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Dollar slumps to new lows, while inflation remains tame

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Stock futures are edging lower as the U.S. dollar falls to a 35- month low against the Euro, while this morning's economic data showed consumer prices rose a modest 0.1% in November, while the core number, which excludes the more volatile food and energy components was up 0.2%. Both CPI numbers were inline with economists forecast.

Although low levels of inflation have allowed the Federal Reserve the wiggle room to keep interest rates very accommodative, there continue to be signs that inflation is creeping up.

Year-to-date, the CPI is running at a still-mild 2.6%, while for all of 2001 the index rose a historically tame 1.6%. Through November, the core rate is expanding at a 2.1% clip.

Last week's statistics on producer prices ruffled feathers on Wall Street for fear companies are losing even more pricing power than before. The figures were particularly worrisome after the Federal Reserve said deflation concerns had entered into its decision to cut interest rates by an aggressive half point in November.

The producer price index fell 0.4% in November and was down 0.3% minus food and energy.

Retail food prices rose 0.2% in November, led by increases for fruit and vegetables.

Energy costs eased 0.2%, as fuel oil, electricity, natural gas and gasoline were all cheaper in November than a month earlier.

Within the so-called core rate, a 0.6% jump in hospital costs, a 12-year high, was offset only partly by cheaper car prices and airfares. Transportation costs as a whole fell 0.1% last month after rising 0.6% in October when new car models were rolled out.

Housing prices rose 0.2% in November after rising 0.3% in October.

Tobacco prices, which are another volatile component of the CPI each month, were flat in November.

Meanwhile, U.S. workers saw "real" earnings, which are adjusted for inflation, rise just 0.2% in November.

A 0.3% rise in earnings was offset by the 0.1% increase in the CPI.

Other economic news saw housing starts rise 2% to a seasonally adjusted annual rate of 1.7 million in November, which was up from a revised 1.66 million in October.

New building permits fell 3% to 1.73 million from a revised 1.77 million in October.

November's housing starts were slightly above economists forecast for a 1.66 million annualized rate, while permits were above the 1.7 million forecast of economists.

For the first 11 months of the year, a total of 1.58 million housing units have been started, about 5 percent higher than the year-to-date total last year. In all of 2001, 1.60 million homes were started.

S&P futures (sp03h) are currently trading off 2.4 points at 907. NASDAQ future (nd03h) are down 1.5 points, while Dow futures (dj03h) are off 37 points at 8,580.

HL Camp & Company has not posted fair value for buy/sell program premium level. Should they do so, I will post these numbers in the OptionInvestor.com market monitor or intra-day updates.

Target (NYSE:TGT) $31.80 said that same-store sales were tracking "well below plan" for the week and month ended December 14 at both its Target Stores and the overall corporation. The Minneapolis general merchandise retailer is looking for an increase of 3 to 5% for the month for both its Target Stores and the overall operations.

Shares of General Electric (NYSE:GE) $26.43 eased 2 cents lower to $26.41 at the pre-open as the industrial conglomerate will keep its earnings targets for 2002 and 2003 steady during a scheduled analyst meeting on Tuesday.

In acquisition, Cadbury Schweppes's (NYSE:CSG) $25.95 said it would buy Pfizer's (NYSE:PFE) $31.05 Adams confectionary business for $4.2 billion. Adams confectionary business is the world's second-largest chewing gum maker.

Chip stocks weren't seeing much interest in the pre-market after Gartner Dataquest reported that worldwide revenue for DRAM (dynamic random access memory) in 2002 increased 37 percent over 2001 to $16.2 billion.

Samsung Electronics, the world's largest DRAM supplier, increased its market share by 3.8 percentage points to 30.8%, Dataquest said, while No. 2 Micron Technology (NYSE:MU) saw its share fall to 17.2% from 19.1%. Dataquest said trade friction is increasing among the major DRAM producing regions, given that most DRAM vendors continue to suffer revenue losses.

Jeff Bailey

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