Economic Watchdog, May 14
May 14, 2008
Economic news has been in the spotlight Wednesday with stocks gaining ground following CPI release. Consumer prices have been the focus today, but data on mortgage applications and crude inventory levels were also released. Overall, traders have turned bullish on the news, but there remain plenty of concerns about pricing pressures as well as economic slowing.
Mortgage applications for the week ending May 9 fell slightly to a level of 378.5. However, the refinancing index moved higher on a decline in mortgage rates. The 30-year fixed rate fell 9-basis points 5.82 percent. Of course, mortgage applications have shown a lot of volatility, although they are down sharply from the year ago period. The housing sector got some good news yesterday when former Fed Chairman Alan Greenspan stated that he feels that a bottom will be hit early next year.
Oil prices are falling Wednesday, though they remain at extremely high levels. Crude for July delivery fell $1.55 a barrel to a price of $124.04. Prices have fallen despite only a small gain of 200K barrels for crude inventory levels. Gasoline stocks moved lower by 1.7 million barrels, yet crude is down on a gain in the dollar and a pickup in refinery activity. The mild decline in prices doesn’t mean a lot to consumers who are seeing record prices at the pumps with unleaded gasoline rising to another record of $3.758 a gallon.
Consumer prices rose during April, but gains came in below estimates. The headline figure rose 0.2 percent with the core up 0.1 percent. Both figures were a tenth below expectations. Food and apparel saw the largest gains with transportation falling 0.7 percent. Ironically, airline fares fell half a percent, which have since headed higher. During the past year, the CPI is up 3.9 percent, down a tenth from March’s figure. The core rate is up 2.3 percent year on year, also a tenth below March.
Traders viewed the news as a positive, although very few economists are ready to say pricing pressures will ease going forward. In fact, there are risks that a sharp decline in interest rates to help economic growth could lead to inflationary pressures. Fed leaders have been talking about inflation concerns, hoping to talk down prices to some degree. Fed fund futures are pricing in rate hikes toward the end of 2009 on the expectation that an improving economic outlook will lead to pricing pressures.
Thursday’s calendar will see the release of several key reports including jobless claims, industrial production and regional manufacturing activity data from the Philly Fed survey and the Empire State Mfg. Survey. Fed Chairman Bernanke is also set to speak about risk management in Chicago with an audience Q&A expected.
Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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