Data on consumer spending, the housing market and producer prices lead the way Tuesday. Besides these reports, traders were focused on Treasury Secretary Paulson and Fed Chairman Bernanke’s speeches before Congress. The focus of Congress and Fed leaders at the moment is TARP and how to spend the $700 billion freed up by the government. Overall, there is no denying that we are in a global recession and traders want to know how government leaders plan on getting out of the situation.

Consumer spending has fallen sharply the past few months and continues to be difficult. For the week ending Nov. 15, same-store sales fell 0.1 percent year on year as measured by the ICSC-Goldman store sales report. The Redbook report was even worse, showing a year on year drop of 0.9 percent. Though energy prices have fallen dramatically, these reports noted that this hasn’t been enough to offset the loss of jobs.

The decline in energy prices did push producer prices down sharply in October with the PPI dropping 2.8 percent. This was a much larger decline than the 1.7 percent expected, although the core rate rose 0.4 percent, 3-tenths higher than estimates. Energy costs fell 12.8 percent during the month with gasoline off 24.9 percent. The core rate was lifted by price gains in light trucks and civilian aircraft. Year on year, the PPI is up 5.1 percent, which is down from the 8.7 percent growth seen in September.

The State Street Investor Confidence Index fell slightly in November to 57.0. This report measures confidence by looking at the actual levels of risk in investment portfolios. When traders take more risks with their investments, it shows they are more confident in the future. Of course, sentiment surveys have been very weak the past few months, especially in October when everything seemed to come tumbling down.

Mr. Paulson stated in his comments today that the shift to injecting capital directly into banks instead of buying toxic assets was the best way to jump start the credit markets. Secretary Paulson did say that he feels the $700 billion TARP plan should only include financial companies and should not be used to bailout the beleaguered auto sector. There is a growing feeling that some capital has to be used to help individual home owners avoid foreclosure due to adjusting variable mortgage rates. This is something FDIC Chairman Sheila Bair told lawmakers was “essential.” Half of the TARP monies has been used and the rest looks like it will be kept on hold until the new administration takes over in January.

Wednesday’s economic calendar is full of reports including data on consumer prices, mortgage applications, housing starts and weekly petroleum inventory levels. The minutes from the last FOMC meeting will also be released, which will provide some insight to what the Fed was thinking when it cut rates. Ahead of the data on crude inventory levels, the commodity gained 17-cents to close at $54.56.

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site