China's Rising Gas Prices May Help U.S.?

It was a mixed day, which started poorly with a big earnings warning from HMO Coventry , as well as Burlington Northern and Smucker's , which noted higher soybean oil and wheat costs were hurting their bottom line.

However, things improved midday. While Coventry warned, two other HMOs--Aetna and Humana both said they would meet earnings expectations.

Later in the day, southeastern bank giant BB&T said their capital position remains strong and they "anticipate some increase in the cash dividend during 2008." Not only did BB&T rally into positive territory (it was down almost 10 percent), but other regional banks like Suntrust also rallied modestly. Bottom line: BB&T became the first regional bank to exorcise the "dividend-cut monster." Other financials, and indeed the overall market, rallied modestly.

Finally, while cruise ship company Carnival Corp reduced its full year guidance, citing higher fuel costs, they also noted that occupancy levels for bookings in the following year are in line with last year, with higher ticket prices. This moved the stock up steadily throughout, ended up about 5 percent.

Separately, the news that China is raising gasoline prices is good news for those of us who would like to see the price of oil come down, however it is not good news for China. The Shanghai Composite Index of Chinese stocks dropped another 6 percent today, to a new 52-week low, a full 55 percent below its historic high last October. Even Chinese-based ETFs are weak; the iShares FTSE/Xinhua China 25 Fund is 36 percent off its historic highs.

Chinese stocks have been down for the same reason our markets are down: the twin whammies of higher inflation and a potentially slower economy, though in China's case a slower economy may simply mean sub-10 percent growth annually.

However, raising gasoline prices for them is different than raising for us. First, even modest increases in gas prices there may have a much bigger impact on their economy than on ours. Second, China is a huge exporter, including to the United States. They will undoubtedly be raising prices of their export goods; this of course will cause more inflation in the U.S.; it may also reduce demand for some Chinese goods, which of course hurt the Chinese.

Questions? Comments?