Robert CaldwellWhat's Going to Affect the Market Midweek?
June 17th 2008 14:04
We will be getting a bag of economic goodies on Tuesday. These releases will most likely decide the course of financial markets for the next two days. The releases cover everything from housing to inflation to production to oil inventories.
Housing
On Monday, the NAHB housing market index fell to its lowest point since December of 2007. This point had not been reached since 1985. The index highlighted the weak demand for housing across most regions in the U.S. On Tuesday, we found out how new residential construction is faring. Unfortunately, it was not good news. After unexpectedly rising in April, housing starts fell back below 1 million units. Starts are down 55% from their 2006 peak and are at their lowest level since the 1990s. All told, the housing market remains in flux. An improvement in demand is needed before we see an increase in supply and a stabilization in prices.
Prices
As was expected, there was little good news in the May PPI release, with inflation rapid at all stages of processing. After pausing in April, rapid price increases returned among food and energy products. It should be noted, however, excluding food and energy products, core inflation remains somewhat tame among finished producer goods. Nevertheless, higher prices for food, energy, and other production inputs are putting considerable pressure on top-line producer prices.
The rise in producer prices may force the Fed's hand. They may need to raise rates in response to increasing inflationary concerns. Although an increase in rates will tame inflation, it will most likely result in slower economic growth.
Industrial Production
Industrial production fell 0.2% in May, following an outsized 0.7% decline in April. This rate of contraction was less than what had been expected in concensus estimates. However, it is still a contraction and, therefore, not good news. The report is consistent with continued modest declines in the manufacturing sector.
Oil Inventories
Tomorrow, a report on oil inventories will be released. Since, most of the news up until now has been somewhat dismal, this will be a very important release. It will most likely decide the direction of the market on Wednesday.
Market Summary
Financial markets will most likely take a hit on Tuesday. The reports released this morning have been sour across the board. The only positive released was that industrial production didn't fall by as much as expected.
By Wednesday, stocks should rebound at least until 10:30 when oil inventories are released. This report will most likely decide the direction in the market throughout the remainder of the afternoon.
If you are looking for more analysis or client-specific work, please contact me at schmidpat@regionaleconomiccon sultants.com
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