Cary Leahey
Cary Leahey
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The PPI number had some pipeline pressure underneath the surface, but the market liked the fact that the core rate was up only 0.1 percent,
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On the prices paid index, you're down 50 points from the highs in October, which the bond market clearly likes.
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These are the kinds of things that raise eyebrows at the Fed. The implication that this January report has for wage inflation is bothersome to the market and the Fed.
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The bond market took this report as a sign that core inflation may be bottoming and the Fed may still be in the tightening business later this year.
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The bond market doesn't really care about the payrolls data now because you're even getting the crazy question asked about whether the Fed can ease.
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The increase in orders is particularly welcome. The bond market may like the fact that the prices paid component dropped 11 points, reversing most of the big gain in November. Analysts are banking on strength in manufacturing next year to offset some of the expected weakness in housing related consumer demand.
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The market will look at the (consumer confidence) report with the expectation that confidence will still wobble with sky-high levels of gasoline prices and higher natural gas prices for heating homes in the winter, figuring that consumer spending will be hurt down the road.
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That, combined with no job growth, makes it harder and harder for the Fed to pull the trigger in an election year.
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Yet another survey of the economy is suggesting sustainable strength. Rates backed up a little because of this report, but you're treading water a bit because of payrolls data lurking on Friday.
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You got a favorable surprise on the CPI. We had the first decline in the core rate in 21 years, ... It just reminds the Fed, which said last week that the risks of inflation and deflation were almost equally balanced, that you still have some very residual deflation risk. And it ... supports the notion that the Fed might not have to raise interest rates at all next year.
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Even though the PPI has accelerated, it hasn't passed over to consumer goods prices, and it hasn't passed through into wage gains,
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A Fed move in late summer is a high probability bet right now.
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This is one of the days when nobody is really going to care because the employment report was definitely weak.
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One cannot deny that Katrina ironically may have had a positive effect on this index because of the big surge in orders.