DIA -.03%, Spy -.06%, QQQQ +.31%
10-Year Treasury +1/32 to 4.17%
Oil +29 cents to $57.52/bbl
Dollar +.4% versus euro, near unchanged versus yen
The markets ended the week in a meandering mode. Although the general economic news was very bullish (see below), traders have bid up shares for most of the week, so a lack-luster day shouldn't be a surprise. All three markets are a bit over-extended technically, adding another reason why this week's strong advances didn't continue. On the good side, the fact that traders did not take profits going into the weekend indicates there was enough good news to keep them in the market for the time being. GE announced a 24% increase in profits, and McDonald's announced earnings growth about analysts' expectations.
The 10-Year Treasury rose 1/32 to close at 4.17%.
The market sold-off in the morning on the strong economic news (see below). However, traders came back into the market quickly as they reinterpreted the data. Although the rise in industrial production was a sign the Fed would keep raising interest rates, the tame inflation news provided a strong counter-balance to the rate increase scenario.
Oil rose 29 cents to close at $57.52/bbl. Tropical storms have dominated oil trading this week. Emily -- the current storm in the gulf - is no exception. The Gulf of Mexico area is home to a large percentage of US refineries and oil production, so any production halt caused by the storms would be bullish for the oil market. Technically, the market is overbought. This supports a stronger possibility of a further drop rather than a rise next week. However, technical considerations are based solely on price movements. Therefore, they should be kept in that perspective.
The dollar rose .4% versus the euro and fell slightly versus the yen. The solid economic news (see below) was the primary reason for the dollar's advance versus the euro. Traders have focused on the growth and interest rate differentials between the two economies for the last few months. Therefore, any indication of strong US growth should lead to a dollar rally. Technically, the dollar is overbought versus both currencies.
"The U.S. Census Bureau announced today that the combined value of distributive trade sales and manufacturers' shipments for May, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $997.8 billion, down 0.1 percent (±0.2%)* from April, but up 6.9 percent (±0.3%) from May 2004.
Manufacturers' and trade inventories adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,299.6 billion, up 0.1 percent (±0.1%)* from April and up 7.0 percent (±2.0%) from May 2004.
The total business inventories/sales ratio based on seasonally adjusted data at the end of May was 1.30. The May 2004 ratio was 1.30."
Comment: This indicator measures the total shipments from people who make goods to people who sell goods. A rise indicates that sellers are more confident about sales over the next few months, whereas a decline indicates a degree of caution. However, over the last few decades, sellers have become far more savvy about inventory management. This means they are able stock their shelves faster than previous decades. As a result, they don't need to make large orders to fulfill potential sales increases in the coming months.
The Bureau of Labor Statistics reported: "The Producer Price Index for Finished Goods showed no change in June, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This index had fallen 0.6 percent in May and risen 0.6 percent in April. At the earlier stages of processing, prices received by manufacturers of intermediate goods advanced 0.1 percent in June, following a 0.7-percent decline in the preceding month, while the crude goods index decreased 3.3 percent, after moving down 2.0 percent in May.
Comment: According to the BLS press release, "The Producer Price Index (PPI) of the Bureau of Labor Statistics (BLS) is a family of indexes that measure the average change over time in the prices received by domestic producers of goods and services." The indicator allows economists to gauge the possibility of increased inflation. If the price of producer's goods increases, the chances of producers passing those costs over to consumers increases. This increases the chance of inflation at the consumer level. Today's numbers provide further evidence of the goldilocks economy, where growth is strong but there is little inflation. There were some reports that GM's and Ford's heavy discounting were partially responsible.
The Federal Reserve Reported: "Industrial production rose 0.9 percent in June, and at 119.7 percent of its 1997 average, it was 3.9 percent higher than its level in June 2004. Capacity utilization for total industry rose to 80.0 percent; the rate was 2.2 percentage points above its value in June 2004 but was 1.0 percentage point below its 1972-2004 average."
Comment: This is solid economic news and could bode well for the employment picture in the coming months. Capacity utilization is an annoyingly fancy way of saying "how close are we to operating at full potential?" Theoretically, the higher the number the less companies can get out of existing capital and the more likely they will have to hire more employees to increase production.
Starting on Monday, Today's Economic News will be exclusively on www.BOPnews.com and My Left Wing. Mary Scott and Stirling have asked me to be a frontpage poster on both. Out of consideration to their generous offers, I feel it is only fair that I give each the rights to certain content. I will still be posting larger more in-depth material on various blogs as time, space and the importance of the story permit.