Afternoon Report
July Personal Income rose 0.5% vs. 0.3% consensus estimates. Core PCE M-o-M came in slightly below estimates at 0.1% unchanged from last month. This indicates that inflation may be easing as the FED’s primary concern. Factory Orders for July also came in above expectations at 3.7% vs. 0.6% in June. The August Chicago Purchasing Manager Index was slightly above estimates at 53.8 vs. 53.4 last month. UofM confidence for August came in at 83.4 vs. 83.3 prior reading. Overall the data for July was strong but still does not reflect the recent turmoil in the credit markets.
FED Chairman Ben Bernanke spoke this morning in Jackson Hole, Wyoming, saying that it is not the FED’s job to bail out investors and lenders that have engaged in speculative investments. Bernanke did acknowledge that subprime is the root of recent financial market volatility with consequences for performance of the broader economy. Bernanke gave little indication of whether or not the Fed is planning to cut rates in September, saying only that it was prepared to act as needed to provide liquidity to the markets. Bernanke did say economic data from previous months may not be as useful in forecasting for the coming months, so the FED will focus its attention on “the timeliest indicators”. In short, upcoming economic data will be emphasized rather than past performance.
President Bush delivered an address outlining steps the Administration is taking to help ease the subprime crisis. Bush laid out some modest steps for assisting troubled homeowners, including rewriting the tax code to make re-financing easier and working with the FHA to make mortgage insurance more readily available. Bush emphasized that there would be no bailout of lenders. He encouraged Congress to pass a bill regarding clearer and more transparent mortgage disclosures and blamed much of the problem on confusing and predatory lending practices.
The Fed added $5 billion to the banking system via 5-day Repos. Fed Funds are currently trading at 5.25%, right on the Fed’s target rate. Equities took a dip following Bernanke’s speech, but are back near session highs up 155 points. Treasuries started the day down significantly but have gained some strength on light volume.
The National Hurricane Center reports a wave about 250 miles east of the Windward Islands could form into a tropical depression later on Friday. The NHC said that this would be the sixth tropical depression of the 2007 Atlantic hurricane season.
Junk-bond mutual funds reported their first inflows in 12 weeks as investors regained their appetites for high-risk debt; this according to JPMorgan Chase who cited AMG Data services. T-bill yields and bond yields both increased as risk appetites grew.