Noon Report
Economic Releases
Aug. Personal Income: 0.3% vs. 0.4% estimate and 0.5% prior
Personal Spending: 0.6% vs. 0.4% estimate and 0.4% prior
PCE Core m/m: 0.1%, in line with estimate and prior
PCE Core y/y: 1.8% vs. 1.8% estimate and 1.9% prior
PCE Deflator y/y: 1.8% vs. 1.7% estimate and 1.9% prior
Sept. Chicago Purchasing Manager: 44.2 vs. 53 estimate and 53.8 prior
Aug. Construction Spending: 0.2% vs. -0.3 estimate and -0.5% prior
Sept. NAPM Milwaukee: 70 vs. 84 estimate and 63
Sept. U of M Consumer Confidence: 83.4 vs. 84 estimate and 83.8 prior
ECRI US Leading Econ Index: 141.1 vs. 140.7 prior
ECRI US Index Annualized: 1% vs. 0.5% prior
FED Speak
Atlanta Fed President Dennis Lockhart discussed prospects of the U.S. economy following the credit crunch and the Fed’s September rate cut. He mentions his view of the economy he took into the FOMC meeting was one that had “significant risk” of being weakened by recent financial market turbulence. Commenting in his outlook for the U.S. economy, Lockhart identified four risk factors that have the potential to dampen growth. First, he foresees that the housing downturn could last until the second half of 2008 or later; citing “the large inventory of unsold homes in many markets and current restraints on certain types of mortgage financing.” Second, he worries about the extent to which the housing downturn will affect consumer spending. Third, Lockhart is monitoring business investment, though he admits the credit market trouble has yet to spill over into this sector. Finally, Lockhart cites the risk of inflation, saying it is at the “upper bounds of his comfort zone” but notes that “long-term inflation expectations remain anchored.” He dismissed Fed critics who argue that the rate cut created moral hazard, claiming that he “did not see the logic of subordinating the general welfare of our nation’s economy to the possibility that some participants in financial markets might draw tainted conclusions about the future landscape of risk.” Answering questions, Lockhart forecasted U.S. growth at around 2.5% in Q3 and below 2.5% in Q4.
FED Governor Michael Mishkin will speak at 1:00pm E and St. Louis FED president William Poole will speak at 1:30 pm E
Greenspan 50/50
Former FED Chief Alan Greenspan mentioned the likelihood of a recession has increased, however is less than 50/50. He sees a drop in consumer spending and continued housing weakness. He says the “wealth effect” is likely to contract, though he does not feel this will cause the US economy to shrink.
US Treasury/ Fixed Income
The FED added $4.75 bln in weekend REPOS; FED Funds are above the 4.25% target at 5.125% bid at 5.25%.
CBOT Oct. Binary Options at yesterday’s settlement show a 58% chance of a cut to 4.5%, a 15% chance of a cut to 4.25% and a 27% chance that rates will be unchanged. Currently, Oct. FED Fund Futures show an 88% likelihood of a 25 BPS cut in October.
The long end of the curve picked up some strength while the short end is showing weakness.
30-yr. yield: down .04 to 4.793 %
10-yr. yield: down .032 to 4.528%
2-yr. yield: down .033 to 3.92%
6-month yield: flat at 4.03%
3-month yield: up .08 to 3.77%
4-week yield: up .12 to 3.38%
Forex
August Construction Spending showed and unexpected increase, though Private residential construction fell for an 18th consecutive month. The USD is getting thrashed against all major currencies as the housing market shows few signs of improvement.
USD Index down .6% to a new record low of 77.876
EUR/USD up .5% to a new record 1.4234
USD/JPY down .6% to 114.90
Cable up .55% to 2.0385
USD/CHF down .55% to 1.1675
USD/CAD down .65% to .9953
Commodities
A mixed day for energies
Crude down 60 cents to 82.29
Unleaded down 1.9% to 205.34
Heating Oil down 1% to 223
Natural Gas down .6% to 6.88
Metals are higher except Copper
Gold is up 1.5% to $751
Silver is up 2.25% to 13.96
Platinum is up $25 to 1398
Copper is down 1 cent to 364