U.S. Economy: Confidence Falls, Producer Prices Rise
Global EconomyU.S. Economy: Confidence Falls, Producer Prices Rise
U.S. consumer confidence fell to the lowest level in five years and wholesale inflation picked up, limiting the Federal Reserve's room to maneuver as it tries to avert a recession.
The Conference Board's index of confidence dropped to 75.0 in February, lower than forecast, from 87.3 in January. The Labor Department reported that prices rose 1 percent last month. Excluding food and energy, expenses climbed 0.4 percent, the most in almost a year.
Market Reaction
Stocks fell, government bonds rose and the dollar extended its decline. The S&P500 Index dropped as much as 0.6 percent. Ten-year note yields fell to 3.86 percent and the dollar lost 0.4 percent to $1.4884 per euro.
The share of consumers who said jobs are plentiful declined to 20.6 percent. Those saying jobs are hard to get increased to 23.8 percent.
The proportion of people who expect their incomes to rise over the next six months decreased to 17.0 percent. The share expecting more jobs dropped to 9 percent.
The consumer's been in a tough spot now and it seems like the years of elevated oil prices and weakening housing market are starting to catch up in the sentiment numbers, especially now that we have the employment situation trending downward.
Combined with figures last week showing consumer prices also rose more than forecast, today's producer-price report may prevent prompt the Fed to consider raising rates as soon as the economy stabilizes.
Food Costs Escalate
Energy costs increased 1.5 percent. The price of gasoline rose 2.9 percent. Food prices climbed 1.7 percent. Crude food prices increased 2.7 percent. Fed officials last month cut their forecast for U.S. growth this year to a range of 1.3 percent to 2 percent.
Fed Policy
Fed policy makers last month lowered their benchmark rate by 1.25 percentage point to 3 percent, including a three- quarters-of-a-point cut in an emergency meeting on Jan. 22.
Central bankers are scheduled to next vote on the direction of interest rates March 18.
Higher energy and food bills also are hurting consumers' outlooks and their ability to spend on non-essential items.
The Conference Board's index of confidence dropped to 75.0 in February, lower than forecast, from 87.3 in January. The Labor Department reported that prices rose 1 percent last month. Excluding food and energy, expenses climbed 0.4 percent, the most in almost a year.
Market Reaction
Stocks fell, government bonds rose and the dollar extended its decline. The S&P500 Index dropped as much as 0.6 percent. Ten-year note yields fell to 3.86 percent and the dollar lost 0.4 percent to $1.4884 per euro.
The share of consumers who said jobs are plentiful declined to 20.6 percent. Those saying jobs are hard to get increased to 23.8 percent.
The proportion of people who expect their incomes to rise over the next six months decreased to 17.0 percent. The share expecting more jobs dropped to 9 percent.
The consumer's been in a tough spot now and it seems like the years of elevated oil prices and weakening housing market are starting to catch up in the sentiment numbers, especially now that we have the employment situation trending downward.
Combined with figures last week showing consumer prices also rose more than forecast, today's producer-price report may prevent prompt the Fed to consider raising rates as soon as the economy stabilizes.
Food Costs Escalate
Energy costs increased 1.5 percent. The price of gasoline rose 2.9 percent. Food prices climbed 1.7 percent. Crude food prices increased 2.7 percent. Fed officials last month cut their forecast for U.S. growth this year to a range of 1.3 percent to 2 percent.
Fed Policy
Fed policy makers last month lowered their benchmark rate by 1.25 percentage point to 3 percent, including a three- quarters-of-a-point cut in an emergency meeting on Jan. 22.
Central bankers are scheduled to next vote on the direction of interest rates March 18.
Higher energy and food bills also are hurting consumers' outlooks and their ability to spend on non-essential items.
Currencies
Dollar Falls to Record Low
The dollar fell to $1.50 per euro on speculation Federal Reserve Chairman Ben S. Bernanke today will indicate the U.S. central bank is prepared to keep lowering interest rates.
The currency is headed for its second straight monthly decline versus the euro on expectations a government report today will show a drop in U.S. home sales, bolstering the Federal Reserve's case for cutting borrowing costs.
The U.S. currency touched $1.5047 per euro and at 107.24 yen. The U.S. currency may fall to $1.51 per euro and 106.80 yen today.
The U.S. dollar slid against 11 of the 16 most-active currencies after Fed Vice Chairman Donald Kohn said yesterday turmoil in credit markets and the possibility of slower economic growth pose a ``greater threat'' than inflation.
The currency is headed for its second straight monthly decline versus the euro on expectations a government report today will show a drop in U.S. home sales, bolstering the Federal Reserve's case for cutting borrowing costs.
The U.S. currency touched $1.5047 per euro and at 107.24 yen. The U.S. currency may fall to $1.51 per euro and 106.80 yen today.
The U.S. dollar slid against 11 of the 16 most-active currencies after Fed Vice Chairman Donald Kohn said yesterday turmoil in credit markets and the possibility of slower economic growth pose a ``greater threat'' than inflation.
China
China concern for crash
On Monday, China's securities regulator, in a fresh effort to prevent a stock market crash, warned companies against raising large sums of capital through the issue of new shares.
The SCI plunged because of concern about the market's ability to absorb big supplies of new shares, including huge offers planned by Ping An Insurance and Shanghai Pudong Development Bank.
But that may not be enough to keep the market afloat. Investors are worried by huge amounts of new shares that will become freely tradable this year as lock-up periods related to initial public offers and reform of companies' state shareholding structures expire. The market is also worried by rising Chinese inflation and by the threat of a U.S. economic recession.
The fall below the 4,300 support level is a critical confirmation of a continued downtrend on the SCI. The fall below the long-term trend line on January 21 was confirmation that the prolonged Shanghai uptrend was moving into a new trend phase.
The first important support level is at 4,800. This did not hold, and now will provide a resistance point for any future trend rise.
Traders are also very alert for the possibility that support will not be successful at 4,300. A sustained fall below this level is very bearish. The next support level is near 3,600. A fall below support at 4,300 could develop into a very rapid fall to support at 3,600.
The SCI plunged because of concern about the market's ability to absorb big supplies of new shares, including huge offers planned by Ping An Insurance and Shanghai Pudong Development Bank.
But that may not be enough to keep the market afloat. Investors are worried by huge amounts of new shares that will become freely tradable this year as lock-up periods related to initial public offers and reform of companies' state shareholding structures expire. The market is also worried by rising Chinese inflation and by the threat of a U.S. economic recession.
The fall below the 4,300 support level is a critical confirmation of a continued downtrend on the SCI. The fall below the long-term trend line on January 21 was confirmation that the prolonged Shanghai uptrend was moving into a new trend phase.
The first important support level is at 4,800. This did not hold, and now will provide a resistance point for any future trend rise.
Traders are also very alert for the possibility that support will not be successful at 4,300. A sustained fall below this level is very bearish. The next support level is near 3,600. A fall below support at 4,300 could develop into a very rapid fall to support at 3,600.
Commodities
Oil
Crude oil traded near a record in New York as the U.S. dollar fell to an all-time low against the euro, prompting some traders to invest in commodities as a hedge against inflation.
Reports yesterday showed that U.S. home prices tumbled, consumer confidence weakened and producer prices rose last month. Hedge-fund managers and other large speculators increased net- long positions, or bets on higher oil prices.
The market is being driven by speculation, fear and psychology. Investors have pushed prices higher as they put money into energy because returns outpaced those of other markets.
OPEC crude-oil supply will fall by 200,000 barrels a day, or 0.6 percent, to 32.45 million barrels a day this month, according to preliminary estimates from PetroLogistics Ltd.
Ministers from the 13 members of the Organization of Petroleum Exporting Countries are scheduled to meet in Vienna on March 5 to discuss oil quotas. OPEC produces more than 40 percent of the world's crude oil.
Turkish Prime Minister Recep Tayyip Erdogan yesterday defended an incursion by Turkey's military into northern Iraq, saying the nation was battling Kurdish militants who threatened the stability of the whole region.
The U.S. and the United Nations have called on NATO member Turkey to pull out of Iraq as soon as possible, concerned that the battles in the relatively peaceful northern region will destabilize the rest of the war-torn country.
Reports yesterday showed that U.S. home prices tumbled, consumer confidence weakened and producer prices rose last month. Hedge-fund managers and other large speculators increased net- long positions, or bets on higher oil prices.
The market is being driven by speculation, fear and psychology. Investors have pushed prices higher as they put money into energy because returns outpaced those of other markets.
OPEC crude-oil supply will fall by 200,000 barrels a day, or 0.6 percent, to 32.45 million barrels a day this month, according to preliminary estimates from PetroLogistics Ltd.
Ministers from the 13 members of the Organization of Petroleum Exporting Countries are scheduled to meet in Vienna on March 5 to discuss oil quotas. OPEC produces more than 40 percent of the world's crude oil.
Turkish Prime Minister Recep Tayyip Erdogan yesterday defended an incursion by Turkey's military into northern Iraq, saying the nation was battling Kurdish militants who threatened the stability of the whole region.
The U.S. and the United Nations have called on NATO member Turkey to pull out of Iraq as soon as possible, concerned that the battles in the relatively peaceful northern region will destabilize the rest of the war-torn country.
Gold
Gold futures rose on speculation a weakening dollar and the surging cost of raw materials will boost demand for the precious metal as a hedge against inflation. Silver jumped 3.5 percent.
Gold has rallied 31 percent since Sept. 18, when the Fed began lowering interest rate after the subprime-mortgage market crisis threatened to push the economy into a recession.
Gold may decline should interest-rate cuts stimulate the economy and policy makers focus on damping inflation.
Investment in gold rose 8.3 metric tons, or 1.3 percent, to 639 tons.
Gold has rallied 31 percent since Sept. 18, when the Fed began lowering interest rate after the subprime-mortgage market crisis threatened to push the economy into a recession.
Gold may decline should interest-rate cuts stimulate the economy and policy makers focus on damping inflation.
Investment in gold rose 8.3 metric tons, or 1.3 percent, to 639 tons.
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