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Counterweights: PPI, Trade Talks & the Fed

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Tuesday, December 11, 2018

Twin economic reads from this morning and next are among the highest-weighted indicators of U.S. economic inflation: the Producer Price Index (PPI) released ahead of today’s opening bell and tomorrow’s Consumer Price Index (CPI). Both sets of figures arrive before next week’s Federal Open Market Committee (FOMC) meeting on interest rates, which are expected to notch up another quarter-point to a 2.25%-2.50% range.

Today’s PPI results will do nothing to dispel this notion of another rate hike: a headline of +0.1% for November was better than the -0.1% analysts had been expecting, though down from the unrevised +0.6% in October. Ex-food & energy (to strip out temporary price volatility in consumable commodities) came in even hotter, at +0.3%.

Final Demand reached 2.5%, in-line with expectations, and down from the 2.9% in October. Ex-food & energy went to 2.7% and ex-f & e Trade was 2.8%. Both these numbers are slightly hotter than expected, but not outside the realm of plausible results. What we can take from these figures is that, despite the recent calamities in the stock market day-to-day, the overall economy is humming along quite well, thank you.

The CPI data out tomorrow will give us even a clearer picture of where we are and where we may be headed. Not only does it represent the other shoe to drop regarding main inflationary measures, but seeing what the consumer is willing to pay in context with what producers are charging should give us an indication of how fast prices can be expected to rise. And this is quite obviously a key consideration for participants of the FOMC.

And with interest rate rhetoric easing on behalf of at least a few Fed members, this is giving some notable relief to market investors. To wit, we’re seeing pre-market futures up big — +350 on the Dow, +110 on the Nasdaq and +30 S&P 500. All subject to change throughout the day, of course, but so far so good this morning.

The only real counterweight toward predicting our economic future — and a big reason Fed voters are becoming more agnostic on future rate hikes — is the trade war between the U.S. and China. We are seeing new messages on the President Trump’s Twitter (TWTR - Free Report) feed this morning which are pointing to a positive outcome on trade talks, but we’ve seen this movie before. The proof will be in the pudding, and the chefs must be in the kitchen before that can be expected to happen.

Mark Vickery
Senior Editor

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