FYI | Dec 14 2006
By Greg Peel
Economists were expecting something in the order of a 0.1% increase in US retail sales last night so when a 1% figure was announced a trigger-happy Wall Street decided all talk of an economic slump was gradually moderating enough to send the Dow to a new record high.
It didn’t last long however, as the US Energy Department countered with news that oil inventories fell for a third straight week, and fears of a return to higher oil prices, driven equally by OPEC production cuts, nipped the rally in the bud quick smart.
The excitement was further tempered by the realisation that strong retail sales are a sign of inflation, and that the expected-by-many 2007 rate cut series may not be quite so certain after all. The bond market was certainly of this view.
Having hit 12,368 the Dow retreated to close at 12,317 – up less than 2 points on the night. There’s no doubting traders on the Street are a confused bunch at the moment.
Gold followed a predictable pattern as well, initially dipping into the low 620s before settling in New York at US$628.10/oz. Gold is treading water at present aside uncertain moves in the US dollar. Once again the signals are difficult to correlate, as high inflation is good for gold until a rate rise increases the US dollar which thus is bad. In the meantime, the oil price has jumped a bit again which is good.
Gold bulls are heartened, however, by a report overnight that the traditional measure of inflation – the CPI – is a flawed process and the real measure of inflation should be indexed to the gold price. This suggests 8% inflation in the US, instead of 3%.