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Daily Market Commentary

Inflation doves are really being tested now.  As risk free rates are dropping fast, (although the Fed's first 125 bps won't have really worked their way into the economy yet), inflation measures are proving extremely stubborn and ticking their way higher still.  While the those in the recession/dis-inflation camp will tell you that the PPI and CPI will be highest just as the downturn begins, it is still unnerving to see numbers like headline PPI printing at a hefty 7.4% yesterday.

 

  The true inflationary pressures lie with employment.  That is the real driver of pricing power.  So far employment has held up remarkably well, although those who follow my charts may have noticed a slight bottoming pattern in the jobless claims numbers.  Also - the unemployment rate has poked its head up to 5% after a long decline since mid-2002.  Should jobs truly be in a meaningful decline, inflation will moderate.

 

 

Durable goods this morning printed well below expectations.  Although this is a volatile series,  a miss vs. expectations and a downwards revision of last month's reported number are both serving to send bonds higher this morning, and lending more credibility to the above mentioned doves.

 

New Home Sales are out at 10am, as is Bernanke's report on the economy and Fed policy, so watch for some volatility in the markets.

 

 



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