Today's Coffee - And It Begins...
Three business days after our prescient advice to you to take your money and run, for now, the Dow was lower a second day. Higher interest rates, the loss of the earnings season catalyst and ongoing geopolitical tensions give good cause to reconsider equities for now.
International Market Activity
With the ECB raising rates a quarter point and Morgan Stanley issuing an abandon ship order for European equities, Europe is in flux indeed. After Jean-Claude Trichet lifted the benchmark rate to 4.0%, he repeated concerns for inflation while at the same time indicating that the benchmark still fostered expansion. The question is, did the market agree.
The DJ STOXX 50 did not, declining 1.36%. Adding to the tension, the G-8 Summit in Germany has exposed diseased relations between the U.S. and Russia over the American missile shield plans for Eastern Europe. Also, world hope for a global standard time-line and rules to reduce carbon in the atmosphere in the effort to combat global warming were dashed by George Bush. He announced a view that each nation should pursue its own set of rules. I'm a little bit embarrassed to be an American today. It's clear industrial interests are keeping us from taking the most effective approach to this global problem. I think life is much more important than the negative economic impact of joining the world community in this effort. I would rather have a poorer world to live in than no world at all. The FTSE 100 and CAC 40 sank 1.66%, while the DAX fell 2.4%. The Russian RTS declined 0.55% today, holding up better against European shares, but Russian shares probably benefited from a rise in oil prices today.
After recent damage to the shiny red shares on government intervention, the CSI 300 rebounded 1.18% today. The capital flows in China are not going to let the market sink until a serious catalyst comes to play, or when resources are tapped out. Considering the pace of growth of new brokerage accounts and the relatively small size of the market, I don't see that happening any time soon. Still, I see the pending war in the Middle East, which could envelope a region stretching from the Mediterranean Sea to the Gulf of Oman, doing so. But, there is plenty of time still, so party on China. Party on Garth.
Economic Data & Analysis
The Mortgage Bankers Association reported weekly mortgage applications fell 1.7% last week, impacted by a 6.1% decrease in refinancing activity on higher relative mortgage rates. Purchase applications actually rose 1.5%. The trend in rates is looking upward, and this is likely to further stress the housing market. My friends, it should also further stress the consumer as he continues to deal with decreasing home equity, tightening credit standards and rising mortgage payment costs for those with adjustable rate mortgages.
The monthly Challenger Job Cut Report added more color to the employment picture, as planned corporate layoffs were announced up just slightly from April, to 71,115. The reported figure for April was 70,672. See "The Greek's Week Ahead - When the Liquidity Dries" for more color on this and more.
The revision to first quarter productivity was reported at 8:30, with expectations for a 1% increase. Unit labor costs were expected to have risen 1.5%. Productivity came in as expected, but unit labor costs increased 1.8%. The Fed should be a bit bothered by the prospect of labor pressure on inflation, as this data is indicative of such pressure.
Federal Reserve Bank of Richmond President Jeffrey Lacker, Mr. Hawk to you and me, addressed an audience on inflation today. I was happy with one of Lacker's comments. He illustrated a point I've been making here for months, that rising food and energy costs cannot be discounted and do impact the consumer's cost of living. He also indicated that there may be some labor hoarding going on, but he viewed that as a positive, not a sign of coming layoffs, as we view it here. Cleveland Fed President Pianalto said that rising commodity and energy costs pose threat to drive inflation.
Commodity Markets
This week's Petroleum Status Report arrived today as anticipated. Gasoline inventory rose greater than expected, but capacity utilization was running lower than the prior week. Oil was higher on the day, as a cyclone affected Oman and headed toward Iran. We anticipated gasoline may have peaked recently, barring a severe hurricane hit in refinery territory. The supply/demand situation is so tight that the slightest issue could send gasoline prices higher.
Company Specific News
Wednesday's earnings reports included DSW (DSW), Korn Ferry International (KFY), Martek Biosciences (MATK), Shuffle Master (SHFL) and others. Prudential's (PRU) decision to dispose of its equity research, sales and trading unit may be indicative of a changing research environment. Times are achanging in the space, but we'll save this topic for a special report down the road.
Thank you for your interest in our articles. (disclosure)
International Market Activity
With the ECB raising rates a quarter point and Morgan Stanley issuing an abandon ship order for European equities, Europe is in flux indeed. After Jean-Claude Trichet lifted the benchmark rate to 4.0%, he repeated concerns for inflation while at the same time indicating that the benchmark still fostered expansion. The question is, did the market agree.
The DJ STOXX 50 did not, declining 1.36%. Adding to the tension, the G-8 Summit in Germany has exposed diseased relations between the U.S. and Russia over the American missile shield plans for Eastern Europe. Also, world hope for a global standard time-line and rules to reduce carbon in the atmosphere in the effort to combat global warming were dashed by George Bush. He announced a view that each nation should pursue its own set of rules. I'm a little bit embarrassed to be an American today. It's clear industrial interests are keeping us from taking the most effective approach to this global problem. I think life is much more important than the negative economic impact of joining the world community in this effort. I would rather have a poorer world to live in than no world at all. The FTSE 100 and CAC 40 sank 1.66%, while the DAX fell 2.4%. The Russian RTS declined 0.55% today, holding up better against European shares, but Russian shares probably benefited from a rise in oil prices today.
After recent damage to the shiny red shares on government intervention, the CSI 300 rebounded 1.18% today. The capital flows in China are not going to let the market sink until a serious catalyst comes to play, or when resources are tapped out. Considering the pace of growth of new brokerage accounts and the relatively small size of the market, I don't see that happening any time soon. Still, I see the pending war in the Middle East, which could envelope a region stretching from the Mediterranean Sea to the Gulf of Oman, doing so. But, there is plenty of time still, so party on China. Party on Garth.
Economic Data & Analysis
The Mortgage Bankers Association reported weekly mortgage applications fell 1.7% last week, impacted by a 6.1% decrease in refinancing activity on higher relative mortgage rates. Purchase applications actually rose 1.5%. The trend in rates is looking upward, and this is likely to further stress the housing market. My friends, it should also further stress the consumer as he continues to deal with decreasing home equity, tightening credit standards and rising mortgage payment costs for those with adjustable rate mortgages.
The monthly Challenger Job Cut Report added more color to the employment picture, as planned corporate layoffs were announced up just slightly from April, to 71,115. The reported figure for April was 70,672. See "The Greek's Week Ahead - When the Liquidity Dries" for more color on this and more.
The revision to first quarter productivity was reported at 8:30, with expectations for a 1% increase. Unit labor costs were expected to have risen 1.5%. Productivity came in as expected, but unit labor costs increased 1.8%. The Fed should be a bit bothered by the prospect of labor pressure on inflation, as this data is indicative of such pressure.
Federal Reserve Bank of Richmond President Jeffrey Lacker, Mr. Hawk to you and me, addressed an audience on inflation today. I was happy with one of Lacker's comments. He illustrated a point I've been making here for months, that rising food and energy costs cannot be discounted and do impact the consumer's cost of living. He also indicated that there may be some labor hoarding going on, but he viewed that as a positive, not a sign of coming layoffs, as we view it here. Cleveland Fed President Pianalto said that rising commodity and energy costs pose threat to drive inflation.
Commodity Markets
This week's Petroleum Status Report arrived today as anticipated. Gasoline inventory rose greater than expected, but capacity utilization was running lower than the prior week. Oil was higher on the day, as a cyclone affected Oman and headed toward Iran. We anticipated gasoline may have peaked recently, barring a severe hurricane hit in refinery territory. The supply/demand situation is so tight that the slightest issue could send gasoline prices higher.
Company Specific News
Wednesday's earnings reports included DSW (DSW), Korn Ferry International (KFY), Martek Biosciences (MATK), Shuffle Master (SHFL) and others. Prudential's (PRU) decision to dispose of its equity research, sales and trading unit may be indicative of a changing research environment. Times are achanging in the space, but we'll save this topic for a special report down the road.
Thank you for your interest in our articles. (disclosure)
posted by The Greek | 9:25 AM
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