Investors study Fed action
new york -- Amid the wildest stock market in years, the Federal Reserve has maintained that inflation is its biggest worry. Wall Street will try to decide whether that’s a legitimate stance when this week’s data on rising prices come in.
Meanwhile, Asian markets rebounded Monday in early trading, recovering gradually from last week’s worldwide plunge set off by volatility from a U.S. mortgage crisis.
The Nikkei 225, the benchmark for the Tokyo Stock Exchange, edged up in morning trading, as jitters subsided over the sub-prime mortgage problem that had set off aggressive selling Friday. Taiwan shares also were higher in morning trading. U.S. market stability has been crumbling under the fear that credit is drying up because of losses in sub-prime lending and excessive collateralized debt in the private-equity sphere.
Although the Fed Reserve recognized those concerns last week after it decided to hold interest rates steady, it reiterated that the economy should keep growing moderately and that the risk of inflation was the predominant concern.
After that statement, the stock markets seesawed. They did manage to finish higher for the week thanks to a Fed cash infusion into the banking system, with the Dow Jones industrial average rising 0.44%, the Standard & Poor’s 500 up 1.44% and the Nasdaq composite index gaining 1.34%.
The failure to lean toward a rate cut puzzled some investors. Lowering rates would spur inflation more than the cash injections will, but many on Wall Street believe that’s a risk worth taking to boost liquidity and prevent a credit crunch.
Right now, inflation measures have been registering at the upper end of the Fed’s comfort zone, but the Fed has said it wants more evidence that price pressures are easing. That evidence could come in the form of the Labor Department’s producer price index Tuesday and consumer price index Wednesday.
The July producer price index is expected to have risen 0.1% after a June decline of 0.2%, according to economists surveyed Friday by Thomson Financial.
The core index, which takes out often-volatile food and energy prices, is expected to have risen 0.2%, after June’s 0.3% increase.
The July consumer price index is anticipated to have risen 0.1%, after June’s 0.2% jump. The core index is expected to have increased 0.2% last month, the same as in June.
On Thursday, Wall Street will hear about the state of the housing market -- the main culprit behind the financial markets’ woes.
Housing starts for July are expected to rise by a slightly smaller amount than in June, and building permits are expected to increase by about the same amount.
There are additional data coming as well. Today the Commerce Department reports on July retail sales and June business inventories.
On Tuesday, the Commerce Department reports on the nation’s trade balance. Economists predict that the trade deficit widened to $60.7 billion in June from $60 billion in May.
On Wednesday, the Federal Reserve releases data on July industrial production.
Wall Street forecasts a 0.3% rise in industrial production, compared with June’s 0.5% increase.
The University of Michigan on Friday releases its preliminary reading on August consumer sentiment. The report is expected to show slightly weaker sentiment this month compared with July.
Today, Wall Street will be interested to see how Blackstone Group did in its first quarter as a public company. The private-equity firm, expected to post a profit of 47 cents a share, closed at $25.28 on Friday, down from its June IPO price of $31 a share.
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The week ahead
Today
Commerce Department reports on retail sales for July and business inventories for June.
Treasury bill auction.
Quarterly earnings report due from Blackstone Group.
Tuesday
Commerce Department reports on international trade for June.
Labor Department reports on producer price index for July.
Quarterly earnings reports due from Home Depot and Wal-Mart Stores.
Wednesday
Labor Department reports on consumer price index for July.
Federal Reserve reports on industrial production for July.
U.S. Mint introduces Thomas Jefferson $1 coin.
Quarterly earnings reports due from Deere and Macy’s.
Thursday
Commerce Department reports on housing starts for July.
Labor Department reports on weekly jobless benefit claims.
Freddie Mac reports on mortgage rates.
Quarterly earnings reports due from Hewlett-Packard, J.C. Penney, Kohl’s and Nordstrom.
Source: Times staff and wire reports
