6 months just because input costs are squeezing margins. There is just no way earnings are going to boom in the midst of surging energy costs.

If companies are being squeezed by high oil, what about the consumer? Will the American consumer come to the rescue and support a flagging economy?

The government’s US$100 billion fiscal stimulus package is now hitting American households this month. But I’ve got to wonder what an average US$1,000 check will do to boost spending? With gas prices quickly approaching US$4 per gallon and food costs sharply higher over the last 12 months, any boost in discretionary spending will largely be directed towards energy and food, not a new car or a vacation.

The sub-prime crisis is now largely history. That’s the good news. The bad news is that a new wave of write-downs lies ahead in the consumer installment debt sector. We’re also approaching a storm for earnings expectations amid high oil prices, a protracted bear market in housing and a contraction in bank credit.

ERIC ROSEMAN, Investment Director

Source: Why I’m ‘Still’ Bearish on Stocks

Chancellor Eyebrows is going to have a private meeting with some supermarket men to talk about rising food costs. But the Treasury won’t give any specifics — it’s all a bit hush-hush…

Airlines cower in fear as oil hits a new high of $135 a barrel. I argued last Tuesday that high oil prices are set to wreak havoc on the UK economy.

It’s all very depressing. So, to cheer us up, let’s talk about something shiny!

Gold!

“The recent correction in gold appears to be over for now,” says my colleague Garry White. “Now is most definitely a time to buy gold.”

The reason is that inflation is on the rise. Last month’s monthly US inflation figures came out at 0.2%. But few people believe the true figure is anywhere near that low.

The same is true this side of the Atlantic. Between April 2007 and April 2008, consumer prices rose 3.0%, according to official figures. We all know that’s unrealistically low.

So, more and more investors are buying gold as a hedge against inflation.

Last Friday, Garry tackled the question of which made a better inflationary hedge — oil or gold. As he sensibly pointed out, you don’t actually have to choose, so why not have both? The signs are bullish for both commodities.

But with oil passing $135 a barrel yesterday, you may be starting to worry that a bubble is forming. There’s certainly a strong case to be made for taking a second look at gold, even if you are already invested.

As Garry explains today, some experts reckon gold is the trade to be in right now.

But you need a strategy. No market goes up in a straight line, so what’s the best way to play this?

Garry suggests setting a sensible level and ‘buying on dips’ below that price — a tried and tested way of maximising your gains.

Find out what Garry believes is the best way to play gold, as well as the best strategy to employ right now.

Banking shares — a perspective

As we’ve mentioned before, Theo Casey, my number-crunching right hand man, is wary of the banking sector. He smells a value trap…

But here at Fleet Street Daily we like to present more than just the one view. Our penny share guru Tom Bulford disagrees that it’s a trap. The value in shares like Royal Bank of Scotland looks genuine to him.

“One thing I was told when I was a young fund manager,” he says, “was to buy shares when the yield exceeds the price earnings ratio.”

That is the case for the Royal Bank of Scotland (RBS) even if it halves the dividend.

Recommended

—FLEET STREET LETTER ALERT—

3 “Gloom-Loving Stocks” for the Coming Recession

Dark clouds are gathering over the UK economy.

But for contrarian-minded investors, this spells opportunity.

The Fleet Street Letter has just been given permission to share three such money moves with you today.

You can read the full briefing here.

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Thirdly, banking shares are beaten down because banks are carrying out rights issues. RBS is raising £12 billion, HBOS £4 billion, and there is speculation that others will follow.

But Tom points out that this is just a technical problem. It will pass, and the financial positions of the banks will be strengthened by the extra funds raised.

We’re not saying you should go out and fill your boots with finance stocks. But it’s an interesting point of view — the value that’s been uncovered could well represent a genuine buying opportunity.

But Tom himself isn’t especially interested in the big name financial shares. They’re far too mainstream for him!

He’s a penny shares man — going after small, undiscovered shares trading for pennies, the ones that tend to make the fastest and largest gains.

Tom’s hunting ground is a tiny arm of the London Stock Exchange called the Alternative Investment Market.

Find out more about Tom’s investment philosophy, including why the smallest names can often make you the biggest money.

• Deere & Co. (DE), the world’s biggest maker of farm machinery, said yesterday (Wednesday) that its second-quarter profit rose 22%, mostly due to a jump in overseas sales. However, the company warned that rising costs of raw materials could cut into its earnings in the months ahead, the Associated Press reported. Profit for the period ended April 30 reached $763.5 million, or $1.74 per share, up from $623.6 million, or $1.36 per share, last year.

• E.I. du Pont de Nemours & Co. (DD) – commonly known as DuPont – said yesterday (Wednesday) that it would form a new joint venture with Genencor, a division of Danisco A/S, to develop and commercialize cellulosic ethanol, or fuel derived from nonfood sources. The venture, to be called DuPont Danisco Cellulosic Ethanol LLC, will focus initially on making fuel from the leaves and stalks of corn and from sugar cane bagasse, the Associated Press reported.

• SABMiller Brewing PLC (SBMRY) said yesterday (Wednesday) that it would buy the rights from rival Anheuser-Busch Cos. Inc. (BUD) to distribute Grolsch beer in the United States, the Associated Press reported. Anheuser-Busch acquired distribution rights to the Dutch beer in February 2006, but SABMiller took over Royal Grolsch NV this past February for $1.2 billion.

• As China recovers from the devastating 7.9 magnitude earthquake, some economists say the government is less inclined to raise interest rates in the near future, despite widespread inflation. “In the coming months there will be no rate hikes,” Ting Lu, an economist at Merrill Lynch & Co. (MER) in Hong Kong, told Bloomberg. “During a natural disaster policy makers will be very careful not to use aggressive policy tools.”

• Shares of BHP Billiton Ltd. (BHP) rose yesterday (Wednesday) amid speculation that Aluminum Corp. of China Ltd. (ACH) is interested in acquiring a stake in the world’s biggest mining company, Bloomberg reported. If it happens, it could add an interesting twist to BHP’s $178 billion hostile offer for rival Rio Tinto plc (RTP), as Aluminum Corp. of China recently purchased a stake in Rio in February.

• Whole Foods Markets Inc. (WFMI) shares dropped 14% yesterday (Wednesday) when the high-end food retailer reported that same-store sales open for a year or more only increased 6.7%. The once-popular food chain has been hard hit as consumers seek out bargains to make the weak dollar stretch farther. Whole Foods shares shed $4.68 to close at $28.96.

• Higher food and packaging costs took a big bite out of Jack in the Box Inc.’s (JBX) bottom-line. Same-store sales dropped 0.1% for the San Diego-based fast food chain in its fiscal second quarter. Shares dropped over 10%, with a decline of $2.90, to close at $24.87 yesterday (Wednesday).

• Shares of U.S. mortgage giant Freddie Mac (FRE) gained more than 9% yesterday (Wednesday) after the firm announced a smaller loss due to accounting changes that reduced charges by $2.6 billion. Freddie Mac shares gained $2.29 to close at $27.25.

Source: Global Investing Roundups: Thursday, May 15th, 2008

Starbucks, the coffee house chain, on Wednesday blamed a “sharp weakening” in the consumer economy for an unexpected decline in its US sales, sending its shares plunging more than 10 per cent in after-hours trading.

Howard Schultz, who returned to the role of chief executive in January, said “the current economic environment is the weakest in our company’s history”, citing the housing slump and rising energy and food costs.

The company’s history goes back to 1971, the year Bretton Woods fell apart and Nixon closed the gold window. So for Schultz, things are worse now than the double-dip recession in the early 80s, the worst of the postwar era. Grim stuff indeed for a company whose entire business model is built on an “affordable luxury.”On the subject of historical comparisons, Robert Shiller — he of the Case/Shiller home price index — is going all the way back to the Great Depression, when housing prices dropped 30%. He says an even bigger drop is possible now (with prices having already fallen 15% in his estimation).

Home prices rose about 85% from 1997 to 2006 adjusted for inflation, the biggest national housing boom in U.S. history, Mr. Shiller said. “Basically we’re in uncharted territory,” he said. “It seems we have developed a speculative culture about housing that never existed on a national basis before.” Many people became convinced that housing prices would increase 10% annually, a notion Mr. Shiller called crazy.

And there’s another property time-bomb looming. In fact, it’s one of five “super shocks” about to hit the U.S. economy and stock market in the very near future. For a seven-part defense strategy, check out this special report.

But first, congratulations to Andrew Forrest! Ever since Lang Hancock and other pioneers opened up the Pilbara to the world in the 1950s, the region has been dominated by BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO). Those two quarreling love birds have thus far owned all the rail and port infrastructure to export Australia’s red iron ore to China, Japan, and Korea.

The duopoly has become a triopoly as of this weekend. Fortescue Metals (ASX: FMG) completed the rail line between its Cloudbreak mine and its new port facilities on the coast. Fortescue still hasn’t actually shipped any iron ore yet. But the company can now get the iron ore from the mine to the sea. Its first shipment is scheduled for next month.

Don’t expect Fortescue to produce iron ore in the same volume as the big boys. But then, it doesn’t have to. The iron ore market has changed at the margin. Smaller steel makers in Asia are more than willing to enter into contract agreements with smaller ore producers in Australia.

This is a key feature (and opportunity) in the resource boom: the expansion of consumers has led to an expansion in producers. The marginal producers (some of them anyway) are now economically viable. The whole market is bigger, giving retail investors more to choose from in the share market.

Three billion people in the world eat rice as a staple of their daily diet. No wonder there are rice riots. Javier Blas of the Financial Times reports that, “Rice prices rose more than 10 per cent yesterday to a record high as African countries joined south-east Asian importers in the race to head off social unrest by securing supplies from the handful of exporters still selling the grain in the international market.”

Rice farmers are sitting on huge profits. It’s not complicated. There are more buyers than sellers. And the sellers are selling something pretty valuable: daily calories. This isn’t your garden variety shortage in video game consoles or iPhones.

“The rise in prices – 50 per cent in two weeks – threatens upheaval and has resulted in riots and soldiers overseeing supplies in some emerging countries… The increase also risks stoking further inflation in emerging countries, which have been suffering the impact of record oil prices and the rise in price of other agricultural commodities – including wheat, maize and vegetable oil – in the past year.”

“Bankruptcy filings jump 30%,” reports the Los Angeles times. “More than 90,000 bankruptcy filings were made in March, the highest since insolvency laws became more restrictive in October 2005,” the Times reports. “California led the nation with a 42% increase in bankruptcy filings at an annual pace in the first quarter, according to Jupiter ESources.”

California is always at the leading edge of American economic trends. This is not a good sign. The bankruptcy laws passed in 2005 were a big fat wet legislative kiss to the credit card companies. They make it very hard for Americans to declare bankruptcy. The fact that so many have anyway tells you how grim the situation is.