U.S. equities gave back some of their gains (but likely only temporarily) after hotter-than-expected PPI data which slightly increased expectations that the Federal Reserve will keep interest rates higher for longer. Dovish comments and the sharp correction (decline) in U.S. Treasury yields, however, provided significant support to risk-sensitive assets such as equities and gold this week.
Prices paid to U.S. producers rose more than expected in September. However, the increase in producer price inflation was primarily driven by higher energy costs. The producer price index for final demand rose 0.5% from the previous month (versus +0.3% expected). The cost of gasoline rose 5.4% and was the main driver of the PPI. Excluding food and energy, the (core) PPI rose 0.3%, as expected. As a result, we are likely to see only a short-term reaction in yields (we have already moved back into gold).
However, the higher than expected PPI data may also add to concerns that disinflation is slowing. On a positive note, most of the September gains in oil and gasoline have already been reversed, and oil is currently trading near September 1 levels despite the strong gains on Monday.
Investors are awaiting the minutes from the Fed's September meeting later today and, more importantly, tomorrow's CPI data from the U.S., which will provide a better picture of current U.S. inflation and the impact of recent energy price increases on consumer prices. Inflation data from Germany, which is usually even more sensitive to energy prices, showed no increase today (for September). German inflation data was in line with expectations and the y-o-y reading was even at the lowest level since the Ukraine war in February 2022.
We expect volatile markets today, still looking for more clues. However, yields falling again will continue to support interest rate-sensitive assets – such as equities. Rising equity prices in the U.S. – also Asian markets did well today – will slightly improve risk sentiment.
Despite the gains in equity markets, we do not see a bullish market due to optimism as geopolitical tensions continue to keep safe haven demand high. We also do not see any positive economic data pointing to an improvement in economic activity (for now), which is also the reason why oil prices remain under pressure and gold can rally.
👁 ROB'S MARKET OVERVIEW:
October 11, 2023
🇺🇸 US Markets ↗️/➡️ (remains bullish as long as US Treasury yields continue to slide – likely stabilizing, some profit taking towards the end of the US session and ahead of tomorrow's US CPI data)
Cyclical Stocks ↗️/➡️
Tech/Growth Stocks ↗️/➡️
Financial Stocks ↗️
Defensive Stocks ➡️/↗️
Energy Stocks ➡️/↘️
Materials Stocks ↗️/➡️
USD ➡️/↘️ (USD pressured by falling US Treasury yields)
EUR, GBP, CHF ➡️/↗️ (benefiting from slight weakness in USD)
JPY, AUD ➡️/↘️
⚒ Commodity Markets ↕️
Oil prices ➡️/↘️ (oil giving back more of Monday's gains as risk sentiment not positive despite rising stocks)
Natural Gas prices ↘️ (after massive gains of European gas prices – we see a correction)
Metal prices ↕️
Gold ↗️ (benefiting from falling yields)
⚡️Cryptos ↕️ (benefiting from falling yields; cryptos remain unattractive)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)