At this point, what the market wants is different than what the Fed

The key CPI report is expected to be flat m/o/m but down 1.9% y/o/y, the biggest decline since 1949. The core rate though remains sticky and is expected to rise .1% m/o/m and 1.6% y/o/y. While the markets want inflation to be in line to less than forecasts because it will keep the Fed with very easy policy and would push further out into the future the dreaded exit strategy, the Fed has rates at ZERO because they want some inflation. They are fighting to an extraordinary extent to get some inflation, so what the Fed wants in this respect is different than what the markets are hoping for. Any respectable central bank has to cringe everyday that they have rates artificially at zero. IP is expected to rise by .4% and it would be the first jump since Oct ’08 and this is a key data point in measuring the hoped for increase in inventories. Capacity Utilization is also expected to tick higher after hitting its lowest level on record. The Aug preliminary UoM confidence figure is expected to rise 3 points to 69. The Shanghai index fell 3% and is now 12% below the high of last week and is at a 6 week low. Hong Kong exited its recession in Q2 as GDP rose 3.3% q/o/q, better than forecasts of a gain of 1.2%.

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