By Carlos Guillen
After making a gain of over 95 points on rather negative economic data, the Dow Jones Industrial Average has made a turn for the worse and is now significantly off its high as a result of comments from Federal Reserve Bank of Atlanta President Dennis Lockhart that served to remind investors of the continuing tendency for further Fed tapering.
For starters, not so encouraging for those that were hoping for no tapering in the short run was news of increasing prices from a producer's perspective. According to the Department of Labor, the Producers Price Index (PPI) in January increased month-over-month by 0.6 percent; this compares with the Street's consensus estimate calling for a 0.2 percent rise. Because retailers try to pass costs on to consumers as soon as possible, the PPI can provide hints on future trends for the CPI, which has also been creeping higher. Excluding food and energy contributions to the price index, core PPI increased month-over-month by 0.5 percent, while economists' average forecast called for a 0.1 percent rise. These recent increases in prices are also very unlikely to stop the Fed from continuing to reduce its bond purchases, reducing its accommodative stance that was so welcomed by equity investors for quite some time.
Also a bit discouraging today was that housing permits and starts data are beginning to establish a downtrend. According to the U.S. Census Bureau, building permits during January increased year-over-year by 2.4 percent and decreased month-over-month by 5.4 percent to 937,000, landing lower than the Street's consensus estimate of 980,000. Concurrently, housing starts declined year-over-year by 2.0 percent and fell month-over-month by 16.0 percent to 880,000, coming below the Street's consensus estimate of 963,000. While many are continuing to blame the weather for the worse than expected results, which to an extent is justifiable, the declines on both metrics have been going on even before the severe winter storms. So the combination of negative building permit growth, which is a proxy for future construction, combined with weak single family starts is clearly coming together to give investors less confidence that the housing sector will hold up well in the near term.
Quite interestingly, neither the housing data nor the PPI gains were enough to put stocks in the red. However, during midday trading Federal Reserve Bank of Atlanta President Dennis Lockhart said he is looking through recent weak economic data and continues to expect the central bank to wind down its bond-buying stimulus program over the remainder of this year. He went as far as to predict when the entire stimulus would be gone; Lockhart said he expected the asset purchase program to be completely wound down by the fourth quarter of this year. Clearly, investors were not enthused by these comments, and consequently the Dow took a dive, losing over 49 points. Nonetheless, it is encouraging to note that stocks have recovered lost ground, with the Dow now trading fairly flat.
Cold Forecast Boosts Natural Gas
By David Urani
The brutal cold around the nation continues to affect the power market, as we saw in last week's industrial production numbers where utilities caught a 4.1% boost in January. Well, we're sorry to report that weather forecasts are calling for yet another cold front next week. Consequentially, natural gas prices are elevating another 9% today. That takes natgas to its highest level in four years, past the $6 mark. That's in response to natural gas supplies that currently sit at a 10-year low due to the exceedingly high demand.
Nevertheless, this should only prove to be a temporary spike as there's only so much winter left to go (fingers crossed). As temperatures normalize (hopefully) we expect natural gas to at least fall back below the $5 mark if not lower over the next couple of months.