Market 11/15: Exposing the truth beneath the better-than-expected October CPI report

Update on October CPI report: suspicions surrounding the decline in social insurance costs

One of the notable points in yesterday's CPI report is the decline -34% Y/Y in the Health Insurance sector.

According to BLS explanation, this figure does not measure fees but profits of insurance companies. Profit decline caused the -34% Y/Y drop.

Producer inflation PPI: sharp drop due to gasoline and oil prices

After 4 months of growth, October aggregate PPI drops sharply -0.5% M/M, the largest monthly drop since April 2020, mainly from gasoline and oil prices.

• Aggregate PPI index year-over-year: +1.3% Y/Y - much lower than forecast (+1.9% Y/Y).

Energy prices drop -15.3% M/M (green column) - the most important factor affecting 80% of this month's aggregate PPI growth.

• Gasoline and oil prices drop due to sharp decline in demand.

• Gasoline and oil prices have greater impact on producer inflation than on consumer inflation (as manufacturing businesses have high energy demand).

Without energy price impact: core PPI index remains high +2.4% Y/Y — but the smallest increase since early 2021.

=> Both yesterday's CPI and today's PPI tell one story: inflation continues to decline, accompanied by weakening demand (retail sales below).

Retail sales decline as student debt burden returns

Contrary to the strong beat of expectations last month, October retail sales fell -0.1% M/M after 7 consecutive months of increase.

• Retail sales growth year-over-year: +2.5% Y/Y, down from previous month.

October retail sales growth this year (aggregate and core figures) year-over-year (Y/Y) are both lower than last year's growth rate.

• Furniture, transportation vehicles, and general merchandise stores recorded the largest monthly (M/M) revenue drops compared to previous month.

  => Signs that October consumption slowed compared to previous month in non-essential service segments!

However, without seasonal adjustment, actual retail sales increased +2.3% from previous month.

Retail sales decline as student debt burden returns, expected 1.4 million people at risk of default.

Supply-demand adjustment in the energy market

DOE inventory report last night:

• Crude oil: +3.6 million

• Cushing: +1.9 million

• Gasoline: -1.5 million

• Distillates: -1.4 million

Cushing inventories rise to the highest level since September after hitting a record low.

Oil reserves from the Strategic Petroleum Reserve SPR remain unchanged.

Crude oil production remains at record high of 13.2 million bpd while rig count declines.

=> Rig count decline is the first adjustment to tighten oil supply as demand is too low.

This causes WTI oil price to rise and it is trading around 77.7 USD.

UK: Inflation falls unexpectedly. House prices fall for the first time in 11 years

UK CPI inflation unexpectedly falls to +4.6% Y/Y in October, lower than expected (+4.8% Y/Y).

Average house prices in the UK fall for the first time in over a decade due to higher mortgage rates.

Other news:

• US House approves spending bill to avert government shutdown.

  

• Bitcoin hits 36,000 USD.

• Mortgage demand surges to 5-week high as rates cool.

• Target stock surges after stellar earnings report, even as sales decline.

• Citigroup begins layoffs as per CEO Jane Fraser's plan.

• Microsoft announces development of first AI chip to compete with Nvidia.