Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19
It’s Not Technology but the Fed That Is Taking Away Jobs - 16th May 19
Learn to Protect your Forex Trading Capital - 16th May 19
Gold Ratio Charts Offer The Keys to the Bull Market - 16th May 19
Is Someone Secretly Smashing the Stock Market at Night? - 16th May 19
Crude Oil Price Fails At Critical Fibonacci Level - 15th May 19
Strong Stock Market Rally Expected - 15th May 19
US China Trade Impasse Threatens US Lithium, Rare Earth Imports - 15th May 19
Gold Mind Reader's Guide to the Global Markets Galaxy: 'Surreal' - 15th May 19
Trade Wars and Other Black Swan Threats to Your Investments - 15th May 19
Our Long-Anticipated Gold Momentum Rally Begins - 15th May 19
Defense Spending Is Recession Proof - Defense Dividend Stocks - 15th May 19
US China Trade Issues Will Drive Market Trends – PART II - 14th May 19
The Exter Inverted Pyramid of Global Liquidity Credit risk, Liquidity and Gold - 14th May 19
Can You Afford To Ignore These Two Flawless Gold Slide Indicators? - 14th May 19
As cryptocurrency wallets become more popular, will cryptocurrencies replace traditional payments? - 14th May 19
How US Debt Will Reach $40 Trillion by 2025 - 14th May 19
Dangers Beyond a Trade War with China - 14th May 19
eBook - Greatest Tool for Trading? - 14th May 19
Classic Pitfalls for Inexperienced Traders - 14th May 19
Stock Market S&P 500 Negative Expectations Again - 13th May 19
Why Rising Living Standard in China Offers Global Hope - 13th May 19
Stock Market Anticipated Correction Starts On Cue! - 13th May 19
How Chinese Trade Issues Will Drive Stock Market Trends - 13th May 19
Amazon SCAM Deliveries for Fake Verified Purchaser Reviews "Brushing" - 13th May 19
Stock Market US China Trade War Panic - Video - 13th May 19
US Stock Market Leading Macro Economic Indicators Update - 12th May 19
SAMSUNG - BC94.L - Investing in AI Machine Intelligence Stocks - 11th May 19
US Increases Trade Tariffs Against China – Stock Markets, Gold, and Silver - 11th May 19
Who Has More To Lose In A No Deal Brexit? - 11th May 19
Gold at $1,344 Will Start Real Fireworks on the Upside - 11th May 19
Make America’s Economy Great Again - 10th May 19
Big US Stocks’ 2019 Fundamentals - 10th May 19
Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - 10th May 19
Stock Market Shake-Out Continues – Where Is The Bottom? - 10th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

Inflation and Interest Rates at Forefront of this Weeks Economic Data

Economics / US Interest Rates May 19, 2008 - 10:39 AM GMT

By: William_Patalon_III

Economics

Best Financial Markets Analysis ArticleYou can bet there will be a lot of discussion about interest rates this week, thanks to the release of the producer price index (PPI) report tomorrow (Tuesday) and the U.S. Federal Reserve meeting minutes on Wednesday.

The PPI report will undoubtedly rekindle the inflation-versus-recession debate (with more than a few comments about stagflation thrown in for good measure).


While the wholesale inflation gauge (PPI) provides another look into how escalating food and energy prices are impacting the economy, the most recent moves in oil and gas may not be factored in for another month or two.

On an optimistic note, gasoline prices historically peak around Memorial Day and then fall throughout the remainder of the summer. As we've said here a number of times before, don't expect that pattern to repeat itself this year [Indeed, please click here to check out a related story in this issue of Money Morning that details our expectation that oil-and-gasoline prices are headed even higher].

In this column four weeks ago, we told you to ignore a U.S. Energy Department forecast that gasoline prices at the pump would reach $3.73 a gallon before falling. In fact, I said flat out that the Energy Department was wrong . And Money Morning Investment Director Keith Fitz-Gerald shortly thereafter reiterated that belief that the Energy Department's prediction was way off the beam . And how right we were - that price already has been surpassed and consumers in some parts of California and Hawaii are paying in excess of $4.00 a gallon.

Less than two weeks ago we actually boosted our target price for oil to $225 a barrel (remember that Keith Fitz-Gerald, now Money Morning 's investment director, was probably the first investment guru to predict triple-digit oil prices).

As noted, however, much of this won't be reflected for a couple of weeks.

Wednesday's release of the minutes from the last Fed meeting should provide investors with a bit more insight into the mindsets of central bank policymakers and just how likely they will be to stand pat on interest rates: In one of the most aggressive rate-cutting campaigns in the central bank's history, policymakers have pared the benchmark Federal Funds rate seven times since mid-September. Investors expect the Fed to sit tight (and hold off on further rate activity) at least through the summer months.

More retailers will report this week [ Target Corp. ( TGT ) , The Home Depot Inc. ( HD ) but few surprise are expected at this point in an earnings cycle that - except for the discounters - has been full of disappointing retail-sales reports .

The Money Morning Story SNAFU

When they received their daily e-letter last Monday, sharp-eyed Money Morning readers noticed something peculiar about this column.

It seemed familiar.

There's a very good reason they felt that way. They were right.

Due to a technical problem, and some human error, the column we'd put together for Monday's newsletter was inadvertently replaced by the afore-mentioned April 14 story in which we'd told you that the Energy Department's optimism about summer gasoline prices was wrong.

We replaced that story on the Web site with the correct piece - a warning about the week's upcoming retail-sales reports, but we heard about the mistake. As we deserved to.

As bad as we felt about the mistake, we still found several positives. First and foremost, we were reminded yet again that we have a loyal following that reads our work closely and carefully - and for the most part enjoys and benefits from what we do.

And if you all had to read one of our "old" stories a second time, I'm happy to say that it was a strongly worded prediction piece that proved us correct.

Market Matters

Over that past year-plus, the subprime debacle and related credit crisis have prompted discussions about "disaster," "devastation," "tragedy," and "catastrophe."  Homeowners were unable to afford their houses, institutions faced significant asset write-downs, hard-working folks lost jobs, and investors watched portfolio values decline.  While these financial consequences undoubtedly have been traumatic for many, the events of the past two weeks can serve to lend some perspective.  The death toll in Myanmar has reached about 80,000 with another 50,000 people still missing.  Likewise, in China, where the earthquake eventually may take over 50,000 lives as well.  Somehow, missing quarterly earnings by a few cents simply does not seem quite as significant. 

Speaking of…earnings season plugged along and the results to date have given some analysts (the slightest) reason for optimism.  As the week began, about 90% of Standard & Poor's 500 Index companies had reported and 62% actually beat expectations.  While average quarterly earnings have plummeted by over 17% on a consolidated basis, the results looked far stronger once the financial firms were removed from the equation.

Without that struggling sector, first-quarter profits actually increased by more than 7%.  Retailers took center stage this week as Wal-Mart Stores Inc. ( WMT ) proved again that discounters are benefiting from the current consumer nervousness.  However, while Macy's Inc. ( M ) and JC Penney Co. Inc. ( JCP ) suffered from weak sales, their results (and guidance) bested Street projections.  Sony Corp. (ADR: SNE ) rebounded as TVs and cameras moved back onto consumer shopping lists.  Bond insurers MBIA Inc. ( MBI ) and Freddie Mac ( FRE ) reported wider losses, while UK-based HBSC Holdings PLC (ADR: HBC ) realized higher profits.   

Board directors and corporate execs again played "Let's Make a Deal" as CBS Corp. ( CBS ) announced its intent to buy CNET Networks Inc. ( CNET ) ; Hewlett-Packard Co. ( HPQ ) made overtures toward Electronic Data Systems Corp. ( EDS ) ; General Electric Co. ( GE ) is reportedly putting its long-time appliance biz up for auction ; and billionaire stakeholder Carl Icahn pushed for Yahoo! Inc. ( YHOO ) management to reopen talks with Microsoft Corp. ( MSFT ) .  Analysts often welcome merger news and consider it a positive sign of a rebounding business climate.  Research in Motion Ltd. ( RIMM ) shares soared this week on news that its newest Blackberry creation will soon hit the market; and Merck & Co. Inc. ( MRK ) received a major victory when a Texas appeals court overturned a Vioxx verdict that, initially, awarded $32 million in damages. 

Goldman Sachs Group Inc. ( GS ) apparently enjoyed the limelight (and the stir its analysts caused) two weeks ago. Last week, the investment bank was at it again, forecasting that crude prices will rise to $141 a barrel during the second half of 2008.  Oil surged to about $128 a barrel late last week as gasoline prices soared to over $3.75 a gallon - just a week before the widely-traveled Memorial Day weekend.

The S&P 500 Index and the Nasdaq Composite Index each hit five-month highs, although some profit-taking set in as the week came to a close.  Hopefully, the weekend will bring some positive developments in Myanmar and China (or, at least, a beginning to the end of the devastation).           

Market/Index Previous Week
(05/09/08)
Current Week
(05/16/08)
YTD Change
Dow Jones Industrial 12,745.88 12,986.80 -2.10%
NASDAQ 2,445.52 2,528.85 -4.65%
S&P 500 1,388.28 1,425.35 -2.93%
Russell 2000 720.05 741.17 -3.25%
Fed Funds 2.00% 2.00% -225 bps
10 yr Treasury (Yield) 3.77% 3.85% -19 bps

Economically Speaking

As regular Money Morning readers know all too well, we are big believers that Wall Street analysts are a fickle bunch.  Just a few weeks ago, virtually everyone and their mothers believed that a recession was fait accompli (my mother was a holdout).  In a recent Merrill Lynch & Co. Inc. ( MER ) survey, only 29% of global fund managers expect the whispered-about "R" word to become a reality and many now feel that inflation is a greater domestic concern.  Some economists are crediting the work of the Fed for improving the credit markets, though Federal Reserve Chairman Ben S. Bernanke himself claimed that the situation remained "far from normal."  Bernanke, however, did praise financial institutions by noting that he is "encouraged by the recent ability of banks to raise capital from diverse sources."  Meanwhile, the bankers themselves continued to offer less-than-favorable assessments.

JPMorgan Chase & Co. ( JPM ) Chief Executive Officer James "Jamie" Dimon believes that the credit crisis is nearing an end, but " the recession is just beginning ."  Likewise, Bank of America Corp. 's ( BAC ) Global Consumer Banking president, Liam E. McGee , finds that consumers still feel " significant economic pressure ." 

Turning to the numbers, retail sales dropped by 0.2% in April, as auto sales suffered its worst showing in 10 months.  Once autos were factored out of the data (some economists always look for that silver lining), retail sales actually surged by 0.5%, a much better result than many analysts had expected.

Likewise, the news from the inflation front was not half-bad either.  The consumer price index (CPI) climbed by only 0.2%, despite the significant rise in food costs.  Still, many economists point out that oil and gas prices are setting new records daily (thanks Goldman), and the overall inflation picture may get worse before it gets better.  Though housing starts skyrocketed in April - recording their largest gain in over two years - the naysayers remain pessimistic on the sector, contending that the increase was the result of apartment construction and noting that single-family home starts continue to struggle.  Despite some positive economic readings, a consumer confidence poll revealed that recent sentiment fell to its lowest level in 28 years. 

Weekly Economic Calendar

Date Release Comments
May 12 Treasury Budget Statement (04/08) April surplus over 10% lower than in 2007
May 13 Retail Sales (04/08) Net loss, though gains when factoring out weak auto sales
May 14 CPI (04/08) Better than expected reading on retail inflation
May 15 Initial Jobless Claims (05/10/08) Slight increase in claims
Industrial Production (04/08) 2nd consecutive monthly decline
May 16 Housing Starts (04/08) Biggest increase in construction in more than 2 years
The Week Ahead
May 19 Leading Eco. Indicators (4/08)
May 20 PPI (04/08)
May 21 Fed Minutes
May 22 Initial Jobless Claims (05/17/08)
May 23 Existing Home Sales (04/08)

News and Related Story Links:

By William Patalon III
Executive Editor

Money Morning/The Money Map Report

©2008 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

William Patalon III Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules