Consumer Price Index (CPI)

CPI and core CPI (less food and energy) both rose 0.1% in September, which was less than the consensus estimates of 0.2% for each.  Year-over-year, CPI rose 2.3% compared to 2.7% in August.  Core CPI was up 2.2%, which was unchanged from August.  The Federal Reserve has indicated that 2.0% is its long-term inflation target, but also indicated that it was willing to let inflation creep higher than 2.0%. 

Breakdown:

• Food and Beverages +0.1%
• Energy -0.5%
• Apparel +0.9%
• Rent 0.2%
• Vehicles -1.1% 
• Transportation Services +0.5%

The decline in vehicles helped subdue the CPI reading for the month of September.  Used cars and trucks declined 3.0%, while new vehicles fell by 0.1%, which is another sign of weak automobile demand.  Fastenal (FAST) mentioned “branch freight costs” as a factor in its earnings warning yesterday, transportation services rose 0.5% confirming logistics cost may be responsible for contacting margins.   

The 10-year Treasury yield fell, and equities rallied after the report was released. Currently, the yield is lower by 0.07 basis points @3.15%.  Stock futures cut their losses in half prior to the open and then rallied into positive territory shortly after the open when news hit that President Trump and Chinese President Xi Jinping plan to meet at the upcoming G20 summit in Argentina in November.  

Initial and Continuous Claims

Initial jobless claims rose by 7,000 to a seasonally adjusted 214,000 for the week ended October 6.  The four-week moving average increased by 2,500 to 209,500.  The rise in claims may be related to Hurricane Florence.  Continuing claims, people already collecting unemployment benefits, rose by 4,000 to 1.66 million.  The four-week moving average decreased by 10,000 to 1.656 million, which is the lowest average since 1973.  Labor markets remain tight but may be loosening up slightly as can be seen in initial claims.

Oil

Crude oil continued to slide after the U.S. Energy Information Administration reported a build in crude inventories of 9.75 million barrels last week.  This was the biggest build since February 2017, and it was well above analyst estimates of 1.61 million barrels.  The combination of an increase in production and a decrease in demand has crude solidly in the red.  West Texas Intermediate crude oil is lower by $1.73, 2.35%, @$71.45. 

Buyers

The dip buyers who were nowhere to be found in yesterday’s stock market drubbing have shown up today.  The Dow Jones Industrial Average at its low was down by 370 points, as it traded down to 25,226, 84 points away from its 200-day moving average.  The Nasdaq, which has been hit the hardest of late, is currently in the green as bottom fishing ensues.  The U.S. dollar is getting hit hard today, and Gold rallies up 2.64% to $1225 an ounce, the highest level seen since August 10, 2018.

• Dow Jones Industrial Average is lower by 100 points, 0.40%, at 25,488
•  The S&P 500 is lower by 0.50%
• The Nasdaq is higher by 0.17%
• The Russell 2000 is lower by 0.09%

Breadth:

• NYSE declines 1,917 to advances 1,068; new 52-week highs 6 to new lows 435
• Nasdaq declines 1,669 to advances 1,324; new 52-week highs 12 to new lows 312