Morning stuff

Inflation and the possible responses to it are what’s impacting markets today. It started in China when Q4 GDP was released with a 9.8% y/o/y gain, above expectations of 9.4%. Also, CPI rose 4.6% y/o/y (in line with yesterday’s story), PPI rose 5.9% vs the est of 5.7% and IP and Retail Sales were also above forecasts. The Shanghai index fell 3% to a 4 month low and is now 15% off its recent high in Nov proving that a strong economy and a rising stock market are not always correlated if inflation and higher interest rates are a consequence of the strong growth. German PPI rose 5.3%, the fastest pace since Oct ’08 and above estimates of 4.9% and Hong Kong CPI was up 3.1%, the most since Jan ’09 vs the forecast of 3%. Brazil raised interest rates 50 bps last night as expected to 11.25% in response to rising inflation pressures. Key in the Philly Fed survey today will be not only Prices Paid but also Prices Received to see what’s been passed thru.

Initial Jobless Claims totaled 404k, 16k below expectations and down from a revised 441k last week (from 445k). To smooth out the seasonal distortions surrounding the holidays, the 4 week average was 412k vs 416k last week and 411k the week prior which was the lowest since Aug ’08. Continuing Claims fell by 26k to the lowest since Oct ’08 but Extended Benefits rose a net 29k. Bottom line, the story (song) remains the same in that the pace of firings continue to trend lower, albeit slowly, while the level of hirings relative to the monthly rise in the labor force continues to be below historical recoveries.

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