Wednesday Morning Wakeup

Bulls remain in control as Wall Street hit 13-month highs to start the week.

Following the first two trading days this week, the Dow Jones added 1.6% at 10,437.42, the S&P 500 climbed 1.5% to 1,110.31, and the NASDAQ advanced by 1.7% to finish at 2,203.78.

On Monday, the S&P topped the 1,110 mark for the first time since last October. The push higher was once again in response to a weakening U.S. Dollar, stoking the short-term inflation and exports trade.

As the dollar has weakened, inflationary concerns have risen to the forefront. Yet the Labor Department announced on Tuesday that prices at the wholesale level increased at a slower than expected pace in October. The Producer Price Index advanced by 0.3% last month, just below the 0.5% increase economists were anticipating. But it was well ahead of the 0.6% decline in September.

In the past 12 months, the index of producer prices - which tracks the prices of goods before they reach store shelves - has fallen nearly 2%. The decline marks the 11th consecutive month in which prices have receded.

Core PPI, which excludes the price of food and energy, increased 0.7% in October, the smallest advance in more than five years. Food prices jumped 1.6%, led by a 24.2% jump in vegetable prices, the most in two years, while energy costs also advanced 1.6%, with gas prices increasing 1.9%.

At the start of the week, a report from the Commerce Department revealed that retail sales jumped 1.4% in October. The numbers were a bit misleading as the gain largely reflected a huge jump in auto sales due to the Cash for Clunkers program. Excluding the sale of autos, retail sales advanced 0.2%, half that of the expected 0.4% gain economists had anticipated.

During October, auto sales soared 7.4%, recouping nearly half the 14.3% drop in September, while department store sales grew 0.3%. However, sales fell 0.8% at furniture stores and 0.6% at electronics and appliance stores, while sales at gas stations were flat and sales at grocery stores were up a modest 0.2%.

For the 13th consecutive month, businesses throughout the U.S. reduced their inventories, and saw declining sales. In September, inventories slipped 0.4%, while sales dipped 0.3%. September’s decline in inventories trails the 1.6% drop in August, but comes in ahead of the 0.7% drop economists were looking for.

The nation’s industrial production advanced marginally in October, edging higher by 0.1%. The recent reading is yet another sure sign that the country’s economic recovery still has a long road ahead. The less-than-stellar showing was a result of a decline in output at the nation’s factories, despite increased activity at gas and electric utilities.

The 0.1% increase follows a 0.6% gain in September. Production at our nation’s factories slipped 0.1% during the month, lagging the 0.8% surge in September. October’s decline was the first since June. Meanwhile, output at mines dropped 0.2%, following a 0.6% increase in September, while production from gas and electric utilities surged 1.6% after a 0.2% decrease in the past month.

In the housing market, the overall number of homeowners deemed as delinquent on their mortgage payments hit another record high during the past three months ending September 30. 6.25% of loans were more than 60 days past due. That is up 58% from the 3.96% delinquency rate a year ago. Although the rate was up 7.6% from the second quarter, that is much smaller than the 11.3% jump in the second quarter from the first quarter.

TransUnion, the credit agency responsible for the delinquency reports, believes that the rate should rise to nearly 7% in the fourth quarter, well above the 4.6% in the same quarter of 2008. In the meantime, the average mortgage debt per borrower advanced marginally in the 3Q, from $192,287 last year to $193.121.

Macro data due up for the remainder of the week includes Housing Starts, Building Permits, CPI and Leading Indicators report for October, the Philadelphia Fed report for November, along with weekly Initial Jobless Claims and Crude Inventories.