Tomorrow, January 15, 2008, the Bureau of Labor Statistics [BLS] is due to release their report for December Producer Price Inflation [PPI]. Last month at this time the BLS reported a steep rise in prices for November led by stiff increases in prices of crude oil.
As the updated chart below will attest, the energy component of Nov. PPI reported last month – as measured by the proxy West Texas Intermediate [WTI] – indeed reflects a large price increase in the Oct. – Nov. time frame.
When this news broke, stock markets dropped, bonds experienced a mild sell-off [temporarily higher yields] and the price of gold attempted to rally.
Seeing as we already know that the price of crude oil – as measured by WTI – decreased between Nov. and Dec. sample dates, one might surmise that the energy component of tomorrow’s PPI report will likely show a favorable [lower than expected] headline number. Expect cat-calls in the mainstream financial press that inflation is tame and under control, giving the FED more flexibility to lower rates.
Look for stock and bond markets to rally early-to-mid-week on a benign headline inflation reporting. [Consumer Price Inflation is due to be reported Wednesday, Jan.16th].
As I reported last month in an article titled The Invisible Hand, in recent months the “sample date” on which crude oil prices are measured as inputs into the PPI tend to be the “lows” for the month.
This is extremely indicative, if not proof positive, that crude oil prices are and have been managed and/or rigged.
And Here’s Why We All Should Care
Apart from creating an un-level playing field and the potential for a myriad of insider abuses, collusion amongst market players would be against U.S. anti-trust law, against the Sherman Act and the Clayton Act and various others. Those laws prohibit any collusion to interfere with the free market price of any good.
Crude oil price management would affect the value of underlying equities, the dollar, the Current Account [deficit] and interest rates, too.
If this observable pattern holds true, on or about the sample date of Tuesday, Jan. 15, the price of crude oil should bottom for the month of Jan. 08.
Let us watch and see just how this cookie crumbles, eh?
Today’s Market
Japan’s Tokyo Stock Exchange was closed on Monday in observance of Coming Of Age Day. North American markets began the week on a positive note with the DOW up 171.90 to 12,778.20, the NASDAQ ahead by 38.36 to 2,478.30 and the S & P gaining 15.25 to 1,416.25. NYMEX crude oil futures were up 1.48 to close at 94.17 per barrel.
Interest rates were 1 – 2 basis points easier with the benchmark 5 yr. note ending the day at 3.05% while the 10 yr. finished the day yielding 3.78%.
On foreign exchange markets the U.S. Dollar Index fell by .29 to 75.61.
Precious metals experienced a broad advance with COMEX gold futures ending the day up 7.00 to 902.60 per ounce while COMEX silver futures added .06 to 16.34 per ounce. The XAU Index added 3.68 to 197.23 and the HUI gained 5.83 to 480.99.
On tap for tomorrow, at 8:30 a.m. December Retail Sales data is due – expected 0.0% vs. prior 1.2%. Dec. Retail Sales Ex – Autos expected -.1% vs. prior +1.8%. Also at 8:30 a.m. December Producer Price Index [PPI] data is due – expected +.2% vs. prior 3.2%. Core PPI expected +.2% vs. prior +4%. Additionally at 8:30 a.m., Jan. NY Empire State Index data is due – expected 13.0 vs. prior 10.3. Then at 10:00 a.m., November Business Inventory data is due – expected +.6% vs. prior +.1%.
Wishing you all a pleasant evening and generous investment returns!
