What a morning! The GDP number came in at a very disappointing 3.1%. Stocks seem unfazed as both the S+P and NDX futures were only derailed for a minute or two. Perhaps this means the stock market was taking the under. The ten year treasury rallied big time as the curve flattening resumes.
We have had very mixed signals from different data points. None of this changes my expectations for what the Fed will do. I expect, barring some extraordinary event, this tightening cycle to continue 25 beeps at a time to either 3% or 3.25%. This is toward the low end of what people expect but the inflationary pressures that clearly exist are not coming through to most of the stats watched by the Fed. That's not me saying there is no inflation, I am saying most numbers don't pick up where the inflation is occurring.
Proctor & Gamble is buying Gillette in a $55 billion stock deal. That's a big one. A lot of people have been predicting that M&A would increase. Looks like that might pan out. One good thing is this takes away from the supply of consumer stocks. It would be reasonable to think that anyone that owns shares in both might sell the new P&G stock they receive in the deal and put that money into other consumer names. This will have some impact in various indexes too. Its open for debate whether this effect will be noticeable or not, but it won't hurt.
Wikinvest Wire
1 comments:
The low GNP number should not be much of a surprise. The long-bond rate has been dropping for months. The bond market has been forecasting a slower economy, lower inflation or both. The CRB and the stock market have made the same forecast. I am having trouble seeing the inflation that you see. Unit labor cost came in below expectations. For the length of time we have been in economic recovery, it seems to me that inflation is staying very tame. The oil price is about the only thing to go up lately and it apears that even the fear of higher prices is causing consumers to be cautious elsewhere. There are also many signs of deflation. For example the new "free" TV search by Google and Yahoo subplant services that were costing users $500 per month. Phone services and many other services are watching prices fall. (I know SBC or BLS are not lowering their phone charges but Vonage now has 425,000 subscribers to name one lower cost option). In the PG-G deal the management estimates cost reductions of 18 Billion per year!
If forced to call the next move by Mr. Greenspan, I would barely be forced to agree with you. Chances are the Fed will raise at least another quarter point or two. I would be willing to bet that the rate does not go all the way to 3.25% without interuption. In fact, by next week we may hear Mr. Greenspan mince words about the need for future increases.
I am looking earnestly for just a little softness on the part of the Fed to put the stock market into high gear. There is a lot of money out there that does not really want to buy 4% ten-year treasuries.
By the way, I wonder what you think about the idea of doing a "guest" column on my blog occasionally. My site is www.stocksorbonds.blogspot.com.
Post a Comment