US economic analysis for the week of July 5, 2005

US economic analysis for the week of July 5, 2005

Bomb attacks in London and tropical storms in the Gulf of Mexico are the big headline grabbers as the U.S. economy is relatively quiet during a holiday-shortened work week. Oil prices and stock market indices headed in different directions as a series of apparent terrorist bomb attacks on the London transportation system set off a of reflexive market chain reaction on the morning of July 7. Oil briefly skirted above $62 per barrel before backing down, while global markets stumbled in the wake of the tragic events that have so far left almost 40 people dead and hundreds more injured. Though market sanity was later restored and oil again dropped down to near previous levels, the reprieve will surely be short-lived as another big weather event in the Gulf of Mexico prepares to rear its ugly head. Earlier this week, Tropical Storm Cindy brought flooding and damaging winds to an already weather-weary Gulf Coast region. Meanwhile, out in the Gulf, oil production was temporarily disrupted causing the price per barrel to surge above $61. Cindy has since moved on to dump heavy rain on the Midwestern states but her brother, newly crowned Hurricane Dennis, is close on her heels. Forecasts from this morning report that Dennis has strengthened with winds at 100+ and it has yet to make significant landfall. Once it crosses Jamaica and Cuba in the next 24 hours, it is expected to make a beeline towards vital Gulf oil platforms. The effect on oil is sure to be pronounced and Dennis is not expected to impact the US until early next week making for a long ordeal. Meanwhile, major markets later found their footing as investors breathed deeply and rallied for minor gains. However, these gains are an exception to what has been a poor week for Wall Street. Oil has kept a tight rein on the bulls giving the markets little to cheer about while steel shares have been strangely quiet perhaps in anticipation of the flurry of earnings reports due out in the coming weeks. Even positive manufacturing data could do little to lighten Wall Street’s mood. Earlier this week, the Commerce Department released welcome news that US factory orders increased nearly 3 percent in May. That jump was the largest in 14 months and was especially pronounced after meager 0.7 percent increases in the previous two months. On the downside, motor vehicle and steel orders were flat. Attention will now turn to the June jobs report due out Friday. Investors are cautiously optimistic that June’s numbers will have recovered after a poor showing in May. There’s little reason to think they will not. June, July, and August are typically the biggest hiring months as millions of young adults snatch up temporary summer employment. All-in-all, analysts are confident this morning’s attacks will have little to no long-lasting effect on the economy but remain sketchy on this weekend’s impending hurricane and how much that will impact oil. Last year Hurricane Ivan damaged oil platforms and caused some to shut down production for months which sent oil prices into record territory. Traders fear a repeat performance and are watching forecasts closely.