Wednesday, August 12, 2009

Quick Notes for the Day - August 12

Trade Deficit Widens for the First Time in 11 Months - The Commerce Department reported that June imports of goods and services into the US rose for the first time since July 2008 primarily by higher oil prices on imports. If you remove oil, imports fell to the lowest level in five and a half years. The trade deficit rose to $27 billion in June from a 10-year low of $26 billion in May. Most of the increase in imports and exports in June was driven by higher prices, not higher volumes. In inflation-adjusted terms, the trade deficit fell to the lowest level in nearly 10 years.

When Will "The Fed" Raise Rates? - There has been growing speculation as to when The Fed will start their "exit strategy" of easy money. One of the tools will be to raise the "fed funds rate" (overnight rate for banks) that alters the "prime rate" for everyone else. Traders had been predicting a change by year-end, but now the futures are pointing to a change in April.

The Federal Open Market Committee (FOMC) is meeting today, and no change is expected on much of anything actually. Looking forward though, futures for April show traders expect the benchmark rate to be about 0.58% by then (from 0 - 0.25% now). Most analysts and economists don't see the Fed hiking rates until next summer to help avoid a "double dip" recession and since inflation remains in check.

Oil Demand Expected to Rise, Current Inventories Rise - The International Energy Agency (IEA) Wednesday raised its forecast for this and next year's global oil demand, citing strong consumption from Asia especially China. The IEA revised the forecast by 190,000 barrels a day for the rest of 2009 and 70,000 barrels a day for 2010. Even with this increase, demand will still be 2.7% lower than 2008.

Oil fell back closer to even after the EIA reported a surprise jump in crude supplies. The EIA said supplies rose by 2.5 million barrels last week double the expected rise. The EIA also said that gasoline inventories dropped by 1 million barrels (better than expected) and distillate inventories rose by 800,000 barrels (in-line with expectations) last week.

Existing Home Sales Data - The National Association of Realtors reported that the total existing home sales (single family and condos) rose 3.8% versus Q1 2009. Compared to Q2 2008 though sales fell 2.9%. "With low interest rates, lower home prices and a first-time buyer tax credit, we've been seeing healthy increases in home sales, which are a hopeful sign for the economy," said NAR Chief Economist Lawrence Yun.

Corn Supply to Record Levels - According to a report from the United States Agriculture Department, corn supplies in the US are expected to hit a record high in the market year that begins Sept. 1 as higher yields push up production. Corn production for the market year is projected to rise to 12.8 billion bushels, 471 million bushels higher than the USDA had expected a month ago, as higher yields are expected to more than offset a small reduction in harvested area. Adding stockpiles left from the previous market year, this year's total corn supplies will rise to 14.5 billion bushels, the highest level on record, the USDA said. Corn futures are down about 20% YTD.

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