Nominal yields rise and the curve drops today. Its message continues to be risk ‘ON’ with the relief bounce in markets.
Guest Post by Michael Ashton
The following is a summary of my post-CPI tweets. You can follow me @inflation_guy (or follow the tweets on the main page at http://mikeashton.wordpress.com)
- Core CPI +0.14%, close to rounding to +0.2%. An 0.2% would have caused a panic in TIPS, where there have been far more sellers recently.
- y/y core to 1.73%, again almost rounding to 1.8% versus 1.7% expected. This just barely qualifies as being “as expected”, in other words.
- Core services fell to 2.4%, but core goods rose to -0.3% y/y.
- OER re-accelerated to 2.71% from 2.68% y/y. It will go higher.
- really interesting that core goods did not weaken MORE given dollar strength. $ strength is overplayed by inflation bears.
- Apparel went to 0.5% y/y from 0.0%. That’s the category probably most sensitive directly to dollar movements b/c apparel is all overseas.
- Accel major groups: Food/Bev, Apparel, Recreation (24.1% of basket). Decel: Housing, Transp, Med Care, Educ/Comm (72.5%).
- Though note that in housing, Primary rents rose from 3.18% to 3.29%, and OER from 2.68% to 2.71%, so weakness is mostly household energy.
- That’s a new high for primary rental inflation. Lodging away from home also went to new high, 5.04% y/y. But it’s choppier.
- Airfares continued to decelerate, -3.01% from -2.71%. Ebola scares can’t have helped that category, which most expected to rebound.
- But these days, airfares are very highly correlated to fuel prices (wasn’t always the case). [ed note: see chart below]
- In Medical Care, pharmaceuticals rose to 3.08% from 2.72%. But the medical services pieces decelerated.
- Decel in med services is the surprise these days as the passage of the sequester cause positive base effects.
- The weakness in med services holds down core PCE, too. Median CPI continues to be a better measure as a result.
- College tuition and fees 3.36% from 3.32%. Still low compared to where it’s been. Strong markets help colleges hold down tuitions.
- Core CPI ex-housing partly as a result of continued medical care weakness is down to a new low 0.877% from 0.911%.
- That continues to be the horse race: housing versus a wide variety of other things not inflating. Yet.
Just as we (well, NFTRH) did with the GDX gold stock ETF over the summer, when we gauged resistances 1, 2 & 3 on the Ukraine hype b/s (GDX stopped at #3), we now have established resistances 1, 2 & 3 on the S&P 500, DOW and NDX on the rebound rally, which itself we had anticipated.
SPY hit a trend line today, which I have a feeling will not hold as ultimate resistance. So understanding that in my nature I have a sort of chronic mental problem with being a strong short (this is me the faulty trader speaking, not me the top notch* macro market manager), I took the small step of shorting SPY today. No leverage, just a short. This is against some still held longs but the last 2 weeks have been pretty good and I want to seek out balance again.
This chart of SPY shows what could be the ultimate resistance level beginning at 196, but the indexes (ref. SOX post earlier) have started hitting some bounce targets so I thought it was worth a shot to begin creeping shorter the stock market.
* Sorry, but that’s just how I feel about my own work. It continually adjusts the faulty trader and keeps his head on straight.
Guest Post by Bill Bonner
That we live in an age of man-made wonders is beyond dispute. Painless root canals. Tinder. Central bank price controls.
We were traveling hard over the last couple weeks. Somewhere along the way we picked up a cold, which dogged us from Vermont to Maryland’s Eastern Shore. But the security X-ray at Nashville International Airport seemed to finally knock it out.
Global stocks have lost more than $3 trillion of their value so far this month. But the authorities rushed to the rescue like a surgeon taking out a ruptured gallbladder.
As St. Louis Fed president James Bullard told Bloomberg TV (reprinted from yesterday’s Diary):
I found myself feeling self-satisfied at the profit already taken in LSCC and the growing profits in SIMO and INTC (all added on the Semi sector wipe out as bulls puked them up left and right), to go along with the profit in MLNX, which I held through the blood bath last week. I found myself satisfied and realized that might not be a good sign.
I looked at the chart of the Semiconductor index and saw that it has hit my bounce expectation (not that it can’t bounce higher) and thought ‘book it’. So I sold the first 3 items mentioned and hold MLNX for another hour, week or month. In NFTRH we are watching correction leaders for clues on the rebound rally.
Guest Post by EWI
Want to Know the REAL Reason Why the Stock Market Turned Down?
The rout in stocks is no “jinx”
In case you’ve been roving Mars for the past month, you’ve missed quite a fiasco from the world’s leading stock market:
“Since it topped out last month, the Dow has suffered eight triple digit losses� Add it all up, and the Dow has slid about 7.5% percent from its peak, the biggest retreat in more than two years. It also means the Dow has now given back all of its gains for the year — and then some.” (Daily Finance Oct. 15)
Now, according to the mainstream experts, there are 3 key causes for the market’s sell-off:
Well here it is; it is a sure bet that a lot of companies are saving their machine tool and high end manufacturing equipment purchases until year end, for tax management purposes. This graph (from EDA) does not tell me this. My many years in the industry do. It’s a Q4 tradition, which I participated in on a few occasions myself.
Indeed, my contact (servicing the Semi industry) is planning to add a couple pieces. Whether or not this bump will coincide with market strength is another topic, but one might want to watch the best of the machine tool and high end manufacturing equipment sectors. Much hyped though it is, that would include the the 3D Printing guys too.