Today's September headline PPI and retail sales figures, that came out above market expectations, would suggest that inflation risk remains high. It would seem that record oil prices and a weakening dollar is trickling into the economy but it is future results of the lagged core figures that will determine the true extent of damage. This, together with record breaking performance in the stock market should weaken the impetus for any further rate cuts and switch the Fed's focus back onto the inflation front. Ever since the turbulence in August, equities have shown a remarkable degree of resilience to the subprime/liquidity crisis thanks to a greater share of corporate earnings coming from export markets (which benefit from stronger growth in the global economy), the perception that bad news is behind us with the release of Q3 earnings for the financials sector and recent fed action reflecting a clear willingness to contain the housing woes.
Next week's releases which will include CPI, industrial production and housing data should provide us with a clearer picture on the health of the economy.
