Global Theme: Inflation Worries

While the markets are relatively calm this morning, inflation worries are still at the top of everyone's agenda.

In China, a measure of inflation at the factory rose 8.2 percent in May, the highest in nearly four years, thanks to higher raw material costs. Inflation in Asia is a particular concern, because many countries there have very little account surpluses, heavily subsidize their citizens' fuel consumption, and import much of their food and energy. This includes Korea, the Philippines, Thailand and Vietnam.

That -- combined with a slowdown in exports -- is what has the Asian governments truly worried.

Inflation comments even seeping into analyst remarks. Today:

--Bernstein reduced the price target on Boeing , saying "The rise in oil prices during the last two months has created the risk that GDP growth will slow, which could shorten the commercial aircraft cycle."

--JPMorgan downgraded Alcoa , citing in part higher raw material costs (down 3 percent pre-open);

--Goldman Sachs lowered estimates on some of the big railroads due to higher fuel costs and lower volumes.

Elsewhere:

1) Ford has already said it would be putting off its plan to return to profitability. Now, it's assembling a plan to rapidly shift entire truck plants in the U.S. to car production, specifically some of the small cars it is producing in Europe, according to The Detroit News.

This will be real test of Ford's ability to do a rapid turnaround -- not just to simplify the product line but to introduce more fuel efficient vehicles. Rapid turnaround is not something the auto industry is not known for.

2) One of the few industries that have advanced this month is fertilizers; companies like Agrium and Potash remain near highs. On Wednesday, Agrium upped its earnings estimate for the second quarter due to strength in both its retail and wholesale business; up 8 percent pre-open.

3) Talbots affirmed its 2008 earnings forecast and said it had received a $50 million credit facility from its majority shareholder, Aeon. Up 5 percent pre-open.

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