DOLLAR FIRM; OIL UP; STOCKS, BONDS DOWN
What a change one week makes! Oil moved up sharply last week closing at $55.42 on Iran and Nigeria tensions, reduced production from Mexico’s largest field and a U.S. proposal to build up the Strategic Petroleum Reserve. Stocks sold off; the Dow closed down 78.51 to close at 12,487. Bonds sold off; the 10-year Treasury yield was up 10bp to 4.879%. Gold was up $9 to $644.50. There is a growing consensus in the market that the Fed’s next move, if any, is more likely to be up then down. Apart from the surprise drop in existing home sales, all other economic news has been good lately. The prevailing feeling is that the slowdown in the economy overall may not big enough to tame inflation pressures. Fed inaction may be good for the dollar. The greenback seesawed throughout the week as the market awaited economic news, at the end firming up against the yen to ¥121.60/$ and against the euro to $1.2913/€. The housing market (and autos) is the Achilles heel of the economy. The subprime BBB- mortgage bonds have seen a 10 pt. decline over the last six months as some home values have dropped below mortgage principals in that segment. On HedgeStreet, oil and the euro dominated volume, followed by gold. This week, several contracts are going to be de-listed and the exchange is changing its trading hours to align them more closely with New York and Chicago commodity markets. The contracts being delisted are 30-year mortgage rates, wholesale gas, copper and heating oil. The new trading hours will be 8am to 4pm ET. By popular demand, currencies will go from three to four intraday closes at 10am, 12, 2pm and 4pm. This will allow more trading opportunities in all five currency pairs.
This week: Fed’s no-raise decision; FDIC moratorium on industrial banks expires, but will Wal-Mart get an ILC?; MS Vista hits the stores; earnings from Google, Verizon, Merck, P&G, Boeing, Time Warner and Exxon; Tokyo-NYSE tie-up?
ECONOMIC RELEASES THIS WEEK:
Tuesday: Consumer confidence at 110, the highest level since March 2002.
Wednesday: Advance Q4’06 GDP is expected at 3.0%, up from 2.0% in Q3 on strong personal saving, but a 6% decline in fixed investment, and strong exports. Chain deflator down to 1.7%. Chicago PMI at 52.0, and flat construction spending. Also released, crude inventories and FOMC policy statement (no change expected, but the read on direction – bias to raise – will be key).
Thursday: Personal income up 0.5%, personal spending up 0.7%. Claims at 318K. ISM at 51.5. Auto sales for Jan down to 5.4m, truck sales up to 7.4, total unchanged.
Friday: Nonfarm payrolls 150K consensus, 135K briefing.com, unemployment flat at 4.5%. Factory orders 1.5%. Michigan sentiment revision flat or down.
BUSH GOES GREEN … FORD LOSES $12 BN in ’06 … DAVOS SCHMAVOS
In the State of the Union address, Bush called for a 20% reduction in gasoline use by 2017 (why not 3017), spending on renewable energy (=new cash for farmers) and shifting the taxing of health insurance premiums from employers to employees in order to help those who purchase it individually (expect GM and Ford to shift health costs to the unions). The ethanol lobby is super happy; corn is currently trading at a multiyear high (the poor in Mexico cannot afford their diet staple – tortillas) and vodka has never been more expensive. In my next car, I’ll have drinking taps installed on the fuel tank (C2H5OH is pretty tasty, especially on the rocks and with lime) … Ford lost $12 bn in 2006, almost $2K on every car they sold. The CEO Mullaly said they expected to return to profitability by 2009 through increased sales of new models. Let’s see: lose $2K per vehicle, increase sales. Hmmm … Correction to last week’s report: John Kerry decided not to run for president. What he actually said was that at least he thought that he should not decide if he should run or not run, unless he decided to run or not to run … Al Gore gained another 15 pounds. Global warming was the cause … At Davos, the 2400 participants at the World Economic Forum came up with absolutely nothing, as always. The European air has not produced any original thinking since Albert Einstein left for Princeton in Dec 1932.