Key Events Today:
8:30 ― The Producer Price Index, the first of two key inflation reports this week, is anticipated to show prices rising a rapid 0.8% in October, reflecting an annual change of 4.6%. Energy and food costs are the culprits for the rapid rise, as gasoline and heating prices rose sharply in the month, while farm prices jumped 8%. With those items excluded, the “core” index should show prices inch up 0.1% in the month and 2.1% in the year.
“Core inflation is quiet at the producer level, except in energy and agricultural products, but a spike in energy prices should push headline finished goods up 1.2%,” said economists at IHS Global Insight. “Gasoline prices spiked at the wholesale level in October, and fuel oil and propane joined in with large gains. Natural gas was in retreat again in October, but was swamped by surging oil-based fuels. Food prices climbed again, and a long list of crude materials will show increases as global commodity prices have renewed their advance.
The analysts said vehicle sales offer some unpredictability into the index, as “the model-year changeover introduces an extra element of uncertainty.”
9:00 ― The Treasury International Capital, or TIC Flows, report, offers a monthly look at the inflows and outflows of U.S. Treasuries, corporate bonds, and other financial instruments. The index for September should give the market a better sense of who was buying what in the weeks leading up to the Federal Reserve’s announcement of its $600 billion quantitative easing program. In August, total inflows were a net $128 billion, including $117 billion in foreign purchases of Treasury bonds.
“Foreign inflows into US Treasury securities have remained exceptionally strong, totaling $180 billion over just the past three months,” noted economists at Nomura. “Our focus in this month's TIC report will be whether this appetitive ― particularly from official investors ― holds up. The September figures will include about $20 billion of buying from the Bank of Japan related to its currency intervention. The other interesting element of the report will be whether US investors have increased their allocations to emerging market equity markets in recent months.”
9:15 ― Economists are expecting a turnaround in the Industrial Production report. The index should rise 0.3% in October ― with some forecasts as high as 0.7% ― following a 0.2% slowdown a month before. That decline was only the second in the previous 14 months, a period in which industrial production rose 9.2%. The index rose at an annual rate of 4.8% in the third quarter.
“The mild drop in September was the first sequential decline in 15 months and was not particularly surprising given the air pocket in several production surveys in the prior months,” said the forecasting team at Deutsche Bank.
The ISM’s production component climbed to 62.7 in October from 56.5 previously.
“Industrial output appears to be regaining traction of late,” they said. “The latest jobs report showed a lengthening of the manufacturing workweek, and several key production surveys showed marked improvement in October. Furthermore, the fact that a significant recovery in new orders was a recurring hallmark of the respective headline rebounds last month suggests the production surveys should continue to rise in November.”
10:00 ― The NAHB’s Housing Market Index, a gauge of homebuilder sentiment, is set to increase one point to 17 in November, adding to the two-point increase in the prior month. Any score below 50 indicates general pessimism, so these small fluctuations have little impact until they are sustained for several months.
“Given the index's extremely low level, increases look far more likely than further declines and we expect the index to rise gradually toward 20 by the end of the year, from 16 currently,” said economists at Nomura.
7:15pm ― Dennis Lockhart, president of the Atlanta Fed, speaks on the economy before the Alabama World Affairs Council in Montgomery.