Producer prices for final demand shot up 3.1% YoY in November, up from 2.8% in October and well above consensus at 2.9%.  It’s the highest rate of change since Jan 2012.

The primary culprit: gasoline prices, which BLS officials say increased 15.8%.  Imagine what PPI would have registered if they’d used EIA-fabricated data (+17.4%) or the actual increase over Nov 2016 of +20.3% [see: Again, With the CPI Games?]

While the data certainly offer convenient cover for a rate hike, they present practical problems for central bankers who are worried about disappointing the algorithms which drive equity markets.

Rising oil and gas prices have been instrumental to rising equity prices.  But, as we’re reminded once again, there is no free lunch.

continued for members…

Higher inflation supposedly means higher interest rates, so the DXY is marginally higher this morning.  And, at least some of that dollar strength is courtesy of the JPY — which just reached channel resistance.  For those playing the USDJPY, this is a good entry for a short position with tight stops.  The initial target is the SMA200, currently at 111.64, followed by the .618 at 110.14 and channel bottom currently around 109.But, the impact I’m watching most closely is that of RB and CL.  Note that RB has tagged the top of the falling white channel and is reversing.  A test of the neckline is just ahead.

For anyone who isn’t still short, this should be a good entry point for our lower targets at 1.64, 1.63, 1.60 and 1.52.  But, since we’re looking for DXY and USDJPY to tumble from here, CL/RB might rally in order to prop up stocks going into year end.  As we’ve discussed, the same thing happened last year.  Bottom line, use stops.  It’s unlikely TPTB will sit on their hands if stocks start slipping.

CL has clearly backed off a TL connecting its recent highs…for now.

UPDATE:  10:25 AM

RB just tested the neckline, momentarily breaking the yellow TL shown below.  Stay tuned…