Friday, March 16, 2007
Inflation Concerns
Stocks rose yesterday despite a number of disappointing economic reports. The Dow added 26.28 points on the session to close at 12,159.68. The SPX tacked on 5.11 points to 1,392.28.
With both regional manufacturing reports coming in below estimates and the producer price index (PPI) rising sharply, you would have thought lower prices were the order of the day. However, the bulls kept control of the major market indices. Some positive earnings reports (BSC in particular) and a recovery for some sub-prime lenders sparked these gains, but this could change quickly if todays's data disappoints as well.
The Empire State Mfg. Survey came in at 1.9 in March, well below estimates for a reading at 16.0 and February’s reading of 24.4. This report shows that activity in the New York region is cooling off. The Philly Fed Survey followed up this data with similar results, falling to 0.2 from 0.6 and below estimates for a reading of 5.0 This data confirms the data found in the ISM Index a few weeks ago that shows a slowdown in growth with some data pointing to contraction. Stock traders hope that this will lead to a cut in interest rates, but inflation data points to a different conclusion.
Producer prices rose by 1.3 percent in February, well above estimates for growth of 0.5 percent. The core rate was also a shocker, coming in double expectations at growth of 0.4 percent. This pushed the year on year rate to 2.6 percent overall and kept the core rate at 1.8 percent. With inflation pressures still a concern, the Fed is not likely to cut rates anytime soon. Today's consumer price index (CPI) will be getting some serious attention today from both the stock market and from the Fed.
So where does this leave us economically? Cooling growth and rising inflation. Thats called "stagflation" (stagnation and inflation - get it?) and this is not good news for anybody.
Perhaps purchasing some simple long term Puts on the SPX might be the order of the day?
I will be detailing the strategy for next month once we see how the markets do today.
Until next time.
With both regional manufacturing reports coming in below estimates and the producer price index (PPI) rising sharply, you would have thought lower prices were the order of the day. However, the bulls kept control of the major market indices. Some positive earnings reports (BSC in particular) and a recovery for some sub-prime lenders sparked these gains, but this could change quickly if todays's data disappoints as well.
The Empire State Mfg. Survey came in at 1.9 in March, well below estimates for a reading at 16.0 and February’s reading of 24.4. This report shows that activity in the New York region is cooling off. The Philly Fed Survey followed up this data with similar results, falling to 0.2 from 0.6 and below estimates for a reading of 5.0 This data confirms the data found in the ISM Index a few weeks ago that shows a slowdown in growth with some data pointing to contraction. Stock traders hope that this will lead to a cut in interest rates, but inflation data points to a different conclusion.
Producer prices rose by 1.3 percent in February, well above estimates for growth of 0.5 percent. The core rate was also a shocker, coming in double expectations at growth of 0.4 percent. This pushed the year on year rate to 2.6 percent overall and kept the core rate at 1.8 percent. With inflation pressures still a concern, the Fed is not likely to cut rates anytime soon. Today's consumer price index (CPI) will be getting some serious attention today from both the stock market and from the Fed.
So where does this leave us economically? Cooling growth and rising inflation. Thats called "stagflation" (stagnation and inflation - get it?) and this is not good news for anybody.
Perhaps purchasing some simple long term Puts on the SPX might be the order of the day?
I will be detailing the strategy for next month once we see how the markets do today.
Until next time.
# posted by Paul @ 6:39 AM 
