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Current position: Floating
Stocks and Bonds are both sharply higher after a cooler-than-expected Producer Price Index inflation report. Unlike the Consumer Price Index, which measures inflation on the consumer level, PPI measures inflation on the wholesale or producer level. This is not as big of a market mover but still can have an impact, which we are seeing today.
Producer Price Index
The October Producer Price Index (CPI) report showed that overall inflation increased by 0.2%, which is half of the expectations. Year over year, inflation declined from 8.4% to 8%, which was much cooler than the 8.3% expected.
The Core rate, which strips out food and energy prices, was flat in October, which was softer than the 0.3% anticipated As a result, year-over-year core inflation decreased from 7.2% to 6.7%, which was also lower than the 7.2% expected.
Overall, this was another cooler inflation report, which the Bond market reacted favorably to.
Brainard
Brainard said in comments to Bloomberg News yesterday that it may "soon" be appropriate to move to a slower pace of rate hikes.
She added that the Fed has done a lot, increasing rates from zero to 4%, but that they still have additional work to do. This likely sets up for a 50bp hike in December, and then the Fed can analyze the inflation and job picture to determine what to do from there.
Cass Freight
Cass Freight is a report that measures shipping costs across the US and can be an important sign of the economy, as all goods need to be shipped in some type of manor, as well as inflation.
The expenditures component of the Cass Freight Index, which measures the total amount spent on freight, fell 4.9% in October. The index slowed to an 11% increase year over year, which is down from 21% in September. Following normal seasonality from here, this index is now likely to turn down on a yearly basis in December.
The supply/demand imbalance in trucking markets has loosened significantly this year, and as a result freight rates are leveling off and set to soften further in the months to come.
While shippers aren't seeing any real savings yet, considerable cost relief is now highly probable for 2023, which will be welcome news for the broader inflation picture.
Technical Analysis
Mortgage Bonds are taking another run at resistance at the 100.534 Fibonacci level, which has kept a lid on prices for the last two sessions. With this morning's move higher, Bonds are starting to break above this level, and if they can sustain it, there is a lot of room to the upside until reaching the 100 - day Moving Average. The 10 - year is moving sharply lower and has begun to break beneath the 50 - day Moving Average, which is significant. The next floor is all the way down at 3.57%. Begin the day floating.
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