Wednesday, September 21, 2005
Issue Contents:
| 09:29 | The Day Ahead Economic releases and news |
| 16:15 | TrendVue Trader Talk Today's transcript. |
| 20:08 | Rita |
Good morning, today is Wednesday September 21st, the 264th day of 2005.
With little on the US economic calendar today except for the weekly oil status report, and now categeory 4 hurricane Rita, the market has old worries (Katrina) to add to potential new worries (an economy slowing faster than expected, perhaps) to contemplate along with yesterday’s dose from the Federal Reserve :
Output appeared poised to continue growing at a good pace before the tragic toll of Hurricane Katrina. The widespread devastation in the Gulf region, the associated dislocation of economic activity, and the boost to energy prices imply that spending, production, and employment will be set back in the near term. In addition to elevating premiums for some energy products, the disruption to the production and refining infrastructure may add to energy price volatility.
While these unfortunate developments have increased uncertainty about near-term economic performance, it is the Committee’s view that they do not pose a more persistent threat. Rather, monetary policy accommodation, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Higher energy and other costs have the potential to add to inflation pressures. However, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained.
The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured.
Pre-market, energy futures are up strongly across the board, between 2.5 and 6%, stock index futures are down marginally near 1/3 of one percent, suggesting the distinct possibility that yesterday’s sell off will find continuation today. Check your US dollar charts… the scenario outlined yesterday is making its first move.
US Market Calendar
- 7:00 am: MBA Purchase Applications
- 10:30 am: EIA Petroleum Status Report
Canadian Market Calendar
- 8:30 am: Retail Sales – July
Earnings and the Federal Reserve
For earnings highlights, please see today's WSJ Earnings Calendar.
For a list of upcoming speeches, congressional testimony, Federal Open Market Committee material, and statistical releases, please visit the What's Next page of The Federal Reserve Board website. Recently released Federal Reserve Board material, including market moving FOMC decisions and speeches by members, will be found on their What's New page.
Today's transcript.
Click on the title above to expand this document.
It seems likely that the song Beatles song, Lovely Rita (lovely Rita, meter maid, nothing can come between us), will bring back uncomfortable memories of the fall of ‘05.
Earlier in the day, as the computer models of the storm track continued to come into agreement, Gulf of Mexico offshore and onshore staff were being evacuated and refineries are being shut down.
Rita’s impact on oil refineries and oil production could be a “national disaster,” according to the head of the nation’s biggest maker of gasoline, Valero Energy Corp.
“If it hits the refineries, and we’re short refining capacity, you’re going to see gasoline prices well over $3 a gallon at the pump,” said Valero Chairman and Chief Executive Bill Greehey. Houston Chronicle
And then, the storm grew stronger. Every hour Rita makes new records – first it was the fifth most intense hurricane ever recorded, only a notch behind recently departed Katrina – and now as of 7:50 pm EDT Rita is the third most powerful storm ever recorded.
RITA BECOMES THE THIRD MOST INTENSE HURRICANE ON RECORD...THE CENTRAL PRESSURE IS PROBABLY AT LEAST AS LOW AS 898 MB...AND PERHAPS EVEN LOWER. FOR OFFICIAL PURPOSES... A PRESSURE OF 898 MB IS ASSUMED... WHICH NOW MAKES RITA THE THIRD MOST INTENSE HURRICANE IN TERMS OF PRESSURE IN THE ATLANTIC BASIN. SOME ADDITIONAL DEEPENING AND INTENSIFICATION IS POSSIBLE FOR THE NEXT 12 HOURS OR SO. RITA CURRENTLY RANKS BEHIND HURRICANE GILBERT IN 1988 WITH 888 MB AND THE 1935 LABOR DAY HURRICANE WITH 892 MB. NOAA
Investment / trading impact: the implications of a another severe blow to US production and refining are frankly quite hard to fathom, but it doesn’t take much imagination to picture what line-ups for fuel, heating oil and perhaps natural gas shortages during the winter, would have on the economy.
Bill O’Grady, an analyst with A.G. Edwards, said gasoline prices may not reach unprecedented levels as consumer demand falters. “We could see hoards of people on bicycles,” he said. “We just don’t know, because we’ve never been there.”
I like that last comment – we just do not know. Making matters worse in the very short term, as Rita will land late Friday, market participants will be in the dark, so to speak, as to the short term and long term impact until well into the weekend—when markets are not trading.
Clearly this is one of those times when markets are facing very high levels of risk, which demands that we mitigate such risks through whatever means we have available to us… sector selection, hedging, and lets not forget the trusty and ever reliable method: sitting on the sidelines… in cash.