Pre-market futures took a step further into the green this morning following two economic reports that market participants found favorable: Retail Sales and the Producer Price Index (PPI), both for December. The Dow moved from +45 points prior to the release to +90 afterward, the S&P 500 went from +10 to +20, and the Nasdaq moved from +45 to +80 points after the results.
PPI fell much steeper than expected last month: -0.5% versus -0.1% from a consensus of analysts. This swings to a negative print from the downwardly revised +0.2% reported in November. Producer prices are a good gauge for future Consumer prices, which we see in the all-important CPI; thus we may expect CPI numbers to tack lower going forward.
Year over year we see real change over the past 12 months: +6.24% is the headline number, down more than a full percentage point from the previous month. It marks the sixth-straight month with year-over-year PPI sub-10%. The cycle high was in March of last year, at +11.66%. Perhaps most importantly, the speed with which these yearly PPI numbers are falling month over month is speeding up; this suggests +2% inflation may be in view sooner than originally thought.
Retail Sales also came in lower than expected: -1.1% versus the -0.8% to -1.0% change anticipated. It’s also lower than the upwardly revised November print, also -1.0%. Ex-motor vehicle sales (which, at high price points, can augment meaningful data) showed the same result: -1.1%, much worse than the -0.5% estimated and -0.6% reported the previous month.
Both of these economic metrics track Goods prices, not so much Services. We know that the stickier parts of our current inflation story are on the Services/employment side, so we’ll have to wait for further reports to get a full picture. But the news that both PPI and Retail are melting down is another indication that the Fed may choose a 25 bps interest rate hike at its February 1st meeting.
This is likely the biggest reason for the positive sentiment in today’s pre-market. A 25 bps hike would bring the Fed funds rate to a range of 4.50-4.75% — still below the promised 5% the markets have somewhat (or more than somewhat?) priced into stock prices. Consensus is that the Fed will still get there — many estimates are as high as 5.25-5.50% — but it appears it may take longer to get there. More reports pointing south as these did this morning would help keep this interest rate level less high.
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PPI Comes in Significantly Lower Than Expectations
Pre-market futures took a step further into the green this morning following two economic reports that market participants found favorable: Retail Sales and the Producer Price Index (PPI), both for December. The Dow moved from +45 points prior to the release to +90 afterward, the S&P 500 went from +10 to +20, and the Nasdaq moved from +45 to +80 points after the results.
PPI fell much steeper than expected last month: -0.5% versus -0.1% from a consensus of analysts. This swings to a negative print from the downwardly revised +0.2% reported in November. Producer prices are a good gauge for future Consumer prices, which we see in the all-important CPI; thus we may expect CPI numbers to tack lower going forward.
Year over year we see real change over the past 12 months: +6.24% is the headline number, down more than a full percentage point from the previous month. It marks the sixth-straight month with year-over-year PPI sub-10%. The cycle high was in March of last year, at +11.66%. Perhaps most importantly, the speed with which these yearly PPI numbers are falling month over month is speeding up; this suggests +2% inflation may be in view sooner than originally thought.
Retail Sales also came in lower than expected: -1.1% versus the -0.8% to -1.0% change anticipated. It’s also lower than the upwardly revised November print, also -1.0%. Ex-motor vehicle sales (which, at high price points, can augment meaningful data) showed the same result: -1.1%, much worse than the -0.5% estimated and -0.6% reported the previous month.
Both of these economic metrics track Goods prices, not so much Services. We know that the stickier parts of our current inflation story are on the Services/employment side, so we’ll have to wait for further reports to get a full picture. But the news that both PPI and Retail are melting down is another indication that the Fed may choose a 25 bps interest rate hike at its February 1st meeting.
This is likely the biggest reason for the positive sentiment in today’s pre-market. A 25 bps hike would bring the Fed funds rate to a range of 4.50-4.75% — still below the promised 5% the markets have somewhat (or more than somewhat?) priced into stock prices. Consensus is that the Fed will still get there — many estimates are as high as 5.25-5.50% — but it appears it may take longer to get there. More reports pointing south as these did this morning would help keep this interest rate level less high.