Wall Street investors ply the dog days of summer next week with few economic indicators on the calendar but stiff headwinds from volatile oil prices, rising inflation and slowing global growth.
With crude oil prices spiraling downward, stoking hopes of inflation relief, investors appeared willing to turn a blind eye to consumer price numbers showing US inflation at a 17-year high.
US stocks indexes ended the week to Friday narrowly mixed. The Dow Jones Industrial Average of 30 blue-chip stocks fell 0.63 percent to 11,659.90, while the technology-heavy NASDAQ composite index rose 1.59 percent to 2,452.52.
The broad-market Standard & Poor’s 500 index edged up 0.14 percent to 1,298.20.
The precipitous decline in crude oil futures — 23 percent — from all-time peaks above US$147 a barrel a month ago was lending support to some economists’ views that inflation would cool in the third quarter as high prices slow demand.
That self-correcting scenario would dampen pressure on the Federal Reserve to raise interest rates to curb inflationary risks in the near term as the economy struggles to gain momentum amid a housing crisis, tight credit and rising unemployment.
“With the fall in oil and other commodity prices in the past month, both the markets and Fed officials had started to turn away from inflation risks and focus on growth risks,” Ethan Harris and Michelle Meyer, analysts at Lehman Brothers, wrote in a client note.
“The view — which we agree with — is that with the usual long and variable lags, falling commodity prices and rising unemployment will drive down inflation. No need for the Fed to get its hands dirty when the housing and credit crunch will do the job,” she said.
Wall Street began the week on Monday on an upbeat note as the decline in crude oil prices lifted sentiment.
But despite oil’s continued fall Tuesday, investors took flight after JPMorgan Chase and Swiss banking giant UBS unveiled fresh losses that reminded the market of the year-old credit crunch’s painful presence.
Analysts say the US banking sector would likely continue struggling into next year.
Stocks headed south for a second straight day on Wednesday as oil prices suddenly spiked higher and the government reported retail sales fell 0.1 percent last month.
The weak figures came despite hefty government tax rebates to tens of millions of Americans aimed at spurring consumer spending, which drives two-thirds of growth in the world’s largest economy.
Economists said the report would further pressure the Federal Reserve to keep its short-term interest rate unchanged at 2 percent in the near future, as it has in the past two policy meetings.
Stocks rebounded as Thursday’s modest recovery came despite the government’s report that consumer price inflation last month surged an annual 5.6 percent, the biggest increase since January 1991. The consumer price index (CPI) monthly gain of 0.8 percent was double market expectations.
“The markets are in such a forgiving mood that both the stock and bond markets rallied on Thursday despite what can only be described as an ugly CPI report,” the Lehman Brothers analysts wrote.
Investors will face key economic indicators next week that will shed more light on the worst housing slump in decades, inflationary pressures and the health of the manufacturing sector.
Reports on producer prices, which showed price pressures at the wholesale level and housing construction and building permits are due on Tuesday.
“The biggest problem remains the housing market and its negative impacts on the financial sector,” said Joel Naroff at Naroff Economic Advisors.
On Thursday, the market will have the Philadelphia Federal Reserve’s survey on regional industrial activity for this month, an index that has shown contraction for eight straight months.
“That’s going to be the focus for the market,” Marc Pado at Cantor Fitzgerald said.
Bond prices ended the week to Friday higher. The yield on the 10-year Treasury bond fell to 3.852 percent from 3.950 percent a week earlier, while that on the 30-year bond dropped to 4.473 percent from 4.555 percent.
Bond yields and prices move in opposite directions.
NO-LIMITS PARTNERSHIP: ‘The bottom line’ is that if the US were to have a conflict with China or Russia it would likely open up a second front with the other, a US senator said Beijing and Moscow could cooperate in a conflict over Taiwan, the top US intelligence chief told the US Senate this week. “We see China and Russia, for the first time, exercising together in relation to Taiwan and recognizing that this is a place where China definitely wants Russia to be working with them, and we see no reason why they wouldn’t,” US Director of National Intelligence Avril Haines told a US Senate Committee on Armed Services hearing on Thursday. US Senator Mike Rounds asked Haines about such a potential scenario. He also asked US Defense Intelligence Agency Director Lieutenant General Jeffrey Kruse
INSPIRING: Taiwan has been a model in the Asia-Pacific region with its democratic transition, free and fair elections and open society, the vice president-elect said Taiwan can play a leadership role in the Asia-Pacific region, vice president-elect Hsiao Bi-khim (蕭美琴) told a forum in Taipei yesterday, highlighting the nation’s resilience in the face of geopolitical challenges. “Not only can Taiwan help, but Taiwan can lead ... not only can Taiwan play a leadership role, but Taiwan’s leadership is important to the world,” Hsiao told the annual forum hosted by the Center for Asia-Pacific Resilience and Innovation think tank. Hsiao thanked Taiwan’s international friends for their long-term support, citing the example of US President Joe Biden last month signing into law a bill to provide aid to Taiwan,
China’s intrusive and territorial claims in the Indo-Pacific region are “illegal, coercive, aggressive and deceptive,” new US Indo-Pacific Commander Admiral Samuel Paparo said on Friday, adding that he would continue working with allies and partners to keep the area free and open. Paparo made the remarks at a change-of-command ceremony at Joint Base Pearl Harbor-Hickam in Hawaii, where he took over the command from Admiral John Aquilino. “Our world faces a complex problem set in the troubling actions of the People’s Republic of China [PRC] and its rapid buildup of forces. We must be ready to answer the PRC’s increasingly intrusive and
STATE OF THE NATION: The legislature should invite the president to deliver an address every year, the TPP said, adding that Lai should also have to answer legislators’ questions The Chinese Nationalist Party (KMT) yesterday proposed inviting president-elect William Lai (賴清德) to make a historic first state of the nation address at the legislature following his inauguration on May 20. Lai is expected to face many domestic and international challenges, and should clarify his intended policies with the public’s representatives, KMT caucus secretary-general Hung Meng-kai (洪孟楷) said when making the proposal at a meeting of the legislature’s Procedure Committee. The committee voted to add the item to the agenda for Friday, along with another similar proposal put forward by the Taiwan People’s Party (TPP). The invitation is in line with Article 15-2