Daily Market Commentary for October 18, 2011

Treasury Secretary Timothy Geithner said at a Senate Small Business Committee hearing today that U.S. homeowners still face a terrible market bogged down in part by poor performance by mortgage service companies.
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During October, per the National Association of Home Builders, home-builder confidence rose by the largest amount since the home-buyer tax credit program ended, though the gauge remains mired at historically weak levels. The NAHB housing market index rose by four points to 18 striking the biggest one-month gain since April 2010. The index measures builder confidence in the market for new-built single-family homes and is closely correlated with single-family housing starts data. The gains are attributed to modest improvements in buyer interest in select markets where economic recovery is starting to take hold and where foreclosure activity has remained comparatively subdued. When looking at a three-month average of median prices, mortgage rates are near record low levels and prices for new home builds are down nearly 12% from their peaks. The West index showed a nine-point gain to 21 striking its best showing since August 2007. Four point gains were seen in the Midwest and South however, the Northeast remained unchanged. The index which is designed so that a reading of 50 is consistent with a 'good' assessment, is still not back to pre-recession levels. The index has not been above 50 since April 2006. The downward pricing pressures from foreclosed homes, high unemployment and the number of mortgage owners who are underwater continues to weigh heavily on the market for new-builds.

The Labor Department reported U.S. wholesale prices rose sharply in September as the cost of gasoline and vegetables spiked. The producer price index (PPI) rose a seasonally adjusted 0.8% in September to mark the biggest increase since April. Higher wholesale prices were driven by a 2.3% increase in energy costs and a 0.6% rise in food costs. Excluding energy and food, core wholesale prices rose a lesser 0.2%. The core index is usually viewed by investors and the Federal Reserve as a better gauge of inflationary pressure because it excludes the volatile food and energy categories. Increases in wholesale costs usually feed into the price of consumer goods and services, but rarely at the same rate. The consumer price index (CPI) is up 3.8% over the 12 months ended in August, outstripping the increase in worker wages over the same span resulting in many families having to make do with less which contributes to the weaker U.S. economy. Although oil prices fell during the month of September, the cost of gasoline actually rose with higher gas prices accounting for nearly 70% of the increase in energy costs last month. The government reported the increase in food prices was propelled by a 10% jump in the cost of fresh and dry vegetables and that one category accounted for more than 80% of the increase in food costs in September. Wholesale prices have climbed 6.9% over the past 12 months with most recent peak during July of 7.2% and energy costs have surged 18.4% with food costs surging higher by 8.0%. Wholesale prices have risen a modest 2.5% in the past year when excluding energy and food costs. During September, the 0.2% increase in the core rate was spurred by higher costs for light trucks and household detergents, which experienced the biggest one-month price increase since 1947. The price index for intermediate goods, such as the cloth used to make clothes or stamped metal parts used in motors, rose 0.6% during September. Excluding food and energy, core intermediate prices edged up 0.2% with crude prices, the cost of raw materials, increased 2.8%.

Cheng Yi Liang, a chemist who works at the Food and Drug Administration has plead guilty to charges of using inside drug-approval information to trade pharmaceutical stocks. Liang admitted in federal court today to securities fraud and concealing his trading which were both felonies. The plea was part of a deal with prosecutors who are now seeking to incarcerate him for 70 to 87 months in prison. He will forfeit the gains from his illegal trading, a sum estimated at nearly $3.7 million.


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