EmailMonday is a federal holiday in the United States. Government offices and public schools will be closed, as will the U.S. stock and bond markets, in honor of Presidents Day. If the world is lucky, Monday might also mark the start of a permanent holiday from the incessant back and forth about whether Greece will get a second lease on its bailout life.
There were reports yesterday that Germany is in favor of finalizing the second bailout package in the near term. In addition, the ECB is said to be moving forward with a debt swap that will provide the central bank immunity from collective action clauses. It has also been rumored that the ECB might contribute profits from Greek bond holdings when they mature to help deal with the costs of the bailout for other governments.
Per usual, any headline pointing to a resolution for Greece needs to be taken at face value. A deal is not a deal until it is a deal. Even so, the equity market clearly likes the thought of a deal getting done (perhaps as early as Monday), as the aforementioned headlines helped catalyze yesterday's broad-based rally that left the S&P 500 on the cusp of eclipsing its 2011 high.
The Greek drama was only half of the story on Thursday. The rest of the story -- and the more important story -- is that economic data continue to show that the U.S. economy is growing in spite of the eurozone debt crisis and the slowdown in China.
For all intents and purposes, it was a clean, economic sweep yesterday with weekly initial claims, housing starts, building permits, PPI, and the Philadelphia Fed Index all checking in better than expected and improved from prior levels.
The PPI report was an exception in that producer prices were higher in January than they were in December. The offset there, however, was the underlying message that inflation pressures are moderating for producers.
Today's CPI report suggested the same for consumers.
Total CPI and core CPI, which excludes food and energy, were both up 0.2%. Economists surveyed by Briefing.com were expecting a 0.3% increase in total CPI and a 0.1% jump in core CPI, so the January CPI report will likely be thought of as mixed.
Despite the monthly increase, year-over-year growth in the all items index eased from 3.0% in December to 2.9% in January. That is why it can be said inflation pressures are moderating for consumers.
Some will take exception with the latter viewpoint given that core CPI is up 2.3% over the last 12 months versus 2.2% in December, but those will likely be many of the same critics who said total CPI needs to take precedence when it comes to inflation readings because energy is an every day cost for consumers. That was a loud argument in September when the annual CPI increase was pushing 4.0%.
The trend in total CPI is encouraging, as is the trend in core CPI, in that both are showing deflation is not at hand while inflation has not gotten out of hand. They are trends the Fed will be encouraged by.
The futures market did not show much response to the CPI report.
Currently, the S&P futures are pointing to a relatively flat start on this options expiration day. The futures are also showing that sellers for the most part remain sidelined as the equity market continues its bullish start to the year.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
