America's Catch-22

*** Dixons proves it's not all gloom

*** Prepare for hostilities, the Deutsche Boerse says

*** US trade deficit balloons...America's catch22...inflation rebound?...and more... ------------------ Clothes? Food? Well, British consumers obviouslybought none of that over Christmas. But we certainlybought our share of iPods and digital cameras,electrical goods retailer Dixons said yesterday.

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According to Dixons, its pre-tax profit in thenormally dreary November beat analyst expectations byup to £15m. Like-for-like sales increased by 3% inthe four weeks to early January. And despite total UKlike-for-like sales falling 6% from the first half,Dixons anticipates reaching full-year analyst profitexpectations of £345m.

The competent trading figures pushed Dixons shares0.3% up yesterday, to close at 157p. The blue chipindex failed to emulate the digital retailer, falling0.7%. The index closed 35 points down at 4,783. TheAll Share index shed 0.5% to close at 2,400.

The FTSE250 proved resilient on Wednesday, climbing0.3% to trade at 6,976. The gain was largely thanksto a 23% surge by construction stock AggregateIndustries. Aggregate shot up 26p on talks it's onthe verge of being bought by Swiss cement maker,Holcim.

Investors pushed Aggregate's shares to 140p toequal Holcim's 140p per share bid. Yet whileAggregate investors piled into the trade, Holcimsupporters fretted about the impact on its ownearnings. Holcim's £1.8bn offer could increase to£2.4bn as the Swiss group deals with Aggregate's£600m debt.

Topps Tiles, on the other hand, shed 7% onWednesday. Topps investors were sent scurrying as theretailer warned it wouldn't be able to keep up itscurrent growth rate. Like-for-like sales gained 15%in the last three months but maintaining suchgrowth 'could prove to be challenging', the tilersaid.

Topps shares rocketed 140% last year, but hasalready shed 7% of its value in 2005. It closed at234p on Wednesday.

Oil heavyweight BP said it will deliver solidfourth quarter earnings. But its shares traded 0.3%lower after it admitted it failed to meet its targetof 4m barrels of oil per day by a few thousandbarrels. The UK group said oil and gas from its TNKBP operations soared by 35% year-on-year. The onlythorn in the group's side? Well, Russia's hike inexport duty looks likely to shave $170m off operatingprofit.

And the London Stock Exchange must either back theDeutsche Boerse's takeover offer...or prepare forhostilities. According to a source, Boerse chiefWerner Seifert told the LSE a hostile bid could be inthe pipeline. The LSE fell 0.3% yesterday, to closeat 588p. ------------------ The US trade deficit ballooned to a record $60.3bnin November, according to a government reportreleased yesterday. A record-breaking oil importbill, along with a drop in exports, took the tradegap to over $60bn for the first time ever. And leftWall Street pundits far behind who had predicted anarrowing deficit of $54bn.

'It's a disappointment,' one economist reckonedyesterday. '...The average price of crude oilremained high over that period and imports remainedstrong, so it really didn't play a factor in thismonth's number.'

Another factor yet to impact on the US deficit?Well, the falling dollar, of course. A weaker dollarshould help alleviate throbbing USdeficits...theoretically. Yet the dollar has alreadylost 15% of its value versus the euro since mid-2004.And 50% of that value over the past three years.

Yesterday the greenback shed a further 1.2% to theeuro, to trade at $1.327 by London's close. So willdollar weakness ever benefit the American deficits? Well, until it does, the US is really in a bit of acatch-22. While a sliding dollar may be good for USexporters, non-US investors certainly won't scrambleto invest in dollar-denominated assets. Is it anysurprise then that the Bush administration publiclybroadcasts its 'strong-dollar policy', whileseemingly ignoring it backstage?

As for the UK, well, we've narrowed our goods tradegap to £4.6bn in November well below analystexpectations of a £5.1bn deficit. And also £400m downfrom October's figure. Surging exports of petroleumproduct drove exports to highs last seen mid-2002.

And while the UK's easing deficit may be good newsfor the Bank of England's Monetary Policy Committee,don't expect them to touch interest rates. The MPCwill announce the fate of rates at noon today butare likely to leave them at the current 4.75%.

What's more, UK residents believe rates willactually increase further this year, a Lloyds TSBsurvey found earlier this week. Up to 70% of peoplereckon borrowing costs will be hiked, while only 11%foresaw a cut in the rate.

What does this mean for the UK consumer?

Well, that if consumers realise that interest rateshave peaked at lower levels than expected, thenprepare for a hefty rebound in inflation. Until tomorrow, Heather D'AltoMoney Mornin