A Close Look At Thursday’s Key Market Events

A Close Look At Thursday’s Key Market Events

$USB, $NORD, $BX, $C, $GS

The FOMC is paying extra close attention to inflation data to gain a sense of when it may reasonable to raise the fed funds rate. That’s why, along with the Q-3 earnings reports, the CPI for September, which also has implications for Social Security recipients is the market focus Thursday.

Note: Thursday before the market open  companies are scheduled to report earnings: UNH, TSM, C, GS, PM, USB, PPG, BBT, KEY, FRC, VAC, FCS, WGO, MTG, WBS, PSG, BX, WNS, LNN, HOMB, NORD

I. CPI (Consumer Price Index) for September (8:30a EDT)

Why it is important

1. The Fed is monitoring inflation trends carefully for the rationale to raise the fed funds rate
2. The Fed has a 2.0% inflation target, but has said it thinks it will be appropriate to raise the fed funds rate when it has seen further improvement in the labor market and is “reasonably confident that inflation will move back to its 2% objective over the medium term”
   Note: the Fed Keys off the PCE Price Index in discerning inflation trends, yet the market will react to the CPI data as a potential driver of monetary policy
3. This is the last, hard data point on consumer inflation before the FOMC meets on 27-28 October
4. Consumer inflation provides some insight on economic potential given the spending activity that flows out of real income i.e. adjusted for inflation
5. Consumer inflation trends in the US  have global implications as foreign markets move to adjust for the impact of inflation on the Fed’s monetary policy and the US consumer’s spending power
6. Changes in the CPI factor into cost of living adjustments (COLA) for Social Security recipients
7. The next COLA for 2016 benefits is expected to be announced in conjunction with the September CPI report
8. The COLA is based on the percentage increase (if any) in the average CPI for Urban Wage Earners and Clerical Workers for the third quarter of the current year over the average for the third quarter of the last year
9. There was a 1.7% COLA for Y 2015 announced on 22 October 2014, yet the trend in Q-3 data this year makes a Y 2016 COLA increase seem unlikely

Take a look at Tocca, they have are making and FDA application in one of the biggest sectors in healthcare

A close look

1. Over the last 12 months, the all items index is up just 0.2% before seasonal adjustment, the lower reading is due primarily to the decline in energy prices.
2. Over the last 12 months, the index for all items, excluding food and energy i.e. core CPI, is up 1.8%

The numbers are as follows:

Thurs, 15 October release time

1. CPI 8:30a EDT -0.2% -0.2% -0.1%
2. Core CPI 8:30a EDT 0.1% 0.1% 0.1%

In play Thursday

US Treasury Complex Market

Government Bond ETFs

1. 1-3 Year Treasury Bond ETF (SHY)
2. iShares 7-10 Year Treasury Bond ETF (IEF)
3. iShares 3-7 year Treasury Bond ETF (IEI)
4. 20+ Year Treasury Bond ETF (TLT)
5. Short-Term U.S. Treasury ETF (SCHO)
6. Short 20+ Year Treasury (TBF)
7. ProShares UltraShort 20+ Year Treasury ETF (TBT)

Currencies

1. USD/JPY
2. EUR/USD

Index ETFs

1. SPDR S&P 500 ETF (SPY)3
2. PowerShares QQQ Trust (QQQ)
3. iShares Russell 2000 (IWM)
4. SPDR Dow Jones Industrial Average (DIA)

S&P 500  futures

Fed Funds futures market

Stay tuned…

HeffX-LTN

Paul Ebeling

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