U.S. business inventories likely to rise in September despite weakness in H1 2016

The September Commerce Department business inventories report will be released Tuesday, 15 November at 10:00EST (15:00GMT). We expect business inventories will increase +0.2 percent m/m, following the +0.2 percent m/m reading seen in August.

Despite the weakness seen for much of 1H16 that has served to undermine inventories, we expect gradual replenishment will resume as we move further into 2016. However, with real disposable income held in check and demand for goods and services finding some obstacles to overcome, we would not be surprised to see some deceleration in sales for the September report.

The inventory cycle is a key part of the inflation cycle. Accordingly, firms tend to address excess inventory by cutting (or at least maintaining) prices. Excessively lean inventories increase the risk of bottlenecks and stock outs.

Further, firms in the order mode are less sensitive to opportunistic price increases by suppliers. However, when inventories remain thin and stock outs become a risk, prices tend to move higher. Overall, inventory demand could provide some upward pressure to inflation levels, alongside stabilization related to energy prices seen on the price-level recently.

The dollar index (DXY) was 0.41 percent lower at 99.70 at the time of closing on the New York Stock Exchange (NYSE), while at 8:00GMT the FxWirePro's Hourly Dollar Strength Index remained neutral at 66.15 (lower than the benchmark of 75 for bullish trend).

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Meanwhile at 8:25MT, U.S.’s benchmark stock index, S&P 500 Futures was trading 0.37 percent higher at 2,168.50, while Nasdaq Futures were 0.25 percent higher at 4,706.50.