Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – May 20th, 2008

Stock & Bonds Like This Week

Auto Sales Slumping Now

The Retail Sales Report came in at 0.2%, which is where they expected it to come in, however, it was due to lower automobile sales.  So, when removing the auto sales figures, Retail Sales actually rose 0.5%.  This told us that even though we have higher energy costs, the consumer is still spending.  So rates spiked a bit on this news.  This was supported by Wal-Mart’s announcement of better than expected first-quarter earnings.  They did, however, indicate that second-quarter earnings would probably be lower due to increasing food and energy costs.  Good ‘Ole Ben Bernanke spoke this past week and said, “while markets have improved, they remain far from normal and we stand ready to increase the size of the auctions if further warranted by financial developments.”  He as talking about the Term Auction Facilities to increase cash to banks that I have been reporting on in the past.  That’s a good sign that the Fed is interested in keeping inflation down by news ways of doing business, so to speak.

Stocks & Bonds Win This Week

Wednesday showing good news to the inflation watching jittery market analyzers.  The Consumer Price Index (CPI) increased by a minimal 0.2%.  After taking out food and energy costs, the Core CPI rose only 0.1%.  Energy prices were tame, but food prices jumped 0.9%.  This is the largest gain since 1990.  Core Inflation readings were at 2.3%.  This is less than last month’s 2.4% reading, however still over the Fed’s desire to be between 1-2%.  This was interesting because the tame read on inflation was both good for stocks and good for bonds, so there was a little fight for whom would get the money…stocks or bonds.  Both won this past week.

Twist In Jobless #’s

Initial Jobless Claims were reported at 371,000 for the week.  The four-week average actually fell a little, to 365,750.  Interestingly, the number of people collecting unemployment benefits gained 28,000 to 3.06 million.  This is the highest level since March of 2004. 

Foreign Investment KEY to US Economy

Now, I’ve discussed the importance of foreign investment in our country in the past.  The March Net Foreign Purchases of US securities was $80.4Billion.  This is significantly better than anyone had expected.  Remember, I had written that foreign investment was largely why our interest rates were so low for so long.  So this is truly wonderful news. 

This past week provided better than expected Housing Starts and Building Permits.  This is good news, however, the cost to build is increasing so rapidly, that I must pessimistically remind you of this. 

The nationwide average price for a gallon of gas was up 22% from a year ago.  The people at Goldman Sachs have declared that the average cost of a barrel of oil will surpass $148 this next year.  Camry Hybrid, here I come! 

The Core Producer Price Index (PPI) was twice as high and what analysts thought it would be.  These higher costs for production are not always handed down to the consumer, but come on…if enough pressure is put on business to keep their costs down do you think they’re going to ask their stock holders to pay for it?  It’s just a matter of time.   Next week I’ll be reporting on the FOMC minutes, Existing and new homes sales, and depending on when I finish the article, I may have something on Consumer Confidence.  So, keep your hats on and buy, buy, buy…it’s such a good time to buy…Until next week…