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Waiting For the PPI
www.oneoption.com
The market has been treading water near the all time high as it waits for a catalyst.
PRE-OPEN MARKET COMMENTS TUESDAY – The overnight news is light and international markets are mixed with small moves. The S&P 500 is going to open flat and all eyes will be focused on tomorrow’s PPI release before the open.
The economic releases don’t get any bigger than the jobs report and last Friday’s release was a big miss. That news should have produced a move and it didn’t. The PPI came in at a very hot .9% last month and traders will be watching for that to normalize. Analysts are expecting a rise of .3%.
CPI will be released Thursday and that could be elevated. It typically takes 2-3 months for producers to pass price increases on to consumers. Analysts are expecting a CPI reading of .3% and I feel there is room for disappointment.
Will hot inflation numbers keep the Fed from easing? No. I believe a 25 basis point rate cut will happen next week. There is even a remote (10%) chance for a 50 basis point cut. The Fed has admitted that tariff related inflation might be temporary so they are not overly concerned with it. They are more concerned with the drop in employment. Central banks around the world have been much more concerned about economic growth and they have been easing for most of the last year. Could hot inflation readings postpone future rate cuts? Yes.
There is a BLS benchmark labor revision out at 10 am ET this morning. This is an annual adjustment and given all of the recent revisions it will be interesting to see if they are consistent with a decline in employment.
Stock buybacks have fueled the market rally and we will enter the blackout period next week. Removing those buyers could weaken the bid. We are also entering one of the weakest seasonal periods for the market.
I’m not bearish, just cautious. All eyes are on the inflation numbers this week and the Fed next week.
Look for a relatively dull day today. Friday’s range is likely to hold.
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