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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Pruguy who wrote (29787)	10/15/1999 12:24:00 AM
From: keith massey	Respond to of 99985

From Briefing.com Highlights Market Consensus: 0.5% total; 0.4% core. Briefing.com Forecast: 0.7% total; 0.4% core. Key Factors At face value, September PPI should look a little uglier than what we've become accustomed to. The total is again expected to have felt the pain of rising oil prices, but that upward push is expected to have been tempered somewhat by a decline in food prices. The core should be mostly a tobacco story, as prices for capital equipment and passenger cars are expected to see another month of weakness. Core intermediate and core crude prices are expected have risen again in September. Energy should again be a major issue for the PPI total. An 11% rise in the price of a barrel of West Texas Intermediate and an unadjusted 2.5% increase in the average price of a gallon of unleaded gasoline in September should provide a significant upside boost. That energy strength is expected to have been restrained by food prices, as the USDA reported a 1% decline in prices received by farmers, and most of the food commodities that Briefing.com tracks fell in September. For the core, we will once again hear from the U.S. tobacco industry. In late August, U.S. tobacco firms raised the price of a pack of cigarettes by 18 cents -- the second highest increase in history after the 45-cent-per-pack hike seen in November 1998. The price increase, which was implemented to cover increased taxes, past legal obligations, and a standard annual price increase, is expected to have bumped up the core by three to four tenths. Continued weakness in passenger car prices (manufacturers were still aggressively discounting in September) and capital equipment (on a downhill slide since late last year) should keep the tobacco influence under control. Things don't look too good for the pipeline, either. The September NAPM prices component soared to 67.6%, the highest level seen since May 1995, and the September Chicago PMI prices component rose to 71%, edging up above 70% for the first time since June 1995, suggesting that core intermediate and core crude prices were still on the rise in September. Big Picture The September headline numbers might make the markets break out in a cold, inflationary sweat, but the truth of the matter is that we are still seeing only relative price increases and not aggregate price increases. Oil, which has been wreaking havoc on the total, has been a recurring theme for the better part of a year, and now tobacco is expected to make the core look inflationary. But a look is all it is. Including the expected increase in tobacco, the core YTD pace would be flat to slightly down. Without tobacco, the core YTD pace would still be in the red. And here's another fun fact: if core PPI is down year/year in December, which seems entirely plausible based on the pace we are seeing thus far, it will be the first time since the series began in 1973. The only PPI ugliness as of late is what we have been seeing in the pipeline. The good news is pricing pressure, which remains an issue for producers. That means that the increases in pipeline prices, which are mostly the result of commodities price increases (especially oil), are thus far not being passed through to finished goods. KEITH