FYI | Aug 16 2006
By Greg Peel
Yesterday I reported Wall Street had within a week twice tried to rally and failed, mostly due to overhanging inflation concerns and fears that the Fed would be forced to break its pause and tighten once more. But last night the market finally received some good news.
The US purchase price index (PPI), which is a measure of the cost of goods from raw materials up to wholesale pricing, rose only 0.1% in July compared to market expectations of 0.4%, and compared to a 0.5% rise in June.
With things settling down on the Middle East front, and the oil price slipping slightly lower once more, the PPI was just what the doctor ordered. Importantly, the “core” PPI number, which removes the volatile elements of food and energy prices, fell 0.3% when expectations were for a 0.2% rise.
The Dow Jones Industrial Average closed 132 points higher at 11,230, a rise of 1.2%. It rose steadily from open to close. The S&P500 was up 1.4%, and the Nasdaq posted an impressive 2.2% rise.
While a more buoyant mood may have prevailed on the day, the fact remains tonight sees the release of the more closely watched inflation figure, the consumer price index (CPI). It would probably take a horrendously bad figure to prick the balloon again, given a slowing PPI indicates easing in price pressure at the source, rather than the margin.
The gold price drifted lower again, stuck in a bit of a limbo. The geopolitical fears that drove it to US$650/oz have now abated, and last night suggests inflation fears can perhaps be tempered as well. US dollar strength should, in theory, start to wane from here as the possibilities of another Fed rate hike seem less, and that should provide support for gold.
Kitco.com analysts suggest the gold price will probably continue to drift lower until it finds its solid support base. Given much of the northern hemisphere market is still on holidays, we may yet have to wait for any significant moves.
Metals prices were largely firmer overnight, which should make for a good day locally.