Stocks rallied yesterday amid bank earnings and growing speculation the Federal Reserve will delay raising interest rates until 2016. Treasuries fell and gold erased its loss for the year. The dollar fell on benign CPI data.
Speaking of inflation, the year over year CPI dropped back to zero in September, the result of plunging oil prices. Core inflation [ex food and energy] led by rents rose by 1.9%, slightly higher than the 1.8% expected increase and is the highest level since July 2014. August’s core CPI rose by 1.8%.
Will year over year inflation begin to show an increase, the result that falling energy prices are unlikely to be repeated during the next 12 months? As noted, the core CPI is close to 2%.
What about the impact of rising rents upon OER (what someone thinks one can rent their house for)? OER is the largest component of most inflation indices.
And then there are job. It was reported yesterday the four week moving average of jobless claims fell to the lowest level since December 1973. Will wage inflation begin to accelerate either by fiat [political action such as pressure to increase the minimum wage] or from the dearth of qualified workers?
If so how will such an increase impact inflation given that wages are the largest cost of production.
Wow! The above narrative is the inverse of today’s rabid deflationary diatribe.
I will argue a large portion of yesterday’s advance can be credited to HFT given that key technical levels were broached. The danger with such an advance, gains can be quickly erased for the same reason.
About three months ago I opined a major transition may be at hand. My remarks became prophetic for reasons I generally stated. Today I am echoing similar sentiment as I think the economic and geopolitical narrative may be different in two months.
The possible narrative…deflation is no longer a threat, inflation led by oil and rents may be rising. What about growth? This depends upon monetary velocity or the turnover of money, which the data is clearly indicating is accelerating. If history is any type of guide, growth too should be accelerating.
What will happen today?
Last night the foreign markets were up. London was up 0.45%, Paris up 0.31% and Frankfurt up 0.17%. China was up 1.32% Japan up 1.08% and Hang Sang up 0.78%
The Dow should open nominally lower as all weighed corporate results and awaiting confidence and manufacturing data. The 10-year is up 3/32 to yield 2.0%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. The information contained herein has been compiled from sources believed to be reliable; however, there is no guarantee of its accuracy or completeness. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. The material provided in Daily Market Commentaries or on this website should be used for informational purposes only and in no way should be relied upon for financial advice. Please be sure to consult your own financial advisor when making decisions regarding your financial management. Members of FINRA and SIPC, Capitol Securities Management is a privately owned full-service retail brokerage and investment advisory firm headquartered in Richmond, Virginia. For nearly 30 years, we have been serving the needs of our investors. Today, more than 200 Capitol Securities Management investment professionals and support staff serve approximately 18,000 customer accounts from Southern Florida to the New England coast.