The Rooster Call: CPI Report and It’s Impact on the Markets

Hit the Mark Trading’s Brief Review of Overnight Market Action Setting the Tone for the Trading Day

Good Morning Traders!
The important report day is 8:30’s Consumer Price Index. Inflation in the “core” reading removing volatile food and energy shows prices were up 1.9% year over year. The FED mandate is 2%.  Bonds are lower on the report. US dollar muted with no real reaction. Gold fell on the report.

Here’s the negative of the CPI report…core consumer price expenditures…what people are actually buying…lags at a pace of 1.3%. The Financial Times claims the core price expenditures is the preferred FED gauge.

Industrial Production is another pre-market open report. Forecast is abysmal indicative of the current reality of a slow growth economy.  In the event Industrial Production is reported higher than the 0.1% consensus…this is market fuel.  The capacity utilization rate tells us how well factory producing assets are being used. As a general rule, the higher the  number, the greater the use of factories, which translates into higher through-put, which means more jobs are likely needed to produce the higher factory order flow and includes mine production.

The equities market may react to a positive report even though the industrial sector accounts for less than 20 percent of GDP.

Remember equity index futures are desperate for positive economic data points.

I would like to remind you Wednesday we have the FED FOMC Minutes released at 2PM ET.  Plan now for that extra long lunch break.  Typically equity index futures are quiet into this report.  The big deal in this report is the number of voting members lining up for support of a December FED rate increase.

Walmart profits reported lower (yet beat analysts expectations), however same store sales were up 1.5% and that’s a good thing, which traders could interpret as the consumer alive and kickingE-commerce sales rose 10%.

What about declining Walmart revenues associated with raising employee pay? 

Walmart does two things here…raising the pay decreases employee turn-over.  There is a cost off-set in not having to train new employees and go through new employee mistakes.  Secondly, the thousands of employees receiving increased pay are able to contribute more to the economy with their discretionary dollars. In the big picture…this is a good thing. 

Keep in mind no annual report has an entry for “steps to make the USA economy better.”  On the contrary, annual reports reward cost cutting, tax avoidance, and financial engineering. Corporate officers are paid to advance the stock for share holders. In some quarters, especially CEO suites, Walmart’s increase of employee wages is a dereliction of duty. 

Walmart lowered its estimate for full-year earnings per share.

Home Depot reports higher quarterly profits and this is market positive.  Apparently the USA consumer is avoiding retail clothing expediture in lieu of home improvement!  The market always like a good report from Home Depot.

The United Kingdom reports inflation remained below zero for a second consecutive month in October. Peeling back the layers of the report, the “core” inflation figure shows inflation rose +0.3% for the month.

No comment on the G20 meeting because this group’s actions rarely mean anything.  Talk is cheap.

Drug firms might see lower stock prices as the House of Representatives announces an investigative panel in 2016 over high drug prices. Do not expect anything to come of this except a waste of tax payer money. This is the same body that refuses to allow competitive bidding for drugs paid for by Medicare and Medicaid. This is a dog and pony show for photo ops and sound bites.

War Department

France, as you know, declared war on ISIS. The Prime Minister has called for quick action on legislation that would give the government more flexibility to conduct police raids without a warrant and place people under house arrest.

Russia admits the bombing of a civilian Russian airliner was due to a terrorist bomb. Russia steps up attacks on ISIS.

Cameron in the UK is rabid asking Parliament for permission to join the heightened bombing campaign against ISIS. This is all about getting a foot in the door for future influence in the region rather than letting history pass you by.  That’s what great powers do, have done in the past, and will continue in the future.  Where there is influence, there are business prospects.

Economic Events
8:30 Consumer Price Index
8:55 Redbook Chain Store Sales
9:15 Industrial Production
10:00 NAHB Housing Market Index
10:00 E-Commerce Retail Sales
4:00 PM Treasury International Capital

 Markets
Equity index futures are showing follow-through from Monday. This is big time bullish. Today’s mantra is likely buy weakness. I discussed this at length in last night’s video.

VIX futures are lower.

Crude lower today base on profit-taking after CL ran up Monday. Up to the Wall Street crude traders attempting a short-covering rally amidst the rising tide of crude bearish fundamentals.  Geopolitical concern is the only thing bulls can hang their hat on.

Natural gas lower. Recall we discussed over the weekend Natural gas would likely rise Monday, but trend and momentum was so strong that the up move likely short-lived as price sought a test of resistance.

Gold lower and CPI did not help gold.

Silver green as long-standing support level kicks in encouraging buyers who see the metal refused to drop.

Copper stages potential…it’s early mind you…reversal bar. Our 210 target hit and hold price action now higher off lows.

Soybeans in consolidation.

Wheat in consolidation.

Corn in consolidation.

Softs nothing special. OJ cracks appear in the rally…not unexpected after dramatic move. Careful in this market.

Bonds lower on CPI report interpreted as a vote “for” FED December rate increase.

US dollar inches incrementally higher on CPI report.

Euro inches lower on CPI report.

Yen nothing special. Bank of Japan meets this week. Those guys never met a stimulus idea they didn’t like.

Pound quiet.

Canadian dollar consolidates.

Aussie in the green perhaps with copper’s overnight drop and sudden reversal.

Think About This!
We start the Boot Camp today at 12 Noon ET.

Are you a position trader?  Tuesday I conduct my Boot Camp.  A three-day event from Tuesday through Thursday. Learn trend and momentum techniques while keeping an eye on the fundamentals.

After Boot Camp, no more training until 2016. Don’t miss this opportunity.

Have a great trading day!

To learn more from Martin, visit HitTheMarkTrading.com to join his mailing list and receive blog updates.