Purchasing

Robert J. (Bob) Garino

Jitters in the financial markets
November 30, 2007

Updated Monday, Dec. 3, 2007
Macro news of interest to commodity sellers & buyers
Fed Chair Ben Bernanke unnerved equity and commodity markets following his sober outlook for the U.S. economy, remarking that the housing/subprime crisis is far from over and that GDP growth could slow significantly this quarter and going into the first quarter of 2008.  So, will the Fed stand pat at next month’s FOMC (Federal Open Market Committee) meeting? There’s a lot of passion expressed regarding the direction of interest rates and the overall economy.

Navellier & Associates, for example, believes that “the market is screaming for another interest rate cut on December 12. The fed funds futures contract is currently pricing in a 96% probability for a 25 basis point cut. The bottom line is the Fed has to cut.”

Also echoing that view is Goldman Sachs. The investment bank said this week that the Federal Reserve will have to cut its lending rate to banks by 1-1/2 percentage points to 3% in the next six to nine months to avert a recession. Weakness in construction and consumption will likely shave 2 percentage points from real U.S. economic growth in 2008, and will likely increase the unemployment rate to 5.5% from the current 4.7%, Goldman said.

But, of course, not all are convinced: Two Federal Reserve Bank officials, for example, hinted strongly on Tuesday that they would not support an interest rate cut in December, contending that the Fed has provided enough insurance against financial turmoil and would risk opening the door to higher inflation.

But, then on Wednesday, Fed Vice Chair Donald Kohn’s remarks clearly suggested otherwise.

Who knows? But it sure looks as if the Wall Street community is absolutely convinced that the Fed will cut interest rates next month…after digesting Kohn’s comments, for example, the Dow surged 331 points, the S&P 500 jumped more than 40 points, and the Nasdaq gained 82 points.

Well, preliminary third quarter GDP came out yesterday showing at 4.9% annual growth rate, versus the 3.9% originally reported. Outside the stupid housing sector, the real economy has been stronger in the past year than at any time since 2000 – but all of this is rear view mirror stuff, right? Maybe, but the components that make up the figures suggest a lot of positive momentum going forward. Note that this “latest” number will be revised once more before it’s “official.”

Economist are also anticipating a much smaller increase in fourth quarter GDP as inventories are worked down.

Yesterday’s new home sales figures were grim as builders respond by lowering prices and reducing construction. Those closest to this segment expect to see further price declines in the months ahead.

A quick look at world steel data:

Revised October data from IISI (International Iron and Steel Institute) shows total global steel output over the January-October period now placed at 1,101,800,000 metric tons, up 8.1% over comparable 2006 figures.

China’s production was figured at 408.5 million metric tons, up 18.1%, while U.S. production was 81.6 million through October, down 3%.

Note that domestic steel shipments this year expected to reach 104.5 million net tons – that’s down from 109.5 million tons, notes the AIIS (American Institute for International Steel).

Posted by Robert J. (Bob) Garino on November 30, 2007 | Comments (0)