The Week Ahead: Prices

Two inflation reports lead the data dance this week, accompanied by a grab bag of other important releases.

The producer price index, tracking what manufacturers get for their products, will be released at 8:30 a.m. Eastern on Wednesday. The PPI has been declining in importance for decades, as manufacturing in the United States declines.

Its value lies in its position as a prelude to the consumer price index, released Thursday at 8:30 a.m. The CPI tracks the price of a basket of goods surveyed by the Bureau of Labor Statistics. The basket is adjusted every two years to account for changes in consumer spending habits.

This is the index that informs political judgement of whether the Fed's loose money policy is about to reignite inflation. It also triggers cost-of-living adjustments for a variety of federal programs, including Social Security.

(The Federal Open Market Committee, I've read, tends to give greater credence to the inflation measure used in the calculating the gross domestic product. Like the CPI, the GDP deflator is based on a basket of goods, but the basket is adjusted twice as often to account for spending changes.)

President Obama and some Republicans have proposed switching the cost-of-living adjustment from the current index -- the CPI-U -- to the chained CPI -- the C-CPI-U. The latter changes its basket of good dynamically on the assumption that people change their spending habits when prices rise.

The chained CPI will also be reported on Thursday. In last month's report, the CPI-U stood 1.5% over the prior year, and C-CPI-U stood 1.4% above the year-ago figures. That 0.1% is the heart of a heated political debate because, small though the difference may be in a given month, over time, we're talking real money.

Other important reports scheduled during the week are retail sales on Monday and housing starts on Thursday, both at 8:30 a.m., industrial production on Wednesday at 9:15 a.m., and the Philadelphia Federal Reserve survey of conditions in the mid-Atlantic region, which stand as a proxy for the nation as a whole, on Thursday at 10 a.m.

Leading indicators (in descending order of importance):

The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.

The M2 money supply, at 4:30 p.m. Thursday.

The S&P 500 index, reported continually during market hours.

Average weekly initial jobless claims, at 8:30 a.m. Thursday.

Building permits for new private homes from housing starts, at 8:30 a.m. Thursday.

The index of consumer expectations from the Reuters/University of Michigan consumer sentiment report, on Friday at 9:55 a.m.

The index of leading indicators will be released Friday at 10 a.m. It aggregates the individual leading indicators into a single number.

Other reports of interest:

Monday: Business inventories at 10 a.m.

Tuesday: Import and export prices at 8:30 a.m.

Wednesday: The New York Fed's Empire States manufacturing survey at 8:30 a.m., Treasury's international capital report at 9 a.m., and petroleum inventories at 10:30 a.m.

I also follow the Baltic dry index, released daily, tracking the volume of global maritime shipments of coal, iron ore, grain and other raw materials.

Fedsters

Two Federal Open Market Committee members are speaking: Boston Fed Pres. Eric Rosengren and Fed Gov. Sarah Bloom Raskin, both on Thursday.

Three FOMC alternates are speaking: Philadelphia Fed Pres. Charles Plosser on Tuesday and Thursday, Dallas Fed Pres. Richard Fisher on Thursday and Minneapolis Fed Pres. Narayana Kocherlakota on Friday.

Analytical universe

This week I'll be analyzing new bull and bear signals among 2,305 stocks and exchange-traded funds that have some analyst interest. They are traded both on the major U.S. exchanges and over-the-counter. I've reduced my universe from last week to mid-cap stocks and larger, defined as market capitalization of $1 billion and greater.

Trading calendar

By my rules, I'm trading June options for short vertical  and butterfly spreads, iron condors and the short legs of covered calls and diagonals as well as August options for single calls and puts. Of course, shares are good at any time.

Good trading!