Energy and Treasuries head lower following government reports

Energy and treasury prices fell as a number of
economic reports showed consumers were suffering from record prices at the
pumps and rising inflation.
Both Personal Income and Consumer Spending came
in worse than expected, and were followed by a larger than expected drop in
Consumer Sentiment. The Chicago PMI report released later in the day heightened
inflation concerns and increased the likelihood of higher interest rates.

The Commerce Department
report on
Personal Income and Outlays showed Personal Income fell $5.3 Bln in August after
increasing $34.9 Bln in July, a larger than expected fall. Consumer Spending
also declined more than economists forecast. The Commerce Department noted the
drop was partly due to hurricane Katrina and reflected $100 Bln in uninsured
losses of residential and commercial property.

The University of Michigan Consumer Sentiment Index fell
sharply in the wake of hurricane Katrina and Rita, and high energy prices. The
Consumer Sentiment Index fell to 76.9 from 89.1 in August, also a greater than
expected decline.

Chicago PMI was the only economic bright spot as the
Business Barometer Index
rose to 60.5 in September after falling in August. The report was much stronger
than expected. The report noted that “Production, New Orders and Order Backlogs
recovered much of last month’s loss. Employment slipped below neutral and Prices
Paid increased,” while “Production Materials and Capital Equipment lead-times
reached the highest level in 5-years.”

The reports pushed treasuries higher across the curve, droving
the yield on the 2yr T-Note to a new 4-year high. The US Dollar Index rallied as
the data reflected higher inflation and therefore further rate raising by the
Federal Reserve.

Turning to energy, today’s report by the
Minerals Management
showed nearly 98% of the daily oil production and more than 79% of
the daily gas production in the Gulf of Mexico remains shut-in. Almost 7.5% of
the annual oil production and nearly 5.4% of the annual gas production has been
lost so far. With a number of platforms and rigs destroyed or damaged beyond
repair the long-term effects appear far reaching.

Energy prices fell despite the bad news from the MMS as
traders were clearly more concerned about the earlier government reports.

The grains were notably higher on quarter-end commodity fund
buying and a bullish USDA report. Wheat gapped higher and posted solid gains.
Wheat is currently being supported by near record long positions by Commercials
in Wheat (COT report).

Chart courtesy of

Reuters/Jefferies CRB Index Movers

Price Price Change % Change
Corn (C) 205.50 +2.00 +0.98
Soybeans (S) 573.25 +12.75 +2.27
Wheat (W) 346.25 +12.75 +3.82
Live Cattle (LC) 89.12 +0.70 +0.79
Lean Hogs (LH) 67.20 +0.40 +0.60
Platinum (PL) 935.30 +3.10 +0.33
Gold (GC) 472.30 -3.50 -0.74
Silver (SI) 751.20 -4.30 -0.57
Copper (HG) 172.75 -1.20 -0.69
Cocoa (CC) 1413.00 -14.00 -0.98
Coffee (KC) 93.45 +0.15 +0.16
Sugar #11 (SB) 11.23 +0.11 +0.99
Cotton (CT) 51.50 -1.60 -3.01
Orange Juice (JO) 102.30 +1.15 +1.14
Crude Oil (CL) 66.24 -0.55 -0.82
Heating Oil (HO) 212.96 -2.49 -1.16
Natural Gas (NG) 13.92 -0.28 -1.94

Economic News

Personal Income and Outlays:

Personal Income, M/M Change – Actual -0.1% Consensus 0.3%

Consumer Spending, M/M Change – Actual -1.0% Consensus -0.2%

University of Michigan Consumer Sentiment:

Sentiment Index – Actual 76.9 Consensus 78.6

Chicago PMI:

Business Barometer Index – Actual 60.5 Consensus 51.0

Ashton Dorkins