Stock market investment blog

Consumer confidence index dropped even more than analysts expected and is the lowest it has been in two years. It dropped 18.9 points in September for a reading of 86.6, down from 105.5. Economists were expecting a reading of 98. The drop was the largest fall from month to month in 15 years.

Investors began selling, but Greenspan calmed investors by emphasizing “the incredible resilience of the U.S. economy in terms of flexibility”. Greenspan stated that before policy-makers respond to disasters, markets react through prices, interest rates and exchange rates, which work together to cushion the economy.

I am pleasantly surprised that Greenspan’s words insoired so much confidence considering the huge fall in consumer confidence and the importance of domestic spending to the US economy. I’m not conviced that the confidence Greenspan inspired today will keep markets from declining in the next several days, however. We shall see…

Globeandmail writes that Rita is likely to impact oil and gas prices:

By late yesterday, the U.S. government reported that virtually all oil and gas production in the Gulf of Mexico was shut down, while 15 refineries in Texas were also closed.

“It has the potential to significantly disrupt an already fragile energy industry,” Mr. Zandi said. With four refineries still out of commission in New Orleans, any further shutdowns would drive gasoline pump prices to new record levels, resulting in higher inflation and further erosion of consumer confidence.

Still, investors were happy to hear forecasts that predict Rita will not hit Houston directly:

Investors took some relief from Rita’s shift in course and reduction in wind speed. On the New York Mercantile Exchange, crude oil futures fell nearly $2.31 to $64.19 (U.S.) a barrel, while gasoline futures fell 5.38 cents to $2.0856 a gallon.

Many investors are predicting that the Fed will not raise rates because of Katrina and it effect slowing the US economy. However most economists predict that the Fed will increase its benchmark borrowing rate by a 0.25 percentage point.

This is supported by the US benchmark gold futures, which are up to a 17-year high of $US463.30 an ounce. If for some reason the Fed did leave rates where they are, I think the market would react very favorably but this scenario seems unlikely.

Oil prices declined slightly as the Wall Street Journal explains:

The impact of the refinery outages may be muted by the International Energy Agency, which Friday agreed to release two million barrels a day of crude oil, gasoline and other fuels to the world market from member nations’ strategic stockpiles over 30 days. That is equal to about 2.4% of daily world consumption. In response, gasoline futures fell nearly 23 cents in New York trading on Friday to settle at $2.18 a gallon.

They also note that producers and refiners are seeing higher profit margins: “Credit Suisse First Boston raised its estimate for third-quarter U.S. Gulf refining margins — the gross profit margin earned from refining oil into gasoline and other products — by 67%, to $15 a barrel from $9 barrel.” This is attracting the attention of some politicians: “The governors of five U.S. states issued a letter requesting that President Bush prevent oil companies from profiting at the public’s expense. Congress, too, is pressing the matter with hearings on gasoline supplies and other Gulf-related energy measures this week.”

There’s very little chance of the politicians getting anything done quicly so I imagine that producers and refiners will continue to see strong profits.