The equity futures market had been moving in a relatively disinterested manner, mindful that it is… a Friday… in summer… in mid-August… when taking time off sounds like a good option, but it got moving again following the release of the July Producer Price Index at 8:30 a.m. ET.
Currently, the S&P 500 futures are down 18 points and are trading 0.4% below fair value, the Nasdaq 100 futures are down 105 points and are trading 0.7% below fair value, and the Dow Jones Industrial Average futures are down 89 points and are trading 0.3% below fair value.
Of course, what has been seen in the equity futures market ahead of the open this week hasn’t been worth a whole lot in divining anything worthy beyond the opening trade. Yesterday was a good case in point.
The futures market had a bullish mindset before the Consumer Price Index and Initial Jobless Claims reports were released, and it got more bullish after those reports, which supported the idea that the Fed could stay on-hold at its September FOMC meeting. Sure enough, the market started on a solidly higher note, and then it quickly started to retrace those gains. The S&P 500, hitting 4,527 at its opening high, closed the session at 4,468, near its low for the day.
It was the essence of a consolidation mindset that has taken root in August after a huge, and nearly unabated, run for the stock market since late March. We’ll see if that mindset continues today. It looks like it will at the open, with traders using a jump in market rates following the PPI report as the excuse to do some selling.
The Producer Price Index for July was hotter than expected at the headline level, but not really too hot after accounting for downward revisions for June.
The index for final demand increased 0.3% month-over-month in July (Briefing.com consensus +0.2%) following a downwardly revised 0.0% (from 0.1%) for June. Excluding food and energy, the index for final demand was also up 0.3% month-over-month (Briefing.com consensus +0.2%) following a downwardly revised 0.1% decline (from +0.1%) for June.
On a year-over-year basis, the index for final demand was up 0.8%, versus 0.3% in June, and the index for final demand, excluding food and energy, was up 2.4%, unchanged from June.
The key takeaway from the report is that wholesale inflation has come down sharply from its peak in 2022, although with the recent increase in oil and gasoline prices, there will be some concern that further improvement is going to be delayed.
The 2-yr note yield, at 4.80% just before the release, is up six basis points to 4.89%. The 10-yr note yield, at 4.08% just before the release, is up six basis points to 4.14%.
That move has squashed buying interest for the time being along with growth concerns emanating from China after it reported much weaker than expected new yuan loan growth for July. A warning from Chinese property developer Country Garden Holdings that it anticipates losing nearly $8 billion in the first half of 2023 added to those growth concerns.
So, today’s open for the stock market is slated to be a lower open. After that, it could get worse or better on a Friday…. in summer… in mid-August… when taking time off sounds like a good option.
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Originally Posted August 11, 2023 – Rates jump, equity futures sink after July PPI report
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