Investors Will Watch as Inflation Dominates the Spotlight This Week
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| Market/Index |
Year Close (2007) |
Qtr Close (03/31/07) |
Previous Week |
Current Week |
YTD Change |
| Dow Jones Industrial |
13,264.82 |
12,262.89 |
12,209.81 |
12,307.35 |
-7.22% |
| NASDAQ |
2,652.28 |
2,279.10 |
2,474.56 |
2,454.50 |
-7.46% |
| S&P 500 |
1,468.36 |
1,322.70 |
1.360.68 |
1,360.03 |
-7.38% |
| Russell 2000 |
766.03 |
687.97 |
740.37 |
733.61 |
-4.23% |
| Fed Funds |
4.25% |
2.25% |
2.00% |
2.00% |
-225 bps |
| 10 yr Treasury (Yield) |
4.04% |
3.43% |
3.91% |
4.26% |
22 bps |
Economically Speaking
Undoubtedly, a universal theme is emerging at the Fed and other world central banks: Inflation, Inflation, Inflation.
And, on that note, most Fed-watchers believe that the next move in rates will be higher. Last week, Fed Chairman Ben S. Bernanke reiterated his concerns about price pressures and many of his partners in crime followed in step by towing the company line. Dallas Fed President Richard Fisher and his counterpart in New York, Tim Geithner, promoted the prospects (rather realities) of rising energy costs and the declining dollar as major concerns. Boston Fed President Eric Rosengren echoed the sentiment by stating that higher energy prices were “trickling through the economy.”
Philly Bank President Charles Plosser went so far as to predict that the Fed would have no choice but to raise rates to combat inflation. Even the Fed’s Beige Book reported that the domestic economy remained sluggish through May, and has been “pinched by rising food and energy prices.” On the global front, European Central Bank President Jean-Claude Trichet targeted July as a date the ECB would look to hike rates should inflationary pressures continue.
Meanwhile, the Bank of Canada held off on a much anticipated rate cut because of - what else - higher energy costs.
For now, however, the recent data showed that inflation (outside of food and energy) remained well-contained as the core CPI climbed by a modest 0.2% in May. (WE have warned you about looking only at the “non-core” figures).
By the way, the CPI, as a whole (including food and energy), experienced its largest one-month-rise in six months. Consumer activity offered perhaps the most promising news of the week as May retail sales surged by 1% as many Americans took those government rebate checks from the stimulus package directly to the malls. Even after removing gasoline sales from the equation, the retail data still experienced its best showing in a year.
Weekly Economic Calendar
| Date | Release | Comments |
| June 10 | Trade Balance (04/08) | Surprising jump on higher oil prices |
| June 11 | Fed Beige Book | Fed must balance inflation with sluggish economy |
| Budget Statement (05/08) | Huge seasonal fluctuations follow April’s tax inflows | |
| June 12 | Initial Jobless Claims (06/07/08) | Surprisingly large increase in benefits claims |
| Retail Sales (05/08) | Stronger than expected results aided by rebate checks | |
| June 13 | CPI (05/08) | Sharpest increase since November 2007 |
| The Week Ahead | ||
| June 17 | Housing Starts (05/08) | |
| PPI (05/08) | ||
| Industrial Production (05/08) | ||
| June 19 | Initial Jobless Claims (06/14/08) | |
| Leading Indicators (05/08) |
Source: Investors Will Watch as Inflation Dominates the Spotlight This Week
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Tags: , Bernanke, Big Oil, BSC, BUD, CPX, DOW, ECB, energy prices, Fed rate hikes, Food Prices, GOOG, GPMFC, INBEVNV, John Mccain, LEH, MCD, MSFT, Obama, Opec, paulson, Shanghai Composite Index, SPLS, Trichet, US cpi, US inflation, US ppi, YHOOAbout the Author
William (Bill) Patalon III is the Managing Editor and Senior Research Analyst for Money Morning, and is also the Managing Editor for The Money Map Report. Patalon's work has appeared in Kiplinger's personal finance magazine, USA Today, and The South China Morning Post, among other publications.
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