Economic Watchdog, August 7
August 7, 2008
Economic news took a toll on stocks Thursday as oil prices moved higher. Crude prices have fallen more than five percent this week, but the commodity closed higher Thursday. Data on same-store sales was mostly disappointing, including results from Wal-Mart (WMT) and Target (TGT). Data on pending home sales was the lone positive Thursday, yet the housing sector is still a major problem for the economy at home and abroad.
Chain store sales were mostly below estimates in July with Wal-Mart the focus. Same store sales track the sales of stores open at least a year and WMT said its sales rose 3.0 percent. However, this was below estimates for growth of 3.4 percent. Target also missed estimates with Thomson Reuters stating that 60 percent of retailers missed same-store sales estimates. Costco (COST) did exceed estimates with analysts stating that the wholesale store benefited from cost conscious consumers. The fear is that tax rebate checks will no longer boost sales at retailers with WMT noting that this raises some concerns going forward.
Jobless claims came out worse than expected this morning for the week ending August 2. Claims rose by 7,000 to a level of 455,000 when estimates were for a figure of 430,000. This is the highest level for jobless claims since early 2002 with the four-week moving average at 419,500, its highest reading since mid-2003. This news doesn’t sit well with traders, especially when nonfarm payrolls have declined for the past 7 months. More bad news comes from the continuing claims data, which showed an increase of 31,000 for the week ending July 26 to a level of 3.311 million.
One good piece of information Thursday came from the housing sector with pending home sales up 5.3 percent in June. This release is a leading indicator for housing activity so the result was a welcome surprise. This puts the year on year decline in pending home sales at 12.3 percent, but at least yearly data is improving. However, many housing analysts still feel we are quite a ways away from seeing a bottom in home prices and this is one reason the Fed has been hesitant to hike interest rates.
The FOMC left rates unchanged Tuesday and the Bank of England and European Central Bank followed suit today. Neither central bank felt it was appropriate at the time to raise rates, despite hawkish comments out of the ECB. Nonetheless, ECB has a current rate of 4.25 percent with the BOE at 5.0 percent. The Fed currently has a Fed funds target rate of 2.00 percent. The BOE has the highest rate among the G-7 countries with Japan’s the lowest at 0.50 percent.
Oil prices have moved higher Thursday with the September futures trading just below $120 a barrel. On Wednesday, weekly inventory data showed a 1.7 million barrel increase, but gasoline reserves fell by 4.4 million barrels. Crude prices have been on the decline on the view demand is easing because of high prices and a slowing economy. Friday’s calendar has two reports on tap in the form of the wholesale trade data and productivity and costs. Of course, oil prices will remain a focus as well.
Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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