Inflation Subdued

Futures moved up modestly as May Producer Price Index(PPI) was up only 0.2 percent, less than the 0.6 percent increase expected.

Housing starts and permitswere also better than expected, a bounce from the April lows.

Europe is up on a stronger than expected German investor confidence survey. It was the eighth straight month of improvement.


1) We have a demand problem. We have noted that the advances this month have occurred on light volume, indicating lack of demand.

According to Lowry, yesterday qualified as a 90 percent downside day (90 percent of the volume to the downside), and again volume was on the light side, indicating that the decline occurred as a result (again) of a lack of demand, not intense selling interest.

Get the picture? Lack of demand is an issue on the upside as well as the downside. What can break us out of this pattern is continued strong indications that the Chinese economy is growing, much improved U.S. economic statistics, or some other international economic event.

Bulls insist we are following normal seasonally light volume patterns, but I'm not so sure. Volume trends have been declining since the March lows.

Our volume problem may dissipate this week: we have 1) quadruple witching expiration, 2) a rebalancing in the S&P 500 on Friday, and 3) the reconstitution of the Russell indices on June 26th.

2) Best Buy has seen large volume pre-open as they beat expectations, though same-store sales fell a disappointing 6 percent from last year's results, which benefited from the government's stimulus checks. Guidance for the full-year was reaffirmed, and remains inline with the Street's expectations.

3) Meat producer Smithfield Foods reported a narrower-than-expected Q4 loss, and posted its first annual loss in 34 years. A hefty $171 million loss out of its hog production division heavily contributed to the loss in the latest quarter, as hog feed costs swelled.

4) Tyco Electronics is up 11 percent in pre-market trading after raising its Q3 earnings guidance to 10 cents-17 cents (vs. prior forecast of 1 cent) amid improving sales. The electronic component maker now sees its Q3 sales to be between $2.45 billion and $2.55 billion, versus the previous guidance of $2.35 billion-$2.45 billion.

5) La-Z-Boy soars 27 percent pre-open after surprising the Street with a profit in the latest quarter. Although retail sales fell 21 percent on weaker demand, better cost management propelled Q4 earnings to 10 cents per share, defying analyst expectations of an 11-cent loss. Still, the company expects "business conditions to remain difficult throughout the year."

6) General Motors Corp. says it has signed a deal to sell its Saab unit to a consortium led by Swedish carmaker Koenigsegg Automotive AB. No price was discolosed; sale is expected at the end of the third quarter.

7) TALF expands to CMBS today: The Fed, through its Term Asset-Backed Securities Loan Facility (TALF) has already helped support the issuance of asset-backed securities collateralized by auto, credit card, and other loans. Today investors can request loans for commercial mortgage backed securities (CMBS).

The CMBS market has essentially ground to a halt since the fourth quarter of last year. Under the program, the Fed creates a special purpose vehicle (SPV) to buy the assets that back the CMBS. The Treasury Department provides credit protection.

Investors can borrow from the Fed to create, package and sell commercial mortgage bonds.

Don't expect much immediately; it's likely to take several months to get this program going.



Questions? Comments?