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Calmness and craziness before, and after, PPI report

Posted May 14, 2024 at 9:30 am
Patrick J. O’Hare

There was a calmness before the release of the April Producer Price Index (PPI) at 8:30 a.m. ET, and there was also a craziness — some might even say a mania.

The latter had nothing to do with the PPI, or news of President Biden announcing big tariff increases for a number of products coming from China, including EVs and semiconductors, and everything to do with the meme stocks, which have continued with some straight-line appreciation that has the likes of GameStop (GME)AMC Entertainment (AMC), and SunPower (SPWR) up more than 100% in the pre-market fun house.

With the release of the PPI, though, a little more craziness was added to the mix. It was not a good report on the surface, but it was also not as bad when factoring in downward revisions to the prior month.

Briefly, the Producer Price index for final demand increased 0.5% month-over-month in April ( consensus 0.3%) following a downwardly revised 0.1% decline (from 0.2%) in March. The index for final demand, excluding food and energy, also increased 0.5% month-over-month ( consensus 0.2%) following a downwardly revised 0.1% decline (from 0.2%) in March

On a year-over-year basis, the index for final demand was up 2.2%, marking the largest increase since April 2023, while the index for final demand, excluding food and energy, was up 2.4%, unchanged from March.

The key takeaway from the report is that nearly three quarters of the increase in final demand prices was due to a 0.6% increase in the index for final demand services, something that will detract from the Fed’s confidence that inflation is on a sustainable path to its 2% target.

As one might expect, Treasury yields took a turn higher on the headlines while equity index futures took a turn lower. Both, however, have returned to a calmer state in a symbiotic trade.

The 2-yr note yield went from 4.84% to 4.87% and is now at 4.85%, down one basis point from yesterday. The 10-yr note yield went from 4.48% to 4.51% and is now at 4.48%, unchanged from yesterday.

The S&P 500 futures went from up three points to down 10 points. Currently, they are down three points and are trading in-line with fair value, the Nasdaq 100 futures are down 42 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average futures are up 29 points and are trading 0.1% above fair value.

All things considered, that is a very mild-mannered reaction to wholesaler price data that was not mild — at least not in April.

Tomorrow brings the Consumer Price Index (CPI), which will likely have a greater impact on consumer sentiment and market sentiment after its release since it is something to which everyone can relate.

Not everyone can relate to the craziness in the meme stock space. Most, however, can relate to Home Depot (HD), which reported some mixed results accented by better-than-expected earnings and weaker-than-expected sales. Shares of the Dow component are down 0.7% in pre-market trading.

That’s not a crazy response.

Originally Posted May 14, 2024 – Calmness and craziness before, and after, PPI report

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