August 10, 2008


Relief for consumers: prices falling: After soaring for months, prices for oil, rice, and other commodities are going down (Ron Scherer, 8/11/08, The Christian Science Monitor)

Prices are now lower on staples such as rice, wheat, corn, and soybeans. Also down are prices for metals such as aluminum, zinc, and copper. The commodity almost everyone follows – oil – is off nearly 20 percent as well, dropping Friday to its lowest level since May 1. [...]

"The falling prices helps shore up consumer spending and also has an effect on inflation," says Jay Bryson, global economist at Wachovia Economics Group in Charlotte, N.C. "The Fed probably does not need to tighten interest rates now."

Stronger dollar pushes commodities lower (Richard Wray, 8/11/08, The Guardian)
Traders are braced for heavy falls in oil and commodity prices this week, heralding the end of the so-called commodities boom, after the US dollar posted its biggest one-day gain against the euro for eight years on Friday.

Analysts said the spread of economic contagion beyond the US has reduced demand expectations for commodities and interest rate forecasts, especially for the eurozone, which makes other currencies less attractive against the dollar.

Last week's comments from Jean-Claude Trichet, president of the European Central Bank, that third-quarter growth in the eurozone will be "particularly weak" was taken to mean interest rates will be held or even reduced. That would narrow the gap between interest rates in the US and Europe, which helped fuel the dollar's decline.

Dollar at crossroads amid brighter US outlook (Peter Garnham, August 10 2008, Financial Times)
Analysts say the turn towards the dollar reflects surprise that the fallout from the credit crisis has had such a marked effect on economies outside the US.

They say other central banks, unlike the Federal Reserve, have been slow to respond to a potential slowdown, refusing to cut interest rates as they focus on fighting inflation.

However, Jean-Claude Trichet, president of the European Central Bank, warned of a slowdown in the eurozone in the coming months, quashing expectations of higher interest rates.

The trend is expected to be confirmed by data from Germany this week, which is forecast to show that growth contracted in the second quarter.

Japanese officials have warned that the economy is heading for recession, while UK data continue to deteriorate and the Reserve Bank of Australia has said it is set to cut interest rates.

Ulrich Leuchtmann at Commerzbank said in a note he expected the dollar to rise “like a phoenix”. He said low US interest rates were not a burden on the dollar but an attraction, proof that the Federal Reserve was able to react quicker to turmoil than other central banks.

He said that in a very short period, “sentiment turned by 180 degrees – the market now believes that the US economy once again will be able to leave a crisis behind very quickly”.

It costs a lot to pretend the European economy is strong, the US weak, and inflation existent.

Posted by Orrin Judd at August 10, 2008 8:50 PM

With Russia attacking the western oil supplies, I guess we're going to be nostalgic about the good old times when oil costed only 145 $/barrel and you didn't have to speak Russian to the guy in the shop.

Posted by: Peter at August 11, 2008 1:39 AM

It just encourages people elsewhere to bring other supplies on line, sinking Russia's one good export.

Posted by: Mikey at August 11, 2008 7:09 AM

Europe will be coming here, hat in hand, sooner than probably even I think.

And if Russia decides to play hardball with energy, what will the EU do? Probably admit Russia as a full member.

Posted by: jim hamlen at August 11, 2008 7:36 AM
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