September Producer Price Index higher than expected

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Published Date 10/11/2023

September PPI released at 8:30 am ET showed more inflation than the forecasts. Overall month/month expected +0.3% increased 0.5%, but was weaker than in August at 0.7%, year/year expected +1.7% increased 2.2% and up from 1.6% in August. Excluding food and energy, the core, month/month thought to be +0.3% was as expected and up from 0.2%, year/year estimates +2.1% increased 2.7% and up from 2.2% in August. Excluding the core and trade services inflation hit at 2.8% from +2.9% in August. Hotter wholesale prices than forecasts yet interest rates continued to ease, at 9 am the 10 year note at 4.58% -8 bps from yesterday. Tomorrow the CPI, consumer prices, today’s PPI may push some to believe the pass-through to consumers will increase inflation outlooks.

Yesterday before this morning’s stronger inflation forecasts the mood and comments from Fed officials the outlook was that the Fed was likely finished increasing rates, now for the moment that view is being rethought, as noted previously times inflation news flips the media storyline, after PPI the news headlines, the Fed may not be finished increasing rates. It is the conservative view today, after three Fed officials commented yesterday that the finish line was approaching, today Fed Governor Michelle Bowman said rates may need to rise further and stay higher for longer than previously expected to get inflation down to the central bank’s goal. Yet her remarks sounded somewhat less hawkish than her comments on October 2.

Overriding slightly higher inflation is the war in the mid-east, safety concerns pushing investors to havens in treasuries. Early this morning the 10 year note yield fell to 4.55%. 10 bps lower than yesterday, by 9:30 am 4.60% -5 bps. MBS prices not moving along with treasuries so far.

At 9:30 am the DJIA opened +99, NASDAQ +62, S&P +15. 10 year 4.60% -5 bps. FNMA 6.0 30 year coupon at 9:30 am +4 bps from yesterday’s close and 16 bps higher than at 9:30 am yesterday.

Weekly MBA mortgage applications last week: the composite +0.6%, purchase apps +0.7% and re-finance +0.3%.

At 1 pm Treasury will auction 10 year notes, yesterday’s 3 year auction was rather soft.

At 2 pm the FOMC minutes from the Sept meeting will be released.

The war is taking center stage presently, behind it is the increasing concern over US dept, the potential government shutdown, the lack of Republican leadership in the House and the ever-present inflation worries.

Yesterday Paul Tudor Jones, one of the premier traders over the last 30 years. About the equity markets he is describing as “the most threatening and challenging geopolitical environment that I’ve ever seen,” which is occurring “at the same time the United States is at its weakest fiscal position since World War II. It’s a really difficult time.” He is undaunted with his outlook for a recession.

Source: TBWS

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