Stocks are higher again today, marking gains in eight out of the last nine trading sessions. A boost to industrial production and a tame inflation report were responsible for the optimism, while a weak TIC flows report provided some turbulence.
As of 1:45 eastern time, the S&P 500 is leading the way at fresh 2009 highs with a 1.31% increase to 1,066, followed by a 1.17% advance in the NASDAQ and a 0.97% gain in the Dow to 9,777.
Several macroeconomic releases hit markets this morning, beginning with the benign Consumer Price Index an hour before the open. Energy prices lifted the index in August, but a decrease in new car prices mitigated the all-items CPI to +0.4%. The core rate (ex-energy, ex-food) inched up 0.1%. Both numbers matched forecasts.
Annually, the all-items index is down 1.5%, while core prices are up 1.4%, six basis points below the Federal Reserve’s preferred rate.
The tame report should allow the Fed to maintain its loose policy stance in the medium-term, analysts said.
At 9:00, less optimistic news came in the form of the TIC Flows report, the Treasury’s look at international capital traffic. Foreign demand for long-term Treasuries was just $15.3 billion in July, a quarter of what analysts were expecting, while total figures including short-term securities showed an outflow of $97.5 in the month versus -$56.8 billion in June.
The shift from debt to equities probably reflects “a shift in mentality” as economic data pointed to stabilization and the world began to look brighter in July, said Eric Lascelles, senior economist at TD Securities.
Better data hit markets 15 minutes later as the Fed’s Industrial Production report beat expectations, climbing 0.8% against forecasts of +0.6%.
“The bounce in industrial activity is not limited to the motor vehicle sector,” said John Herrmann of Herrmann Forecasting. “The two-month gain in ex-motor vehicle manufacturing activity is the strongest in almost five years - with the exception of the post-Hurricane Katrina rebound in 4Q-2005.”
Indeed, manufacturing advanced 0.6%, mining was up 0.5%, utilities climbed 1.9%, and consumer goods strengthened 1.3% in the month.
With those numbers it’s not hard to see why traders have been optimistic today.
In the rates market is however holding up quite well given the bond bearish circumstances. Since hitting an intraday high of 3.50% , the 10-year Treasury yield has reversed course from the early morning, currently trading seven basis points lower at 3.43%.