Key Economic Data:
EUR / USD 1.4886 Down 0.0084
USD / JPY 89.250 Up 0.1950
GBP / USD 1.6790 Down 0.0027
OIL 78.64 Down 0.26
Gold 1,132.60 Down 6.60
FNMA 30-YR 4.5%Previous close 101.875
Opened down 0.125BPs @ 101.750
Key Economic News:
Lots of stuff today…PPI, industrial production, housing sentiment. weekly confidence.
8:30: Producer price index for Oct…an energy-driven rebound. On headline, median forecast (of 73): +0.5%, ranging from flat to +1.3%; last -0.6%. On core, median forecast (of 71): +0.1%, ranging from -0.1% to +0.3%; last -0.1%. Energy prices will once again dominate the move in the headline; the main disagreement is by how much. Core inflation in finished goods prices is expected to remain subdued despite recent increases at th intermediate stage of processing given the large amount of excess slack in the economy in general and the manufacturing sector in particular.
9:00: TICS data for Sept…Median forecast for long-term capital inflows (of 8: +$30bn, ranging from +$10bn to +$50bn; last $28.6bn.
9:15: Industrial production and capacity utilization for Oct…more inventory-driven gains. On production, median forecast (of 75): +0.4%, ranging from -0.3% to +1.2%; last +0.7%. On capacity utilization, median forecast (of 67): 70.8%, ranging from 70.2% to 71.5%; last 70.5%. We estimate only a small increase this month, based on ongoing declines in payrolls and total hours worked in this sector. However, the risk lie to the upside given that the factory workweek lengthened (just not by enough to offest payroll losses) and that most of the surveys for October were positive.
13:00: Housing market index for Nov…was that dip just a dip? Median forecast (of 44): 19, ranging from 16 to 20; last 18. Last month we poised to reach the 20 reading that had stood as a low prior to this cycle, but instead fell back. Forecasters are optimistic that this was just a one-month setback rather than anything more serious.
17:00: ABC consumer comfort index…when do we trust an increase? Last week the index posted a three-point increase to -46. However, it remains well within the low range in which it has been stuck for more than a year and a half.
Advice:
PPI – Vehicles Drag Core Down; Energy/Food Up; Modifying CPI to +0.17%/+0.11%.
Actual: +0.3% mom, -1.9% yoy
Previous: -0.6% mom
Consensus: +0.5%
Bottom line: Vehicles account for most but not all of a sarp drop in core finished goods prices; core intermediate prices also give back a smidge of recent increases. Food and energy, on the other hand, both rise substantially. This benign core/higher headline pattern should show up in tomorrow’s CPI as well. We are modifying our call for that to show +0.17%/+0.11% vs. +0.14%/+0.13% previously.
Based on PPI and the Housing Market index @ 13:00est. I see a good possibility that the market will sell off today. I would lock today.
My position on MBSs has changed to short today. (I’m a seller of MBS)
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