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Trichet Warns on Inflation

S&P futures moved to the highs of the morning after weekly initial jobless claims came in lighter than expected: 368,000 vs. 395,000 expected.

However, the big story of the morning is the rally in the euro, and corresponding decline in the dollar.

Trichet made hawkish comments on inflation, saying strong vigilance is warranted and the risks to the inflation outlook have moved to the upside. The implication: rate hikes are coming in Europe.

Why are U.S. stocks rallying, if the world is so uncertain? I've been asked that question repeatedly. Despite a lot of chaos, we are only about 2 percent below the multiyear highs we saw in mid-February.

The most common explanation I get from bullish traders: we are seeing some Middle East money leave that region and come to the U.S. They are pegged to the dollar, the Saudi market continues to look weak, Dubai is down over 15 percent year to date as well. As for oil, many still think the spike is temporary and Saudi Arabia will make up for the shortfall. Others insist Saudi Arabia does not have the spare capacity, certainly not to make up for Libya...and another country, if, say, Bahrain or Oman go offline.

Elsewhere:

1) February retail sales figures came in strong, even stronger than expected: up 4.3 percent, according to RetailMetrics, above expectations of a gain of 3.8 percent. Those numbers are especially impressive because estimates have been rising for the past several weeks, and they were up against tougher comps a year ago.

Of specific note: department stores continue to do well: Saks reported comps up 15.3 percent, WAY ABOVE estimates of about 5 percent, JC Penney at 6.4 percent, better than 3.0; Macy's (M) up 5.8 percent, better than 3.7 percent; Nordstrom (JWN) up 7.3 percent, better than 4.4 percent consensus. Gaps (GPS) was weaker than expected, Target (up 1.8 percent) was inline with their plan but below consensus.

2) World food prices hit a record in February, according to the U.N.'s Food and Agriculture Organization. Prices rose by 2.2 percent, the eighth consecutive increase.

3) MetLife and AIG's Alico Holdings priced its secondary: 146.8 million shares at $43.25; MetLife sold 68.57 million of that, and AIG 78.24 million. The purpose of all this is for AIG to dispose of the MetLife securities it owns, which it got when MetLife bought Alico.

4) Heinz (HNZ) rises 1 percent after beating estimates ($0.84 vs. $0.82 consensus). Margins rose slightly as sales mix, higher volumes, in price hikes "more than offset" higher commodity costs. Organic sales rose 1.7 percent, but the real growth came in emerging markets, which saw 14.1 percent growth.

With such growth in emerging markets comes greater investment in those regions. The foodmaker also announced today it is acquiring an 80 percent stake in the Brazilian maker of Quero brand tomato products (sauces, paste, ketchup) for an undisclosed amount.

5) Family Dollar falls 3 percent after the discounter rejected Trian's $55-$60 per share offer for the company. The Board declared the bid "substantially undervalues the company" and a sale "is not in the best interest of shareholders."

6) Led by a 24 percent rise in transatlantic traffic, US Airways saw its February traffic rise 4.1 percent. Traffic was helped by higher capacity, which offset the airline's slightly less full planes. Fares continued to rise, and the airline noted that those increases "will be sufficient to fully offset the increase in fuel prices."

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