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Crude Oil Rebounds, Buoying Risk Assets

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Today's financial recap and tomorrow's financial outlook.

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Overnight, Chinese consumer and producer price indices were significantly worse than expected, which caused a decline in commodity prices. Crude oil, iron ore, and silver were the worst performers in the overnight session. China's August CPI rose 2.0% from a year ago (versus 2.2% expected) and was down from 2.3% in the month prior. Most of the decline was due to non-food inflation. The decline contributed to weakness in Asian stock indices overnight and similar drops in US indices.

The US dollar continued to strengthen today as US Treasuries gave up most of their gains in the afternoon. The rally overnight was largely due to the strength in the Yen, but that was reversed as the day progressed. The Treasury sold $13 billion of 30-year bonds that saw above-average demand and 2.5bps below the pre-auction levels. The 10-year yield fell as much as 3.5bps, but ended up reversing all of its gains to finish marginally higher today. This has been a persistent theme for the past week as rates have continually marched higher.

Crude oil finally got a breather after consistent weakness the past three months. West-Texas intermediate closed up 1.32%, probably helped by some escalation in Ukraine - both the US and EU have discussed adding new sanctions against Russia.

The S&P 500 (SPX) and other US indices opened up lower. The SPX lost as much as 9.5 points and was dangerously close from breaching yesterday's low, a level that would have opened up further downside. The major indices were able to arrest the decline and finish up the day around unchanged. Internals were mixed again with breadth ending up the day in the positive and an equal split between the 10 basic S&P sectors in terms of performance.

Tomorrow's Financial Outlook

Tomorrow will be the only day of this week that has meaningful economic data scheduled. August advance retail sales will be reported in the morning with a 0.5% gain from the prior month expected after no gain in July. Core sales after excluding auto sales and gas purchases are expected to rise 0.4%. In the late morning the preliminary September University of Michigan/Reuters consumer confidence index will be reported with a small increase from last month to 83.5 from 82.5 expected.

Overseas the only economic data scheduled for tomorrow is eurozone industrial production. Bank of Japan Governor Haruhiko Kuroda is scheduled to give a speech in the early hours. Many investors have believed that the BoJ has been actively intervening in the markets over the past two weeks, so his speech should be closely watched.

The only earnings report scheduled for tomorrow in the US is Darden Restaurants (DRI).

Twitter: @Minyanville

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No positions in stocks mentioned.

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