Economics Update

So, we have the inflation numbers for May, and the CPI was up 0.1% over April, and down 1.3% year over year, the biggest price decline since April, 1950.

The deflation would have been worse, but for the ramp up in retail gasoline prices, which continues on its tear, with prices having risen for 50 straight days.

In the mean time, banking is getting interesting, with S&P cutting ratings on 18 major banks, including Wells Fargo, Capital One, BB&T.

Additionally, you have credit default swaps (CDS) have shown their largest 3 day in over 3 months, which indicates that there is a belief that the risks of default on corporate bonds is getting worse.

The fact that treasuries have staged a mini-rally, with prices up and yields down, is either a measure of concern about corporate bonds, or relief about the low inflation numbers, I'm not sure which.

Real estate is full of mixed signals. Mortgage applications fell to a 7 month low, largely on the relatively high interest rates, but mortgage bond yields have been falling for a week, which would point toward lower rates in the future.

The low inflation is perceived, to be a good marker for recovery, which pushed the dollar down, because of less demand for the $US safe haven.

Oil is getting just plain flaky. It finished the day up, to $71.03/bbl, though it dropped like a stone earlier in the day following news that gasoline stockpiles rose by 3.4 million bbl this week.

I'm not certain where oil is going, but the recent volatility seems to indicate that it is going somewhere in the near term, probably up.