End-of-year profit-taking

The Chicago purchasing managers index rose from 56.1 to a near four-year high of 60.0 in December (highest since January 2006). All major components of the index were sharply higher. But the less-influential Kansas City manufacturing index eased from 17 to 10 in December.

European shares fell for the first time in seven days on Wednesday with banks and drugmakers leading the declines. Miners also lost ground. In London trade, shares in BHP Billiton fell by 0.9 per cent with Rio Tinto lower by 1.4 per cent.The FTSEurofirst index fell by 0.4 per cent with the German Dax down 0.9 per cent and the UK FTSE was down 0.7 per cent. The FTSEurofirst 300 is up 25 per cent in 2009 and headed for its best performance in a decade.

US sharemarkets finished flat in thin trade on Wednesday with investors booking profits on some of the year's best performing stocks. New York's Times Square was briefly evacuated on a security scare but trading wasn't disrupted on the Nasdaq. At the close of trade the US Dow Jones index was higher by 3 points or less than 0.1 per cent with the S&P 500 flat and the Nasdaq higher by 3pts or 0.1 per cent.

US treasuries were little changed on Wednesday. While economic data was encouraging, treasuries gained support from a softer sharemarket. A $32 billion auction of seven-year notes was met with strong demand with yields close to expectations. US 10yr yields fell 1pt to 3.79 per cent and US 2yr yields fell 1pt to 1.087 per cent.

Major currencies were again mixed against the greenback in thin European and US trade on Wednesday. The Euro fell from highs near $US1.4360 to $US1.4275, recovered to near $US1.4355 and was trading near $US1.4335 in late US trade. The Aussie dollar rose from lows near US89.00c to US89.55c, easing to US89.30c in late US trade. And the Japanese yen eased from 91.95 yen per US dollar to JPY92.75, holding near JPY92.45 in late US trade.

US crude oil prices rose on Wednesday. In the latest week US crude oil stockpiles fell 1.5 million barrels – in line with expectations. And cold weather in the US raised expectations of higher heating oil demand. The Nymex crude oil contract rose by US41c to $US79.28 while London Brent crude rose by US45c to $US78.04 a barrel.

Base metal prices were mixed in thin trade on the London Metal Exchange on Wednesday. Some investors started to take profits on the huge gains recorded over the year. Lead and copper prices have lifted 139 per cent over 2009. On Wednesday however, lead, nickel and aluminium fell 1.2-1.5 per cent while zinc and copper rose 0.5-0.9 per cent. And the gold price eased on Wednesday with the Comex quote down by $US5.60 an ounce to $US1,092.50 an ounce.

Ahead: In Australia, private sector credit and RP Data house prices are released. In the US, weekly jobless claims and the New York ISM index are released.

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Business Spectator's regular economist Adam Carr is on leave.