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CPI and Trade Deficit reported inline

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This morning's pre-market economic data came in line with economist's expectations and saw little response from equity futures traders and bond traders.

In October, consumer prices rose 0.3%, while the core rate, which excludes food and energy rose 0.2%. In the past year, prices have risen 2% at the consumer level.

Prices for most goods were little changed in October, with two areas of consumer spending, energy and medical care, seeing larger gains.

Energy prices rose 1.9% in October, including a 3.8% gain in gasoline prices. Gas prices are up 33% year-to-date, but are up just 7.2% in the past 12 months, a reflection of the volatility in gas prices.

Natural gas prices rose 2.9% in October, the largest gain since January 2001. Fuel oil prices climbed 1.9%.

Medical care is the other troubling area. Prices rose 0.6% in October, bringing the year-over-year increase to 4.8%. Hospital services rose 0.9%, drug prices increased 0.5% and doctors' services rose 0.6%. Hospital services prices are up 9.3% in the past 12 months.

Housing services, which represent nearly 41% of the CPI, showed only modest price increases, rising 0.3%, including fuel costs. Rent and owner's equivalent rent rose 0.3%.

Transportation costs rose 0.6%, largely because of fuel costs. New auto prices rose 0.4%, while airfares fell 2.4%.

Apparel prices were unchanged after rising 1.8% in September. Apparel prices are down 2.1% in the past 12 months.

Education and communication prices were also unchanged.

Recreation prices rose 0.3%. The catchall other category fell 0.5%, due to a 3.1% drop in cigarette prices.

Trade balance

The balance in goods and services trade stood at a $38 billion deficit in September compared to $38.3 billion a month earlier, the Commerce Department estimated Tuesday. August's data marked a record trade deficit for the United States, with September a close second.

A weaker dollar had a limited impact on higher exports. Exports totaled $82.2 billion after reaching $82.5 billion in August. A weaker-valued currency tends to make that country's products more competitive on global markets.

Overall imports, meanwhile, totaled $120.2 billion in September, down slightly from $120.8 billion in August. Weaker imports are a sign U.S. consumers had less of an appetite for foreign-made goods. While economists and the Federal Reserve remain relatively upbeat about consumer spending habits, they will continue to keep a close eye on evidence demand is waning, risking a cut in spending on domestic goods as well.

The risk of a U.S.-led war with Iraq and the possible disruptions to oil drilling and shipping lifted prices of crude in September. The average price per barrel that month, according to Commerce, was $25.47. That's the steepest price tag since $26.40 in December 2000. Despite the higher price, less volume traded actually minimized the U.S. trade deficit with OPEC nations in September to $2.9 billion from $3.7 billion in August.

The September deficit in advanced technology products at $2.2 billion was the highest on record. Commerce officials explained this category includes over 500 products including computers, computer hardware and software, robotics and biotechnology items, to name a few.

Still, weak global growth has taken its toll on U.S. manufacturers. From January to September of this year exports totaled just over $520 billion, down 6.8 percent from $559.1 billion in goods and services sent abroad in this timeframe last year.

Imports are down as well from a year ago, but to a much smaller degree. January to September 2002 imports of $862 billion are down 1.3 percent from January to September 2001 imports of $873 billion.

Looking at trade with separate regions and countries, the U.S. deficit with China in September, at $10.3 billion, was the highest on record. The gap was the result of record high imports of $12.3 billion topping record high exports of $2 billion.

The deficit with Japan stood at $5.9 billion compared to $5.3 billion in August. The deficit with the so-called newly industrialized nations of Hong Kong, Korea, Singapore and Taiwan was a slightly larger $2.1 billion in September compared to $1.8 billion a month earlier.

Trade with Western Europe was little changed at a $7 billion deficit and with Eastern Europe, the deficit was a smaller $771 million from $816 million.

As for trade with its NAFTA partners, the U.S. deficit with Canada, at $4.6 billion, was the highest since February 2001. Trade with Mexico resulted in a smaller deficit for the United States that month, $3 billion versus $3.5 billion.

Pre-market action

Stock futures were lower before this morning's economic data and have been bouncing around their lows of the morning since the release of economic data.

S&P futures (sp02z) currently trade down 3 points at 897. NASDAQ futures (nd02z) are off 8.5 points at 1,041.50, while Dow futures (dj02z) are lower by 25 points at 8,455.

I've checked to make sure that HL Camp & Company has updated their fair value and premium execution levels this morning and they're back up and running.

Fair value for the S&P 500 today is $0.16. That price will not change during the session. HL Camp & Company has their computers set for program buying at $0.92 and set for program selling at $-1.74. Fair value for the NASDAQ-100 today is $1.65.

AT&T (NYSE:T) $13.49 completes its broadband spin-off today and will execute its 1-for-5 reverse stock split today. Following completion of the reverse stock split, AT&T anticipates it will have approximately 770 million shares outstanding. Immediately following the spin off, AT&T Broadband combined with Comcast Corporation (NASDAQ:CMCSK) $23.84, which is trading higher in pre-market action at $24.90. The combination, which creates the world's pre-eminent broadband services company, has an aggregate value of approximately $60 billion, including stock and debt.

H&R Block (NYSE:HRB) $35.11 said that it has reached a settlement in a Texas class action suit. The settlement provides a 5-yr package of coupons that class members can use to obtain a variety of tax preparation and tax planning services from H&R Block. As part of the settlement, plaintiffs' attorneys have agreed to withdraw all other similar cases outstanding in Texas. HRB expects to take a one-time charge of $0.14 per share. In addition, HRB will recognize the cost of the tax preparation rebate coupons as they are redeemed each. Excluding special charges, HRB expects to post a Q2 loss of $0.05-$0.06 (consensus -$0.02).

Shares of software giant Microsoft Corp. (NASDAQ:MSFT) $55.84 are trading down 14 cents at $55.70 after Raymond James downgrades to "market perform" from "outperform" due to valuation. At current prices, Raymond James believes continued upside potential may be limited by the following factors that could pressure on MSFT's earnings outlook for the coming year: continued tough IT spending environment, slow PC growth, and a lack of major new product releases in FY03. In addition, firm notes that mgmt is not currently receptive to a dividend. Sees fair value at $55.

Jeff Bailey

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