Morning Minutes 10/10/2018

Morning Minutes

US Producer Prices and Hurricane Michael Move The Markets

October 10, 2018
8:45 am EDT

At SIA Wealth Management everything we do is based on Relative Strength Analysis. We evaluate the Relative Strength between asset classes giving us insight into money flows on a large scale, and from this select top ranked investments.

Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

Stock markets around the world are trading flat to down slightly this morning, with the NASDAQ and the DAX falling about 0.75%. The VIX continues to creep upward indicating growing volatility and investor sentiment shifting from complacency to concern.
US 10 and 30-year treasury yields are mixed after breaking out to the upside again yesterday, but the lack of a response from stocks indicates investors see this as normal consolidation within an ongoing uptrend.

Natural Gas is up again this morning, rising 0.8% while oil is steady. Some offshore production has been shut in due to the arrival of Hurricane Michael in the Gulf of Mexico. Once the storm goes through we’ll get a better idea if the recent rally has been due
more to the storm or seasonal factors. Note that the energy inventory reports are a day late this week due to the Thanksgiving Day/Columbus Day holiday on Monday, so API comes out later this afternoon and DOE mid-morning tomorrow. Natural gas storage
comes out Thursday as usual.

In terms of economic news, all eyes are on this week’s US inflation reports as a gauge of how much pressure the Fed is under to keep raising interest rates in the face of calls from the White House to stop. US producer prices announced today were up 2.6% over year, less than the 2.8% increase expected by the street. On the news, however the 10-year treasury yield has ticked upward and stock market indices have ticked downward indicating that investors see the data keeping the Fed on its hawkish course. Tomorrow brings the higher profile consumer price inflation report.

Relative Strength and Sector Rotation Report:
Usually when we think about the Materials sector, mining comes to mind, but there are other groups in there too, a number of which have been struggling lately. For example, depressed lumber prices have the Paper and Forest Products groups falling down the
SIA Charts relative strength rankings. Packaging companies have also been weakening on a relative basis.

Rising oil and gas prices have sectors where petroleum is a significant portion of total
costs falling down the rankings as well including Chemicals and Airlines. Investors seem to be concerned that these companies may not be able to pass all of their higher input costs on to consumers, cutting into their profit margins.

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