Posted by
boxflyz About Econ on Monday, May 14, 2007 11:03:31 AM
The market has no economic data to respond to this morning and the bond market is treating it with an expected yawn. The 10-year Treasury is +.006% wit the yield at 4.670%.
As all know, energy prices are on the rise. The NYMEX Crude is +.46 with the price at $62.83/bbl. The NYMEX Robb gasoline price is 235.58 which is +.37 in day-to-day trading.
The Crude price is not what has been moving prices at the pump. To put it simple, and realistically, Crude prices are the raw materials. The Robb Gasoline is the price of the finished good out of the factory. The problem in the US is we have not built a new factory (refinery) in 30 years. The price of the raw material is becoming less important.
TOMORROW, 15 May 2007
There are three important and/or volatile items on Tuesday. Bonds will open responding to CPI and core-CPI. The Consumer Price index is forecast at +0.5% to +0.6%, just below last month’s +0.6%. Core-CPI is looking to be +0.2% to +0.3%, higher than last month’s +0.1%. It is our guess that core-CPI will be lower than last month, while aggregate will be higher. Core is rightly viewed as the more important. If it is outside of expectations it should be the dominant rate mover.
The opening also sees the NY Emppire Index. This measure of future manufacturing is expected to be 5.0 to 8.5. That could also come in low, somewhere closer to last month’s 3.8.
The Net Forieng purchase is sent out ½ hour into trading. This is very important to bonds as it indicate money from other countries flowing into the US. Bonds are a very common purchase. There is only one estimates for this item at $75.0B. Last report was $94.5B
An important item for the housing industry is the Housing Market Index. It has only one guess at 31.0. That is two points lower than last month’s 33 and probably a good gues.
There is also UBS and Redbook store sale surveys. There are no predictions and both are usually ignored.
SHORT-TERM OUTLOOK [14 May 2007]
This week will be on average one.
There is no significcant data on Monday. Tuesday is the most important day with the Counsumer Price Report(CPI), and the NY Empire Index. Wednesday is almost as important, but may even be more volatile. The Production Report; which includes both Productivity and Capacity, will be released and the Housing report will be out. Thursday’s Philadelphia FED Index is moderately important. Friday has the somewhat volatile Michigan Sentiment.
MID-TERM OUTLOOK [04 May 2007]
There may be a few problems for rates for this quarter.
1.) The housing bubble has ‘burst’. The question is, will housing continue to decline? Is it flattening? Or, is it on the verge of a rebound? The data over the last few months has been a resounding maybe to all three. IF homeowners start to see a rebound in housing their confidence will increase. As confidence increases, so will spending. Economic growth is moderate now with problematic inflation. Strong growth could renew strong inflation.
On 08 May 2007 the bond market responded to an unscheduled announcement by the National Association of Realtors (NAR). The NAR reduced its sales forecasts for 2007 and 2008, predicting that stricter lending standards would limit home buying. That only makes sense as stricter guidelines reduce the number of buyers able to get a mortgage. Given the already oversupply of houses, verses the very number of buyers we have a buyers market now. Reducing the number of buyers hits the real estate market with a double whammy.
Sales of existing homes will probably fall about 3% this year to 6.29 million from 6.48 million in 2006. Sales of new homes are projected to fall about 18% to 864,000, compared with a 14% drop predicted last month. Housing starts are expected to drop 19% to 1.46 million.
When there are signs of housing market weakness it helps the price of bonds. Since it is a sing of a slowing economy it instills safe-haven interest.
2.) IF investors continue to be concerned with the FED’s ability to fight inflation. The confusion of the last FOMC meeting on 21 March, and the subsequent release of the Minutes on 11 April, caused the bond market to issue a collective HUH?!?! Economists and FED watchers echoed the HUH!?!, and added a wha...?.
3.) In February we wrote:
We have one great inflation fear in the mid-term; corn prices. With all the talk of alternate fuel and ethanol, corn futures have nearly doubled. That will impact not just corn flakes, but pop/soda, beef, and pig, just about anything we eat.
None other than the Western Hemispheres worse dictators agrees with us. (For once
He understands economics.)
An open letter signed by Cuban leader Fidel Castro, titled "More Than 3 Billion People in the World Condemned to Premature Death from Hunger and Thirst," circulated in the media Thursday, 05 April 2007. In his first major statement in months, Castro rejects the use of crops for biofuel production. …he is concerned that President Bush and the US Auto Makers enthusiasm for flexfuel vehicles will have disastrous environmental and food-price consequences for developing countries.
Castro and his ally, Venezuelan President Hugo Chavez, probably are concerned that the Brazilian-U.S. ethanol initiative, launched during Bush's recent Latin American tour, threatens Venezuela's influence in Central American and Caribbean countries through its subsidized oil Petrocaribe initiative.
Steve Boxmeyer [612] 799 – 6858
steve@LendWithIntegrity.com