Initial Jobless Claims totaled 462k, 17k above expectations and a disappointing reading after last week’s fall to a revised 449k, the 1st figure below 450k since early July. A Labor Dept official though did say that claims typically rise in the beginning of each quarter and 5 states had to estimate their claims data because of the Columbus Day holiday. Either way, looking at the 4 week average to smooth out the distractions has it at a still elevated 459k, a 3 week high. A positive was the 112k person drop in Continuing Claims and a 340k net fall in Extended Benefits BUT only if the decline was due to benefit recipients finding new jobs as opposed to reaching the expiration of them. Based on jobs data recently seen, its unfortunately more of the latter than the former.

Sept PPI rose .4% headline m/o/m, well above expectations of up .1% but was in line at the core level, up .1%. The headline gain was mostly food which rose 1.2% and is now up 5.1% y/o/y while energy prices grew by .5% and are up 10.5% y/o/y. Inflation in the pipeline as measured by Intermediate Goods (middle stage of production) and crude goods (initial stage) are clearly evident. Total intermediate goods prices rose 5.6% y/o/y and crude goods prices are up 20.3% y/o/y. Notwithstanding the headline PPI beat relative to expectations, the market awaits tomorrow’s CPI as more relevant. The Aug Trade Deficit was $2.3b higher than expected at $46.3b, the 2nd highest reading since late ’08 as a 2.1% rise in Imports more than surpassed the .2% gain in Exports. All things equal, this could trim Q3 GDP estimates by .1-.2 of a % pt.

Another day, another move lower in the value of the US$ vs most currencies and gold. The Australian$ touched .9994 vs the US$ before backing off a touch and the C$ is right at parity. The Yuan moved to another record as did the Singapore$ after authorities there ‘steepened and widened’ its band vs a basket of currencies which is a defacto tightening for them in order to quell inflation pressures. The Yen is near its record high vs the $ even after Japanese PM Kan said on the Yen “we will take bold measures if they are absolutely necessary.” It was back in Nov ’09 when Fed Pres Fisher said “our job is to maintain the purchasing power of the dollar.” That was then, this is now unfortunately and the continued weakness comes before Bernanke’s last monetary policy speech tomorrow before the Nov 3rd FOMC meeting. As I said on July 15th, short sellers better beware of the Fed, the election, calmness in Europe and good earnings.

Using the Relative Strength Index as one measure of overbought/oversold, the 14 day RSI in the $ index is down to 18, a very oversold reading and the most so since March 2008. Combine this with a bond market that has stopped rallying for now, maybe pricing in the QE2 theme and it tells me that the equity, reflation trade run, in the short term ahead of the early Nov events, is due for a rest after Friday’s expiration influence runs its course. Past this though, the reflation trade will continue to work as the US$ continues to lose its value on a secular basis and emerging markets see good growth.

Category: MacroNotes

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