United States
In September, headline PPI rose .4% as did the core rate. The headline was in line with forecasts while the core rate was two tenths above. Headline PPI now stands 2.6% above the year ago level and the core rate is 2.2% higher y/o/y. Go back to February 2012 the last time we had a faster headline PPI print. The same is said for the core rate. Energy prices were the main driver at the headline level and we can of course blame the hurricanes (gasoline up 10.9%) while food prices were unchanged. Services inflation jumped by .4% and was driven by machinery, equipment, parts and supplies wholesaling.
Bottom line, the hurricanes certainly influenced the data via higher energy prices but keep in mind too that the CRB raw industrials index is still up 10% y/o/y. Some think inflation is dead and I believe it is far from it. As for the broader debate that is constant on inflation, I’m of the belief that price declines in most goods is normal with technology and efficiency driving that while commodity prices obviously fluctuate and price increases in services pretty consistent. Either way for the markets, tomorrow’s CPI is what matters and also will be influenced by the gasoline spike driven by the refinery shutdowns after the hurricanes.
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Initial jobless claims totaled 243k, 7k less than expected and down from 258k last week. Smoothing out the numbers puts the 4 week average at 258k from 267k last week. Continuing claims, delayed by a week, fell by 32k to the lowest level since 1973. Bottom line, outside of the hurricane affected areas, the pace of firing’s remain low and as seen with continuing claims, go back 44 years to see the same level.
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If only the yield curve could talk and tell us what it’s really thinking. The 2s/10s spread was 100 bps on election day November 8th. It peaked out 6 months later at 135 bps. On September 27th, the day the Trump Administration unveiled its tax plan it closed at 84 bps, up 4 that day. On Monday it was 85 bps and today it sits at just below 82. Below 75 bps would be a 9 year low.
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Following the extreme bullishness and dearth of bears in yesterday’s II data, today’s AAII index of individual investors which is much more volatile week to week saw bulls rise to 39.8 from 35.6. The recent high was last month at 41.3 which was the most since January. Bears fell 5.9 pts to 26.9. Last month it got as low as 22 which was the lowest since last November after the election. Last week, the CNN Fear/Greed index touched 97 intraday (can’t go above 100) and closed yesterday at 83. For those not familiar with how the CNN index is calculated, it is measuring what market participants are actually doing rather than how they are feeling which all the others measure. Here are the 7 indicators, 1)S&P 500 vs its 125 day moving average, 2)# of stocks hitting 52 week highs and lows on NYSE, 3)volume of shares trading in stocks on the rise vs those declining, 4)put/call ratio, 5)credit spread between investment grade and junk bonds, 6)the VIX, 7)difference in returns for stocks vs treasuries.
Asia
It’s not exactly where the BoJ wants the inflation to show up but it’s a start. Japanese PPI for September rose .2% m/o/m and 3% y/o/y as expected but that y/o/y gain is the quickest in 9 years if we take out the VAT induced jump in 2014. The caveat though is it is off a really easy comparison as PPI was negative every single month last year. Also, much of the gain was driven by commodity prices. The question now is whether this rise in PPI gets passed on or not to consumers. There was no market response in JGB’s as the 10 yr yield was unchanged and the 40 yr yield was down 1 bp. The yen also is little changed and the Nikkei rallied for a 7th straight day. The 10 yr Japanese inflation breakeven was flat at .43% but still at a 3 month high. I’m stating the obvious to everyone but most central bankers and have said this before, considering where global interest rates lie, just imagine if central banks are successful in generating higher inflation.
Europe
Industrial production for the euro area in August rose 1.4% m/o/m which was better than the forecast of up .6% and July was revised up by 2 tenths. The y/o/y gain of 3.8% was the 2nd best since 2011 pre Greek crisis. Even Greece contributed to the growth as IP there rose 3% m/o/m and Germany was solid too. The number is somewhat dated and we’ve seen already a bunch of the individual country reports so it’s not market moving. The euro is pretty much flat as are European sovereign yields while the Euro STOXX 600 is down slightly. We know Europe is seeing its best growth in many years of around 2% this year.
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This headline from BN: *BARNIER SAYS BREXIT TALKS HAVE REACHED DEADLOCK sent the pound to the lows of the day but while the comment was then followed by this, *BARNIER SAYS DECISIVE PROGRESS IS POSSIBLE IN NEXT 2 MONTHS, the pound focused on the first one from Michel Barnier, the EU’s Brexit negotiator. One has to wonder what the Brexit vote would be if held again today. That said, the UK economy has held in much better than what the fear mongers proclaimed in their estimates last summer.
The Dollar
As for the dollar generally today, the euro heavy index is up a hair while gold is knocking on $1300 again (its 50 day moving average). I remain a pound the table bull on gold and silver.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.