Inflation pressures increase and manufacturing data weakens, yet stocks see moderate gains in midday trading. Today's PPI data and the Empire State Mfg. survey both disappointed. One would think this would lead to declines for stocks, but this hasn't been the case. However, if the Philly Fed Survey later today is weak and the CPI shows inflation pressures tomorrow, selling could be the result.

The producer price index [PPI] showed an increase of 1.3 percent in February, easily surpassing estimates for growth of 0.5 percent. The core rate, which excludes the volatile food and energy components, also rose more than expected at 0.4 percent growth. The year on year rate for the overall PPI jumped to 2.6 percent, up from 0.2 percent in January. The core rate remained at 1.8 percent on a year over year basis. Though this data is a concern, it is the consumer price index due out tomorrow that will have the greatest influence on stock prices and the Fed.

The concern is that with inflation pressures high, the Fed can't cut rates to help spur a slowing economy. The Empire State survey, which measures manufacturing activity in the New York region, showed a sharp drop to 1.9 in March from 24.4 in February. Estimates were for a reading closer to 16.0 during the month, so the data was very disappointing. Later today the Philly Fed survey will be released with economists expecting a reading of 5.0, up from 0.6 in February. 

One sector keeping stocks afloat today is the sub-prime lending sector. These stocks have taken a beating of late, but are seeing some recovery in midday action Thursday. Shares of Countrywide Financial (CFC) are up five percent after Merrill Lynch said the sell-off in many of these stocks presents a buying opportunity. Shares of IndyMac (NDE) are up more than four percent after the company stated that is has only 3 percent of its $90 billion in mortgage loans in the sub-prime category. 

In merger news, InterContinentalExchange (ICE) made an unsolicited bid for CBOT Holdings (BOT). The bid offers $187.34 a share, sending BOT shares higher by 13 percent on the session. Shares of ICE are off nearly 3 percent on the news. 

It seems for the moment that the support built up on Wednesday when the Dow retest 12,000 is holding. However, if further economic data today and tomorrow is disappointing, these levels could easily fall. We also could see some volatility throughout the session considering it is quadruple witching tomorrow. 

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site