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Surprising PPI Numbers Today

This morning at 8:30 am Eastern Time, the Bureau of Labor Statistics revealed the latest figures for a key measure of inflation in the United States. The Producer Price Index (PPI), which tracks changes in the prices of goods and services sold by producers, was expected to increase by 0.4% month-over-month in October; instead, it only rose by a mild 0.2%. Likewise, Core PPI (which excludes volatile food and energy prices), was forecast to increase by 0.3% month-over-month, but remained static, changing exactly 0% instead. These surprising PPI numbers today offer yet another instance of American inflation dropping following the recent low CPI report, building a bearish case for USD and a bullish one for stock market indices as the need for a hawkish Fed ostensibly lessens. However, I am personally skeptical of this development as many underlying economic fundamentals have not changed, as we will discuss below.

Markets to Watch

My bias remains bullish on USD, and bearish on the US stock market, for three primary reasons: A) None of the crises the world is contending with have evaporated: an energy crisis still looms with winter around the corner, and many markets are still hot with artificial demand following quantitative easing mid-pandemic. B) The Democratic Party in the US, which tends to be seen as a pro-stimulus party, recently outperformed expectations in last week’s midterm elections, which I predicted could create short-term rallies in the stock market (but longer-term bullishness for USD). C) One month’s worth of data on inflation is not enough to mark a trend; October’s low numbers could easily be outliers, perhaps due to tapping into oil reserves to alleviate cost-of-living increases.

For those who remain bullish on USD and anticipate the Fed further hiking interest rates at a historic pace to quell high inflation, the following markets will be key to watch. They are listed below with their respective EdgeFinder ratings, signals/biases (which diverge from mine), and corresponding charts.

1) EUR/USD (Receives a -2, or ‘Neutral’ Signal)

Surprising PPI Numbers Today
Already struggling with double-digit inflation exacerbated by Russia's invasion of Ukraine, Europe's economic predicament could grow worse as winter approaches, likely increasing demand for energy and driving up oil and gas prices amid low supply.
Surprising PPI Numbers Today
Despite the strong breakout to the upside, key resistance has been encountered, and Keltner Channel walls suggest overbought conditions.

2) US30 (Receives a 4, or ‘Buy’ Signal)

Surprising PPI Numbers Today
Although the Dow Jones Industrial Average's month-long rally has been historic, most institutional traders are still going short.
Surprising PPI Numbers Today
On one hand, a year-long downtrend has been disrupted with a breakout to the upside. On the other hand, key resistance is near, around 34000.

3) USO (Receives a -5, or ‘Sell’ Signal)

Surprising PPI Numbers Today
Despite the strong downtrend, lower supply due to wartime conditions and OPEC+ restrictions on production, in conjunction with higher demand in wintertime, could cause prices to soar in the near future. Also, nearly 80% of institutional traders are still going long.
Surprising PPI Numbers Today
Although resistance was encountered at the 92 level, it appears an uptrend could be beginning to form.
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