Market News - Weekly Wrap-up - 03.14.08

Market and Economic Recap

News on the new homes real estate industry, mortgage loans and the economy.

Business Week Ending March 14, 2008

News from the Labor Department

• Consumer prices: The Labor Department said its inflation gauge, the Consumer Price Index (CPI), held steady last month after rising 0.4 percent in January.  Core consumer prices which exclude energy and food also remained flat after posting a 0.3 percent gain the previous month.  The news surprised Wall Street economists who expected a 0.3 percent rise in the CPI and a 0.2 percent increase in core prices. 

• Jobs: Jobless claims remained at 353,000 for the week ending March 8, coming in below the consensus estimate. But economists take more stock in the four-week average since it is a better reflection of unemployment conditions.  Looking at the four-week moving average, claims remains above the Fed’s red-line of 350,000 - its signal marker for soft labor market conditions.

The Stock Market

Despite the better than expected news on inflation, stocks fell sharply early Friday on the news that brokerage Bear Stearns was in financial crisis.  The company announced that JPMorgan Chase would utilize the Federal Reserve’s discount window to secure a 28-day loan on its behalf.  As a brokerage, Bear Stearns cannot directly borrow from the Fed’s discount window.  JPMorgan will use collateral from Bear to secure the loan but will not be exposed to risk as a result of the deal.  With Bear shares nosediving, the company has lost over a quarter of its market value this week and remains at risk of collapse. 

With the anticipation of further interest rate cuts further drawing down the dollar’s value, investors remain keyed into commodities, specifically gold and oil.  Oil prices hit a new record high of $111 a barrel on Thursday and settled at a record close of $110.33 a barrel.  Gold prices also hit a record-high Thursday, rising to $1,000 an ounce.

The Fed

Since inflation levels did not rise in February, analysts believe the Fed will feel comfortable and move aggressively to cut interest rates when they meet again on Tuesday.  While lowering interest rates serves to stimulate the economy, it also increases the risk of inflation and devaluation of the dollar.  To prevent the economy from falling into an all-out recession, many analysts think the Fed will cut rates another half or three-quarters of a point.

Stay tuned for more news on the economy, mortgage loans, and the new homes real estate industry.

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