Podcast: Play in new window | Play in new window (Duration: 13:16 — 6.1MB)
DOW – 186 = 17,427
SPX – 11 = 2011
NAS – 22 = 4639
10 YR YLD – .05 = 1.84%
OIL + .28 = 46.17
GOLD – 1.80 = 1230.10
SILV – .25 = 16.94
The roller coaster ride continues, with a 345 point swing in the Dow Industrials from the intraday high and low.
A couple of economic reports set the stage this morning. First, retail sales in the US sank in December largely because of cheaper gasoline prices, but most stores posted surprisingly weak results during the busiest month of the shopping season. Sales at retailers dropped a seasonally adjusted 0.9% last month to mark the biggest decline in nearly a year. Excluding gas and car sales, retail sales fell 0.3%. It was the biggest decline for retail sales in 11 months.
One month does not make a trend but this kind of puts a dent in the idea that consumers would save money at the gas station but spend elsewhere. Instead it looks like people are tightening purse strings, which is symptomatic of deleveraging and deflation; it might also be indicative of how much the economy has changed in terms of job stability, wage stagnation, and retirement prospects; all of which point to much greater pressures to save.
The Federal Reserve then offered confirmation of a weak sales. The Fed’s Beige Book said most districts reported “modest†to “moderate†growth from mid-November to late December, and the Fed’s contacts for the most part expected somewhat faster growth this year. The report said there was generally “modest†consumer spending growth, outside of the demand for automobiles and vacations.
The prices that Americans paid for imported goods fell 2.5% in December, the biggest drop in six years; and that goes to the sharp decline in oil prices. This wasn’t a surprise; the import price index started to decline in July and it fell 7.3% in the second half of 2014. The 2.5% move in December was the biggest drop in import prices since 2008. The good news is that we aren’t seeing any real signs of inflation and probably won’t for the next few months, at least.
And oil isn’t the only commodity that has been dropping. Copper has crashed. Not to sound alarmist, but I think crash is the right word here. Copper enjoyed a nice bull run from 2001 to 2011, up more than 600%. But the global economies have now slowed down. Known as Dr. Copper, the commodity is a chief building and manufacturing material and to some a harbinger of the global economy. So when copper prices collapse, the doctor is telling us that the health of the global economy is sickly. Some blamed copper’s losses yesterday on the World Bank, which cut its global-growth outlook. China had been on a building boom, and that meant copper piping and copper wires. The Chinese building boom is over. Europe is slowing down. Chile is the top producer and they are still expecting record production for 2015. This ain’t rocket science; supply is up and demand is way down.
