Markets started the new trading week yesterday selling off a tad, as expectations regarding U.S.-China trade later this week appear less than robustly positive. Pre-market futures are down again this morning, without much optimism elsewhere to offset the apparent prolonged trade war.
September’s Producer Price Index (PPI) was a disappointment this morning, with a headline of -0.3% — the deepest plunge since last winter. This is off expectations of +0.1% on the headline and +0.1% initially reported for August. These figures demonstrate a lack of traction for goods producers in their quest for higher returns.
Subtracting volatile short-term food & energy prices, it actually gets worse: again -0.3%, but down from an expected +0.2%. Ex-food & energy on trade was unchanged, while Final Demand year over year reached a tepid +1.4%. PPI ex-food & energy year over year barely got to 2.0%; the good news here is that this marks the 26th straight month of PPI growth 2% or more.
Energy prices dropped 2.5% last month, while Trade was down 1%. We are seeing economic headwinds on a global scale, not just with the trade war we’ve been enduring for a year with China (and all the subsequent tributaries negatively affected, like the German economy), but concerning Brexit and elsewhere in the EU. A decade ago we talked a lot about the BRICS — Brazil, Russia, India, China and South Africa — but nowadays we see a different narrative having emerged.
The sister report Consumer Price Index (CPI) for September comes out Thursday, ahead of the bell. Again, expectations are for +0.1% on the headline, as it was in the initial August read. It will also offer us a closer look at purchasers’ behavior in light of goods producers’ pullback in pricing. Should these figures also disappoint to the downside, it will be further evidence the domestic economy may be cooling.
Fed Chair Jay Powell will give a speech today at 2:30 pm ET. He is expected to address the Federal Open Market Committee’s (FOMC) data dependence on monetary policy. Much maligned by President Trump, who appears to be hanging all downturns in the domestic stock market on Powell’s door, investors will be interested to hear whether there are any changes in the Fed Chair’s outlook at this time, and how nuanced they might be. Put more succinctly, we’ll be trying to get a read whether another rate cut may be coming before the end of this year.
For the second week in a row, it will be the latter half that brings the most useful information to the market. Especially if there is some positive breakthrough in a trade deal, we do see potential to move the indexes higher based on information hitting the news cycle.