FYI | Dec 20 2006
By Greg Peel
After a benign CPI figure comforted the Street earlier in the week a 1.3% in the PPI (purchasing price index) was the highest monthly rise for thirty years against consensus estimates of a 0.2% rise. The PPI measures wholesale or input price inflation.
What does this mean? It either means profit margins are being trimmed as wholesale prices are not being passed on to retail, or it means the CPI will shortly jump as well, or both. If it is a sign of reduced margins then that didn’t seem to dampen the Christmas enthusiasm of traders. The Dow shook off an early slide to finish up 30 points at 12,471 – back into record territory.
The S&P500 also managed to follow the Dow but over the last two nights the Nasdaq has run the other way as news in the computer sector has not been favourable.
Helping the rise was a bounce back in the oil price after its big fall the night before, reversing falls in the energy sector. Oil is very volatile at present, with US$1 moves becoming common. Bellwether Nymex WTI closed at US$63.15/bbl.
Not helping the rise was news that the Thai government was to place restrictions on foreign investment, which sent the Thai stock market crashing nearly 15% yesterday and brought back memories of the 1997 Asian currency crisis. However, fundamental optimism appears to be driving the market in the US at present.
The PPI was not good news for the US dollar, which arrested its recent recovery. The implication is we’re back to being concerned about the economy, even though increased inflation could yet lead to another interest rate rise which would be bullish for the US dollar so go figure. Given that it is unlikely the Fed would raise in a slowing economy, we have to accept US dollar downside now when inflation signals are strong.
This is, however, good news for gold which bounced back from its recent drift-off. Gold finished up US$7.00 at US$622/oz, and silver also managed a recovery from its recent spectacular falls, bouncing back US23c to US$12.61/oz.
Base metals were moderately weaker overnight but the SPI took heart from the Dow recovery and finished up 23 points.
From all the guys here at the Wall Street report desk we wish you a very merry Christmas and a fun New Year. We’ll be back in January again to bring you all the latest on things that go bump in the night.
We’re not sure whether we can top the The Week Ahead team’s Christmas lunch earlier in the week but we’ll give it a go. Looking out the window we can see it won’t be outdoors however. Where’s summer?