DUE TO A TECHNICAL GLITCH WITH OUR SERVER, WE WEREN’T ABLE TO PUBLISH UNTIL LATE THIS AFTERNOON. THE TECHNOLOGY GODS APPARENTLY ARE ANGRY WITH US. IN ANY CASE, HERE’S THE POST AS WRITTEN THIS MORNING…
Last week’s report on consumer prices for August was encouraging. This morning’s news on wholesale prices is even better.
Producer prices rose just 0.1% last month, the Labor Department announced. Subtracting food and energy from the mix revealed a core PPI that decline 0.4% in August. That’s the second month running that core PPI fell. Falling car and light truck prices were the main factors weighing on producer prices.
Coming just a day ahead of tomorrow’s FOMC meeting, today’s news will likely deliver the extra muscle to insure that the Fed keeps interest rates unchanged. In fact, traders are starting to nibble at Fed funds futures this morning, providing what may be a preview of anticipating a rate cut in October.
Helping raise the prospect of a rate cut down the road is the Commerce Department’s report this morning that housing starts dropped again to an annualized pace of 1.655 million–the slowest pace since April 2003. No one can doubt that real estate is now in the midst of something more than a temporary stumble.
Even so, the bond market apparently had the jitters yesterday, driving the yield on the 10-year Treasury up to nearly 4.85% at one point–the highest since late-August. But optimism has since returned, and in early trading this morning the 10-year’s yield is again fallen below 4.80%. By the end of the week, even lower yields are expected.
For the moment, the optimists and doves are heroes. Meanwhile, Bernanke’s star burns brighter this morning. Inflation is still a long-term enemy and the path of least resistance with a government and an economy that are hard wired to spend more than they take in. But such worries have been banished to the deepest recesses of Mr. Market’s collective mind.
The trend is said to be your friend. For the moment, there’s plenty of incentive to go with the flow.