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                                  MARKET NEWS SUMMARY

 

After the Dow ended above 17,000 for the first time last week, stocks were mainly down this week. There are many factors that have contributed to the stocks ending down; but the main reasons are the possible spreading of the Portuguese financial crisis throughout Europe and that the chief of the International Monetary Fund predicted that the global economy will not improve at the rate previously expected.

On the bright side it seems that gas prices have peaked already. Oil has been steadily dropping in price and is expected to continue falling. The Federal Reserve released their minutes from their mid-June meeting this week and it revealed that the Fed is leaning towards stopping the economic stimulus in October. This shows that the Fed is very optimistic regarding the future of the U.S. economy.

Gold prices are trading not far from the unchanged mark in early trading Friday. The market is pausing after solid gains on Thursday that notched a nearly four-month high. However, experts predict that demand for gold is much higher than the world's supply, so the commodity markets will therefore see prices climb.

U.S. consumer sentiment dipped in early July while an index of consumer expectations weakened for a third straight month, a survey released on Friday showed. The most remarkable aspect of recent trends in consumer confidence has been its resistance to change in either direction due to very negative GDP and not very positive employment gains. This stability will provide the necessary strength for consumer spending to continue to expand, but does not support an acceleration in spending above 2.5 percent.

Stocks continued to fall deeper in the red today, mainly due to escalating violence in Iraq and mixed economic signals. It is also likely that gas prices will quickly rise due to the tension in Iraq; gas was pushed to an eight-month high today. One of the most important stocks in the Dow is Caterpillar. As stocks are retreating from their recent all-time highs, Caterpillar continues to gain. Its shares are up nearly 20% and is the best performing stock in the Dow Jones.

The housing market saw some disappointing news today with new home sales dropping during the month of October by 3%. The Fed released their Beige Book, stating that the US economy is still growing modestly in hiring and consumer spending, but the manufacturing sector has weakened. After four days of gains, the Nikkei in Tokyo fell 1.2% and the yen rose slightly against the dollar after two weeks of decline.

After ending down for most of the week, all three main indices in the U.S. ended the day in the green. The Justice Department is preparing to sue Citigroup over the bank’s sale of mortgage-backed securities. The Justice Department could file the lawsuit as early as next week. Wholesale prices fell for the first time since February, falling 0.2% whereas retail prices improved by 0.1%.

Commodities: In the two months since June 8th, when the Economist's commodity-price index was at its lowest level this year, wheat prices have jumped by more than 50% to their highest in almost two years. Severe droughts in Russia and Ukraine have driven the surge. But the Food and Agriculture organization, a UN body, reckons that the world wheat market has adequate inventories to cover the predicted shortfall. Other food essentials have also become dearer. A shortage of premium Arabica beans from Colombia and Central America has sent coffee prices shooting up by 25% since the beginning of this year. Traders expect wholesale coffee prices to increase further before the arrival of the new Brazilian crop later this year.

Surveys of purchasing managers by a research firm, suggests that manufacturing activity expanded at a faster pace in August than a year earlier in most countries. A year ago, 11 countries had purchasing manager's indices (PMIs) below 50, indicating that manufacturing industries there were still contracting. Now, contraction is apparent in only three of the 25 countries for which August data is available. After dipping into contractionary terrain in July, China's August PMI once again signalled growth, though Chinese manufacturing has clearly slowed from a year earlier. In America, the Institute of Supply Management's index for August pointed to growth for the 13th month in a row.

Industrial production in the rich world collapsed during the crisis. By the time American manufacturing bottomed out in June last year, output was nearly 15% lower than in January 2008. Japan and the Euroarea saw even steeper declines, as did Brazil. But although growth weakened markedly in China and India, output there never fell below its level at the beginning of 2008. Despite recent growth, factories in America, the Euroarea and Japan still produce less than they did in January.