Data Still Conflicts, Confounds And Confuses

Correction: Yesterday we misstated the date of next week’s Federal Reserve FOMC meeting. It will be September 17^th, not the 18^th. We apologize for any confusion.

An important inflation reading released today showed U.S. import prices falling 1.8% in August as the cost of crude oil and a basket of other goods dropped. Import prices slid 0.9% in July.

"The data capture the Fed's conundrum: evidence of a tight labor market and evidence of low, if not moderating inflation," said David Gilmore, partner at Foreign Exchange Analytics in Essex, Connecticut.

Other data released today, however, seems to pull the taffy in the opposite direction.

Weekly new jobless claims fell to 275,000. That is a sign of a robust labor market. Coupled with yesterday’s information about job openings nationwide, it seems as if employment is a settled issue for now. There is plenty of demand for workers.

(Just to re-cap yesterday’s job openings overview, we said here: “The Job Openings and Labor Turnover Survey (JOLTS) showed the highest number of job openings on record at 5.8 million. The JOLTS snapshot is important because it shows the “supply side” of jobs and 5.8 million is as healthy as we’ve ever achieved.”)

Gold shrugged off the imports disinflation with scarcely a thought and, as of mid afternoon, it has gained about $5.00. Gold had run higher but regular trading is now pulling the rug out from under it and gold is clinging to its rise strictly on U.S. dollar weakness.

The dollar weakness can be attributed to the mixed economic data discussed above. Indeed, the dollar is down 0.75% against the euro and slightly less against the British pound. It is very slightly higher against the yen.

Oil is traded in dollars, so any slump in the buck pushes oil higher. That certainly helped both West Texas Intermediate and Brent North Sea today. But underpinning the price is a deeper fundamental shift (albeit probably very temporary).

Gasoline demand surged in North America this past week as more people took to the roads in Canada and the U.S. over the Labor Day weekend. (We’ll find out more about the holiday’s effect once this week’s figures come in.)

That drove down gasoline stores, although petroleum stockpiles jumped significantly in North America (and elsewhere). As we know, Labor Day is summer’s last hurrah, and with the kids back at school, we won’t see another surge in auto use till Thanksgiving.

The long and short of it is that oil will continue to trade under pressure in the near and middle term. There is too much supply, too little demand, and plenty of players who are on the sideline now ready to swoop in at a few weeks’ notice.

Wishing you as always, good trading,