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This morning, the first of several big economic data reports this week is out this morning: the Producer Price Index (PPI) for September came in double of expectations month over month: +0.4%, following a downwardly revised -0.2% for August. The “core” read — stripping out volatile food and energy costs — reached +0.3%, which is just below the +0.4% a month ago.
While we’re still in the “good news is bad news” trading environment, we don’t really want to see wholesale production numbers coming in hotter than expected, but at least we’re off the cycle high +1.0% PPI headline month over month we saw back in June. Stripping out food, energy and trade costs, we’re back up to +0.4% from +0.2% expected.
Year over year is where most of the focus is these days, as they illustrate inflation metrics relative to where the Fed has moved/is expected to move interest rates. Here we’re still very high: +8.5%, 10 basis points (bps) ahead of consensus, and +7.2 on core. Ex-food, energy and trade, the figure is +5.6%. While we nod in approval that these are well off the +11.7%, +9.7% and +7.1% highs, respectively (all from March 2022, by the way), and are moving in the right direction, they appear to be moving too slowly.
Too slowly for whom? Why, the Fed, of course. Final demand for Services last month was +0.4%, of which travel was a big part. This is a conundrum for the Fed, in that we see Goods prices on the wholesale side coming down but the Services side remains hot — and with still more than a million open jobs in Leisure & Hospitality, implying wage growth demand is far from quashed, at least in the travel industry.
We have been baking into the markets another 75 bps Fed funds rate hike when the Federal Open Market Committee (FOMC) reconvenes November 1-2. This would take interest rates to +3.75-4.00% with one more FOMC meeting set for December. And we see the bond market already more than anticipating this: the 10-year yield is +3.96% this morning (the 2-year is at +4.32%), asserting bonds as a viable low-risk investment, especially compared to equities right now.
Pre-market futures are modestly in the green this morning, perhaps due to the pre-PPI (and Consumer Price Index [CPI] report, which is out tomorrow) sell-off being a bit heavy handed. We are seeing trajectories all moving in the right direction; that we haven’t seen the next leg down yet is apparently already accounted for in current valuations overall.
PepsiCo (PEP - Free Report) Q3 earnings are out this morning as well, with earnings of $1.97 per share beating the $1.85 expected and $1.79 per share posted in the year-ago quarter. Sales of $21.94 billion in the past three months topped expectations by +5.24%. It’s the third earnings beat in the past four quarters for the snack and beverage giant, and shares are up +3.5% in today’s pre-market, more than cutting in half PEP’s -6.5% year to date.
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September PPI Data Higher-Than-Expected
This morning, the first of several big economic data reports this week is out this morning: the Producer Price Index (PPI) for September came in double of expectations month over month: +0.4%, following a downwardly revised -0.2% for August. The “core” read — stripping out volatile food and energy costs — reached +0.3%, which is just below the +0.4% a month ago.
While we’re still in the “good news is bad news” trading environment, we don’t really want to see wholesale production numbers coming in hotter than expected, but at least we’re off the cycle high +1.0% PPI headline month over month we saw back in June. Stripping out food, energy and trade costs, we’re back up to +0.4% from +0.2% expected.
Year over year is where most of the focus is these days, as they illustrate inflation metrics relative to where the Fed has moved/is expected to move interest rates. Here we’re still very high: +8.5%, 10 basis points (bps) ahead of consensus, and +7.2 on core. Ex-food, energy and trade, the figure is +5.6%. While we nod in approval that these are well off the +11.7%, +9.7% and +7.1% highs, respectively (all from March 2022, by the way), and are moving in the right direction, they appear to be moving too slowly.
Too slowly for whom? Why, the Fed, of course. Final demand for Services last month was +0.4%, of which travel was a big part. This is a conundrum for the Fed, in that we see Goods prices on the wholesale side coming down but the Services side remains hot — and with still more than a million open jobs in Leisure & Hospitality, implying wage growth demand is far from quashed, at least in the travel industry.
We have been baking into the markets another 75 bps Fed funds rate hike when the Federal Open Market Committee (FOMC) reconvenes November 1-2. This would take interest rates to +3.75-4.00% with one more FOMC meeting set for December. And we see the bond market already more than anticipating this: the 10-year yield is +3.96% this morning (the 2-year is at +4.32%), asserting bonds as a viable low-risk investment, especially compared to equities right now.
Pre-market futures are modestly in the green this morning, perhaps due to the pre-PPI (and Consumer Price Index [CPI] report, which is out tomorrow) sell-off being a bit heavy handed. We are seeing trajectories all moving in the right direction; that we haven’t seen the next leg down yet is apparently already accounted for in current valuations overall.
PepsiCo (PEP - Free Report) Q3 earnings are out this morning as well, with earnings of $1.97 per share beating the $1.85 expected and $1.79 per share posted in the year-ago quarter. Sales of $21.94 billion in the past three months topped expectations by +5.24%. It’s the third earnings beat in the past four quarters for the snack and beverage giant, and shares are up +3.5% in today’s pre-market, more than cutting in half PEP’s -6.5% year to date.