What last week’s consumer price, and then Tuesday’s producer price index data, both show is that the market was anticipating more bad news on the inflation front than relief, and hence the big short-covering rallies when the data comes in weaker than forecast.
This chart from Societe Generale clearly shows that the biggest winners from the CPI miss were the biggest losers of the year. The first is that inflation is now broad based. This is best shown in the median CPI report from the Cleveland Fed, which shows the components whose expenditure weight is in the 50th percentile of price changes. In October, that reading was 7%, matching the highest level of the cycle.
Finally, he notes that money velocity — defined in this instance as the M2 measure of money supply divided by nominal GDP — is on the way up. “Higher rates usually pushes velocity up as consumers look for opportunities to deploy their cash. Recently, we have seen an acceleration in money velocity. If this continues, inflation might remain elevated even if money supply falls,” said Putti.
The latest reading on retail sales is due at 8:30 a.m. Eastern. There’s also data on industrial production, business inventories, and a home-builder sentiment index due for release.
“Lowe’s LOW, +2.04% upped its earnings forecast for the year, while Target TGT, +3.95% badly missed on third-quarter earnings and reduced its fourth-quarter view. Advance Auto Parts AAP, +0.09% slumped after its third-quarter numbers.”
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