October Producer Price Index at lowest level since April 2020

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Published Date 11/15/2023

Yesterday October CPI data showed inflation dipping, the result the 10 year note yield declined 20 bps and MBS prices increased 68 bps.

This morning October producer prices (wholesale prices) also declined more than forecasts. PPI month/month expected +0.1% declined -0.5%, year/year thought to be +2.0% increased just 1.3% and down from +2.2% in Sept. Excluding food and energy (the core) month/month +2.4% from +2.7% in September, year/year +2.9% from 3.0% in Sept. PPI mirrored yesterday’s CPI, inflation is slowing. PPI the lowest since April 2020.

October retail sales forecasts at -0.3%, as reported -0.1%. Ex-vehicles estimates -0.1% increased +0.1%. Sept retail sales revised from +0.7% to +0.9%, ex-vehicles revised from +0.6% to +0.8%. October retail sales was the first decline in seven months. It was almost a certainty sales would slip after the huge increase in sales in Q3.

Last night the House passed the continuing resolution to keep the government open that would have shut much of the government down if not passed by Friday. The resolution extends government funding for some agencies and programs until January 19th, and for others until February 2nd.

The November NY Empire state manufacturing index expected -3.0 increased 9.1, the strongest since April.

Weekly MBA mortgage applications improved last week, the second week in row apps increased. The composite +2.8%, purchase apps +3.3% after increasing 3.0% the prior week, refinances increased 2.0% after increasing 1.6% the week before.

The UK inflation slowed, driving the view the next move by the BofE would be to cut rates. Investors dove into buying UK bonds like the US yesterday. It’s the latest sign of strength in primary bond markets, with the European Union also attracting more than 13 times the orders for the debt on offer yesterday.

At 9:30 am ET the DJIA opened +133, NASDAQ +47, S&P +14. 10 year note at 9:30 am 4.50% +6 bps. FNMA 6.5 30 year coupon at 9:30 am -26 bps and -26 bps from 9:30 am yesterday.

CPI yesterday and PPI this morning each confirm inflation is slowing. The outlook for Fed rate increases has dwindled to the extent markets are now focused on when the Fed will begin lowering rates. Speculation swings back and forth on each data point. Meantime Fed officials continue to sidestep any idea of a rate cuts and some still espousing more rate increases. The bond market recently has been exceptionally volatile with big swings driven by uncertainty.

Source: TBWS

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