Welcome, economic Fools. As has been the case lately, this week wasn't short of breaking economic developments that can have a serious impact on your bottom line. Oil continued its boom, stocks flirted with their yearly lows, and interest rates spiked on rising inflation fears. But enough chit-chat. Let's get down to business.
Speculation just ain't their thing
The quest for a quick fix to oil's burgeoning price continues. Congress is considering a range of actions that could impose limitations on the amount certain people can invest in commodity futures markets. Speculation has more likely than not played a role in oil's unprecedented rise, but the repercussions from such a move could have serious unintended side effects. Any move to limit investors' ability to, well, invest, will take away a certain amount of liquidity from the market, which could, ironically, drive prices higher. Companies such as Southwest Airlines (NYSE: LUV) and JetBlue (Nasdaq: JBLU) have used futures markets in the past to lock in the price of fuel. Limiting such an advantage might do more bad than good.
Choppy waters ahead
Bad news for those hoping for an economic rebound anytime soon: Nearly one-third of CEOs see a lower headcount at their companies in the near term, according to a poll conducted by Business Roundtable. The same poll found that nearly half the CFOs surveyed expect the higher cost of fuel and supplies to be passed along to the consumer by way of higher prices. On the job front, Washington Mutual (NYSE: WM) axed another 1,200 jobs, Xilinx (Nasdaq: XLNX) said goodbye to 7% of its staff, and General Motors (NYSE: GM) announced that more than 18,000 workers will leave the company after accepting buyout offers and early retirements.
Flood fallout
The massive floods raging through the Midwest could spur inflationary pressures already gripping the country. Around 16% of Iowa's tillable acres are currently underwater, and an estimated 2 million acres of soybeans have been lost in the recent floods. Corn prices approached $8 a bushel this week, nearly double the price seen as recently as last fall. Higher grain costs prompted a debt downgrade this week of Tyson Foods (NYSE: TSN), which has been saddled with soaring costs of animal feed.
Are we having fun yet?
They say adaptation is the key to success. If that's true, the current economic climate probably won't feel as bad is it looks from the outside. A recent Reuters/Zogby poll reported that Americans' moods improved in May over the previous month. Rather than actual improvements, the gains came from simply accepting that tough times are here to stay. Fully 50% now say they feel good about their financial situation, and 61% think their children will have brighter days ahead. It's all relative, people.
Even things out a little, would you?
After being largely immune to oil's surging price, the Chinese government announced yesterday that it planned on raising the price of gas and diesel to pass higher costs along to consumers. Oil subsidies have been the rage in developing areas such as China, India, and South America, in an effort to keep inflation in check and economic growth chugging along, but at a certain point, the government's coffers can handle only so much. Chinese oil companies PetroChina (NYSE: PTR) and Sinopec both gained ground on the news.
That's the latest for this week. Check back in next Friday for the latest economic roundup.
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