Economic Watchdog, July 8
July 8, 2008
Economic data will take a back seat to earnings this week, but this doesn’t mean the economy won’t remain a focus. Not only are economic reports a focus, but so are comments by Fed leaders and the price of energy.
Monday: None
Tuesday: ICSC-UBS Store Sales, Redbook, Pending Home Sales Index, Wholesale Trade
Wednesday: MBA Mortgage Applications, EIA Petroleum Status
Thursday: EIA Natural Gas Report, Jobless Claims, Chain Store Sales
Friday: International Trade, Import and Export Prices, Consumer Sentiment
Fed Chairman Bernanke spoke this morning to a forum sponsored by the FDIC. Mr. Bernanke did not talk about monetary policy, but did make comments about expanding regulation in the financial markets. He wanted banks to know that the Fed is not there to bail them out. This has been a concern considering that Bear Stearns (BSC) was helped by the Fed, but this was an extreme circumstance and one that was necessary in order to avoid more serious problems in the financial markets. The Fed chief also stated that the Fed is looking at extending its new credit facilities for primary dealers to keep stability in the financial markets.
Oil prices fell sharply for the second straight session, giving up $5.42 a barrel to a price of $135.95. This put crude down more than $9 during the past two sessions. A rising dollar and the fact demand for crude is likely to continue declining has pushed commodity prices lower. The EIA also projected that U.S. petroleum consumption will shrink by 400,000 barrels a day in 2008, which is a 40 percent higher than June’s forecast.
Same store sales data for the week ending July 5 continued to show improvement, although this is likely a result of tax rebate checks. The ICSC-UBS report showed a week on week gain of 0.2 percent, pushing the year on year rate to 2.3 percent. The Redbook report was even stronger, showing a year on year gain of 2.9 percent. Traders will get more information on chain store sales Thursday when the monthly results are released.
Wholesale trade data for May showed a gain of 0.8 percent, but was well under the 1.6 percent gain in sales at the wholesale level. The stock to sales ratio fell a tenth to a record low 1.08. The fact is that businesses have been cautious in keeping inventory levels down due to uncertainty about the economy. Next week we will get data on retail inventory levels.
The housing sector has been a problem for the economy and it seems this will continue in the near term. Pending home sales in May continued to show weakness, down 4.7 percent. However, this still didn’t fully eliminate the 7.1 percent gain seen in pending home sales in April. The year on year rate for pending home sales shows a decline of 14.0 percent. Home builders will post their results next week and it is this data that has particularly weak.
Wednesday’s calendar is light with only data on mortgage applications and weekly petroleum inventory levels on tap. However, Thursday will be a key day with Fed Chairman Bernanke and Treasury Secretary Henry Paulson both set to testify before the House Financial Service Committee.
Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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