Data And Fed Rate Hike Keeping Everyone On Edge As Dollar Soars While Gold Falls

U.S. traders awoke today to data from China that increased concerns of deflationary pressure and lack of domestic-market response to stimulus measures so far.

That country's National Bureau of Statistics reported October’s consumer price index rose a less-than-expected 1.3% from a year earlier, while the producer price index fell 5.9%. It was the Chinese CPI’s 44th straight month of decline.

The China news coupled with concern over the stronger likelihood of a Fed interest rate rise roughly five weeks from now depressed U.S. equities.

As has been the case for months – even years now – there is a slight reconsideration of that conventional wisdom. And rightly so. China isn’t the only economy experiencing low inflation or even disinflation in some data categories.

U.S. import prices declined a more-than-expected 0.5% in October, while export prices fell 0.2%. In September, wholesale inventories rose 0.5%, the largest gain in 3 months.

Against this backdrop, the Federal Reserve is going to have to be very careful it doesn’t shoot itself in the foot by jacking up interest rates a quarter of a percent. It’s not that such a tiny raise will, in and of itself, hamper the U.S. and/or the world’s economy. Markets are rather are very perception-oriented.

Wall Street, in particular, may conclude that the Fed is telling it to slow down but not really telling the overall American economy to cool off. Such are illusions.

Speaking of inflation, West Texas Intermediate crude rose after a 4-day downward spiral. Although it is off of its session highs, WTI gained about 0.8% on the day. Brent North Sea gained about half a percent.

Obviously, low oil prices are contributing to disinflation. But the same low prices are hampering industrial development. The cost of crude is also making gasoline cheaper in the U.S., not good news for the environment but good news for the family budget.

Friends of ours in Texas reported $1.85 gasoline outside of San Antonio this week. According to the Bureau of Labor Statistics that is 29 cents in 1969 money. So, the “good old days” of cheap gasoline are here again.

Gold struggled to gain ground today but eventually gave up and sank about 0.4% in late trading. Silver and platinum shared gold’s fate, although they were dented to the tune of well more than 1.00% each. Palladium gained a small amount.

On the promise of higher interest rates in December, the U.S. dollar hit seven-month highs against the euro. The buck was stable against the yen and British pound.

Mark these words: by the time Thanksgiving rolls around, everyone in the markets will be happy to take a breather from the rather oppressive conditions imposed by the threat of the Federal Reserve rate hike.

Wishing you as always, good trading,