CPI in Focus, US Pumping OIL!

The S&P closed at 2662.94 – So today’s circuit breakers are:
 
Level 1.  186.40 pts (7%) or 2476.54
Level 2.  346.18 pts (13% total) or 2316.76
Level 3.  532.58 pts (20% total) or 2130.36

 ______________________________________________________________________

 
So yesterday was a bit boring.... Stocks were weaker going into the opening and remained weaker for the better part of the day....as investors/traders awaited today’s suddenly all-important CPI (Consumer Price Index) report. By the end of the day - all the indexes swung into positive territory. The Dow which had been down 180 pts early on ended the day up 35 pts, the S&P rose 6.94 and the Nasdaq rallied by 31.54 pts. Financials led the way as 10 yr treasuries stabilized settling just above 2.8%. The VIX (fear index) was down small as the angst seen last week has subsided for now. Oil continued to come under pressure and a story in the WSJ this morning confirms what I have been saying all along....
 
“Shale Output Hasn’t Grown this Fast Since Oil was at $100” - the IEA (Int’l Energy Admin) tells us that
 
” Record shale output could overwhelm demand and reverse the oil markets recovery”
 
- now before you go and think that oil is going back to $30/barrel - slow down....not right now it isn’t - but the call for $70/barrel of oil this year are now fading as it becomes clearer to the paparazzi that the US is a ‘player’ - shale oil production is vastly improved and as demand increases - the producers can ramp it up fairly easily and slow it down if demand eases....so for all of you betting on $70 oil - maybe you should re-think that bet...... 
 
But let’s get back to today’s CPI report - Now don’t get me wrong - the CPI is always one of the KEY metrics in the month-long list of macro data points - but after the histrionics last week - when the mkts fell off the cliff because of rising fears of stronger inflation prospects - causing the now famous ‘short vol trade’ to IMPLODE - today’s CPI will be closely watched.
 
[**Side note - did you see the article in today’s WSJ about “Stock Market Fear Index Faces Probe”? Oh boy - talk of price manipulation in this index should certainly get the talking heads talking.... The CBOE will have some ‘splainin’ to do.... but that is a whole other story....]
 
A quick refresher - the CPI is an index that measures the weighted average of prices of a basket of consumer goods and services - think of the stuff we need to live every day - such as transportation, food, electricity and medical care. It is calculated by taking price changes for each item in the basket of goods and services and averaging them - it is then compared against the same basket of prices the month before. It is an Inflation Indicator which the gov’t and the FED then use to implement fiscal and monetary policy changes. So, considering all the angst that was created by the NFP report at the beginning of the month - you can feel the pressure building around this report. 
 
So, the EXPECTATION is for it to show +0.3% growth - EX food and energy of +0.2% - bringing the y/y reading to 1.7% - still below that magical 2% target.... but like I said yesterday.... some economists/analysts are now looking at the annualized change by quarter/quarter vs. the annualized change by month/month....and that my friends would be 2.3%....do you see where this is going????
 
The FED has to justify the moves now - because they have spent the last decade holding everyone’s hand....so how do they get the inflation outlook to show signs of ‘heating up’? Simple - Change the calculation!!! You see - they have been targeting 2% all along and for the past decade inflation has supposedly been running below that target level - although I would argue that it has not - have you been to the grocery story lately??? Oh yeah - they measure it two ways - with food and energy and then EX food and energy - Why? It’s not like you can survive with no food and no energy.  So, I never really understood why they measure CPI EX food and energy…. the answer is because they are TOO VOLATILE….so it disrupts the calculation…. Whatever.
 
US futs are screaming higher…. currently up 10 pts as the recovery continues……Across the pond (that would be the Atlantic Ocean) German and Eurozone CPI figures were in line. Euro mkts are all higher by 0.75% or so….  It’s all good…
 
FTSE + 0.77%, CAC 40 +0.92%, DAX +0.70%, EUROSTOXX +0.74%, SPAIN +0.74% and ITALY +0.66%. 
 
OIL is down 0.44 cts at $58.78/barrel…. See the note above…. The API (American Petroleum Institute) reveals that there was a 3.9 mil build in supplies – vs. the expected 2.6 mil.    The EIA comes out today with their report. We remain in the $57.74/$61.11 range.
 
 Gold is up $3.70 as its churn higher continues…. We bounced off of the 50 dma at $1310 last Thursday and it is now attempting to test $1,350/oz. 
 
US Futs are up 11 pts at 7:45….as the mkt awaits……Resistance is at 2675…. if we break thru that – after the CPI report then look for a swift move higher (again)…if the number is strong causing stocks to sell off then don’t be surprised if we slice right thru support at 2642 on its way back to the 200 dma at 2541!

Take Good Care

KP

Risotto Chianti 

A Tuscan favorite.  This works great as a first dish or it works great as a side dish with a grilled steak, veal chop or pork chop.
 
For this you need the basics: Chicken Broth – heated, Butter, 1 Finely Chopped Onion, 2 Cups Arborio Rice, 3 Cups Chianti Wine, Grated Pecorino Toscano Cheese*
 
Heat the butter in a heavy saucepan, then add the onions and cook until they are translucent.  Add the rice and stir until it is well coated with the butter.  Add 1 cup of the wine and stir continually over medium heat until it is absorbed.
 
Now add ½ cup of hot broth stir – now add ½ cup more of the wine alternately, stirring as it is absorbed until you have used it up. (Do not add more than 2 cups of Chianti).  Continue doing this for about 20-25 minutes or until the rice is cooked, but remains slightly firm to the bite.
 
 Remove from the heat, add a dollop of butter and a handful of cheese.  Stir.
 Serve in a warmed bowl and always have more grated Pecorino Toscano cheese at the table for your guests.
 
(*Pecorino Toscano cheese is a firm textured cheese that is produced in Tuscany - thus adding to the allure of the dish.)



Buon Appetito.

The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O’Neil Securities, Incorporated or its affiliates.