INFLATION AT PRODUCER LEVEL COOLS
Inflation at the producer level significantly cooled. Here are the details:
- Headline PPI month-over-month came at -0.5% vs. 0.1% consensus.
- Core PPI month-over-month came at -0.1% vs. 0.2% consensus.
- Weekly initial jobless claims is a leading indicator. It carries heavy weight in our systems that automatically changes with market conditions.
- Weekly initial claims are now decisively above 200K. Initial claims came at 239K vs. 236K consensus.
- This indicates that the strength in the jobs market is finally beginning to wane. This is a step in the right direction for inflation to cool. As the strength in the employment picture wanes, wage increases are becoming restrained. In some cases such as information technology, wages are even falling.
- This is exactly what the Fed has been trying to achieve. The Fed is succeeding. In the long term, this is a positive for the stock market.
- We’ll get earnings reports from many large banks and financial firms (Friday, 4/14) and next week. Investors still cautious from the recent bank failure “mini-crisis” will be looking for reassurances about the banking sector’s resilience and economic outlooks from banking executives.
- The next Fed policy meeting is on May 3rd. There is a 65-70% chance of a 25 basis point hike still priced into Fed Funds Futures. While the 5% CPI print shows progress against inflation, the Fed's long-term target is still 2%. Inflation remains the top priority for the Fed, even if that means further slowing in the economy or “breakages” as we saw with Silicon Valley Bank and a few others.
Surprise From China
China’s trade surplus rose to $88.19B in March vs. $39.20B consensus. The big surplus is due to better than expected exports to Europe and Asia. This data should be interpreted that economies in Europe and Asia are doing well.
In Germany, March CPI came at 0.8% month-over-month vs. 0.8% consensus. Eurozone industrial production came at 1.5% vs. 1.0% consensus.
Since the OPEC production cut announcement a little over a week ago, oil has been trying to break higher. This, of course, doesn’t help with the fight against inflation but is not likely to significantly hinder the economy unless we see a break back above $100. For now, a new range of roughly $80-$90 seems likely.
The US Dollar and Gold
The Dollar is still trending down which is helping Gold push higher, right through resistance at $2,050, and is about to challenge all-time-high levels in the low $2,080's.
Treasury Yields and Bonds
Despite a weakening US Dollar, Ten-year yields are lingering around the 3.4% level. Bonds could break to the upside if we see continued Dollar weakness and progressively lower Treasury yields. But a significant, sustained up trend depends on the current Fed tightening cycle concluding.
Until next time.
Your Prestige Wealth Management Team