CPI Data Rocks The Markets

Stock index futures were
rocked by today’s CPI data,
which showed
core prices rose more than expected

The Labor Department reported April CPI +0.6% and Core CPI +0.3%. On a
seasonally-adjusted basis, the CPI is up 5.1% in 2006, compared to a rise of
3.4% in 2005. Core CPI is up 3.0% this year, versus 2.2% in 2005.

The markets clearly chose to ignore the prognostications of most economists,
commentators and government officials that insist “there is little/no inflation”
or that “inflation is under control”. Regular readers of this column are well
aware of the message commodity markets have been sending for some time — there
is massive inflation and that the government measures are grossly
underestimating it.

The bond market responded as one would expect, by selling off. Yields moved
higher to reflect the likelihood the Fed will have to maintain its policy of
interest rate hikes.

The US Dollar Index staged a strong recovery, boosted by the Dollar’s gains
versus the Yen, AUD, Euro and CAD.

June Gold futures rallied almost $27 before a bout of selling pushed prices all
the way back down below yesterday’s close, ending the session at $$691.80. The
pattern was much the same for Silver, Copper closed lower.

The EIA reported a Crude Oil inventories declined in the most recent week. June
Crude Oil futures responded by declining, along with Unleaded Gas, Heating Oil
and Natural Gas.

All the softs closed lower, with Orange Juice -3.34%, Coffee -2.58% and Cotton
-1.13% leading the decline.

The grains provided the antidote to today’s plunging markets with all the major
contracts closing higher. June Wheat futures led the advance, rallying by 4.83%
to close at a new contract high.

Economic News

CPI Up 0.6% For April; Core CPI Higher By 0.3% (report)

EIA: Crude Oil Inventories Down 100,000 Barrels (report)

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Ashton Dorkins


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