U.S PPI Data Unexpectedly Higher Than Forecast

Traders' Opinions

Economic

Summary:

According to data from the Labor Department released on Friday, the producer price index for final demand rose by 0.3% from December.

In January, prices paid by US producers surged beyond expectations, underscoring the persistent challenge of inflation. According to Friday's Labor Department data, the producer price index for final demand rose by 0.3% from December, surpassing forecasts. Additionally, the index climbed by 0.9% compared to the previous year, also exceeding expectations.

The core PPI, which excludes the volatile food and energy sectors, increased by 0.5% from the previous month and by 2% from a year ago, both exceeding anticipated levels.

U.S PPI Data Unexpectedly Higher Than Forecast_1

The uptick in prices was driven by increases in service categories, notably in hospital outpatient care and portfolio management.

In response to the PPI data, Treasury yields continued their decline. Two-year yields reached their highest level since mid-December, coinciding with the Federal Reserve's indication that interest rates had peaked. Traders adjusted their expectations for interest rate cuts, now estimating only a 25% chance of a move in May.

Earlier this week, a separate report showed a significant rise in consumer prices at the beginning of the year. With the wholesale price figures echoing this trend, it is likely to reinforce the belief that the Fed will refrain from reducing interest rates until they are confident inflation is under control.

Economists at the Fed and on Wall Street closely analyze the PPI report because it includes several categories used to inform the Fed's preferred inflation measure, the personal consumption expenditures price gauge. The January reading of the PCE is scheduled for release later this month.

While service costs saw a notable increase of 0.6%, the highest since July, prices paid by producers for goods experienced a decrease of 0.2%, marking the fourth consecutive decline.

Factors that increase PPI

The Producer Price Index measures the average change over time in the selling prices received by domestic producers for their output. Several factors can contribute to an increase in the PPI.

One significant factor is rising input costs, such as increases in the prices of raw materials, energy, or labor. When the cost of production goes up, producers often pass these higher costs onto consumers in the form of increased prices for goods and services, leading to an upward pressure on the PPI.

Additionally, increased demand for goods and services can drive prices higher as producers seek to capitalize on greater demand by raising prices. Changes in government policies, such as tariffs or taxes, can also influence the PPI by affecting production costs or altering market dynamics.

Furthermore, supply chain disruptions or natural disasters can constrain production, leading to scarcity and higher prices, further contributing to an increase in the PPI.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Comments

Add to Favorites

Ukadike Micheal

Forex

Economic

The U.S. Bureau of Labor Statistics reported that the Producer Price Index (PPI) for final demand experienced a 0.3% increase in January, adjusted for seasonal variations. This comes after a 0.1% decline in December 2023 and a 0.1% rise in November. On an unadjusted basis, the index for final demand showed a 0.9% increase for the 12 months ending January 2024.

The advance in the index for final demand in January was driven by a 0.6% rise in prices for final demand services, while the index for final demand goods decreased by 0.2%. Notably, the index for final demand excluding foods, energy, and trade services exhibited a substantial 0.6% increase in January 2024, marking the most significant advance since January 2023. Over the 12 months ending January 2024, prices for final demand excluding foods, energy, and trade services rose by 2.6%.

Within final demand services, the 0.6% increase in January was largely influenced by a 0.8% climb in prices for final demand services excluding trade, transportation, and warehousing. The index for final demand trade services rose by 0.2%, while prices for final demand transportation and warehousing services fell by 0.4%.

Product detail analysis reveals a major factor in the January rise in prices for final demand services was a substantial 2.2% increase in the index for hospital outpatient care. Other notable increases were observed in the indexes for chemicals and allied products wholesaling, machinery and equipment wholesaling, portfolio management, traveler accommodation services, and legal services. Conversely, prices for long-distance motor carrying decreased by 1.0%, with declines also seen in the indexes for computer hardware, software, and supplies retailing, as well as engineering services.

In the realm of final demand goods, the index exhibited a 0.2% decline in January, marking the fourth consecutive decrease. The majority of this decline was attributed to a 1.7% drop in prices for final demand energy, while the index for final demand foods fell by 0.3%. On the positive side, prices for final demand goods excluding foods and energy increased by 0.3%.

A detailed analysis of final demand goods in January showed a significant 3.6% decline in prices for gasoline, leading the overall decrease. Notable decreases were also observed in the indexes for electric power, hay, hayseeds, and oilseeds, beef and veal, ethanol, and iron and steel scrap. Conversely, prices for communication and related equipment increased by 2.4%, with gains also seen in the indexes for soft drinks and liquified petroleum gas.

This PPI data provides valuable insights into the pricing dynamics across different sectors of the U.S. economy, offering a comprehensive view of inflationary trends. The continued monitoring of these indices aids in understanding the broader economic landscape and its implications for businesses, policymakers, and investors. As the market digests this information, considerations for potential impacts on monetary policy and investment strategies come to the forefront.

Source: US Bureau of Labour Statistics

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

Alex

Donald Trump's hopes of winning the 2024 Election may be hindered by a lack of his supporters heading to the ballots, polls have suggested.

There have been a number of examples in recent surveys which note that while the presumed GOP presidential candidate in November is ahead of Joe Biden in a general poll of U.S. adults or registered voters, the current president beats Trump when the data is broken down to likely voters.

The results indicate that Biden—who has long faced concern about his polling numbers, approval ratings, age, and cognitive ability—may have additional ammunition against Trump as he looks to defeat the Republican in an election for the second time in a row.

Newsweek reached out to Trump's campaign team by email for comment.

A Big Village poll released in January showed that the presumptive 2024 Election between Biden and Trump is neck and neck, with both candidates receiving 38 percent among registered voters. Yet among those who said they are likely voters, Biden takes the lead (42 to 39 percent).

A month earlier, a New York Times/Siena poll found that Trump leads Biden by 46 percent to 44 percent among registered voters. However, when the results are broken down to just those who said that they are "almost certain" or "very likely" to cast a ballot in the 2024 Election, the results switch and Biden beats Trump by 47 percent to 45 percent.

Also in December, a Reuters/Ipsos poll found Trump with a 2-point lead in a head-to-head matchup with Biden (38 percent to 36) in a survey of 4,411 U.S. adults nationwide.

The results improve for Biden again when the results are just between likely voters. In this case, the poll found that in the seven states where the election was closest in 2020—Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania and Wisconsin—Biden had a 4-point lead over Trump among Americans who said they were sure to vote.

Biden won all these states except North Carolina in 2020, and would need to ensure he holds on to most of them while winning strong Blue states if he has any hopes of a second term.

Cary Coglianese, an Edward B. Shils professor of law at the University of Pennsylvania Carey Law School, suggested that the reason for the change of outcomes is that general polls feature members of the public who are "expressing more of their feeling" about the state of affairs, such as the economy, in comparison with voters who intend to go to the ballot box.

"As the election gets closer, people are likely to focus more on what it would really be like to have another four years of President Biden versus President Trump," Coglianese told Newsweek. "The Biden team is hoping to fare well with that comparison."

As with any poll result, there are a number of caveats that need to be considered.

The 2024 election is still nine months away, meaning there is plenty of time for other outcomes to influence who voters will back. Trump is facing 91 felony charges, to which he has pleaded not guilty, across four criminal trials, with Biden continuing to be met with concerns about his age and his handling of the Israel-Hamas conflict.

There are also still a significant number of surveys which show Trump is the current frontrunner in the close race, including those which only feature likely voters.

Christopher Borick, a professor of political science and director of the Muhlenberg College Institute of Public Opinion, said that the rise of Trumpism has buoyed Democratic voters to come out and vote for the past eight years, which has helped "propel" Democrats to multiple victories in midterm and off-year elections.

"While this is good news for Democrats in lower-turnout elections, the impact on the presidential race is less clear," Borick told Newsweek.

"The most likely voters do lean towards Biden, and if the overall turnout this fall declines from 2020, a possibility given dissatisfaction with the alternatives, Biden may have a slight advantage.

"However, the lack of enthusiasm for Biden combined with Trump's demonstrated ability to bring out less regular voters—such as lower educated and working-class voters—may negate the slight advantage Biden has in polls that give higher weights to traditional likely voters," Borick added.

Coglianese also noted that even though Trump can easily rely on his strong MAGA base to support him at the ballots, this may not be enough to secure a general election victory.

"Voters concerned about reproductive rights and the future of democracy and the rule of law will likely be highly motivated to get out to vote—and there may be enough of them to put Biden on top," Coglianese said.

Source:NewsWeek

Risk Warnings and Disclaimers

Comments

Add to Favorites

Zi Cheng

Commodity

Traders' Opinions

Fundamental Analysis

Gold prices surged and surpassed the significant $2,000 mark on Thursday, driven by a declining U.S. dollar and subdued U.S. Treasury yields following lackluster U.S. macroeconomic data. In context, January's U.S. retail sales figures fell short of expectations, contracting by 0.8% instead of the anticipated 0.1% decline, signaling a potential softening in household consumption.

While typically, decreased consumer spending might prompt the Federal Reserve to consider accelerating policy easing, the current situation is anything but normal, with inflation consistently exceeding the 2.0% target and exhibiting significant resilience. Therefore, policymakers may choose to refrain from preemptive measures in response to signs of economic weakness.

Given the U.S. central bank's current singular focus on restoring price stability and its prioritization of this aspect of its mandate, traders must closely monitor the forthcoming release of the producer price index survey on Friday. Projections indicate that January's headline PPI is expected to ease to 0.6% year-on-year from the previous 1.0%, with the core gauge moderating to 1.6% from December's 1.8%.

While subdued PPI figures are likely to support higher gold prices, an unexpected increase akin to the Consumer Price Index report earlier in the week, which showed a slowdown in disinflation progress, could have the opposite effect. In such a scenario, we may witness simultaneous rises in yields and the U.S. dollar as markets adjust their dovish interest rate expectations, which would be bearish for precious metals.

Technical Analysis

Gold is currently ranging in a channel that I have drawn as attached below. It will be tough to estimate which direction it will break as the PPI data will act as a catalyst to either push Gold price higher or lower. Judging from the current long term trend, there is a higher probability that it will break towards the upside.

Besides that, Gold's price currently is also above the 200 Day Moving Average which is a strong dynamic support indicator which increases the probability of Gold price moving higher. However, if you have been keeping up with the Dollar recently, Dollar has been strengthening aggressively hence Gold price has been in a short term downtrend.

The reason why I am not in any position for Gold is that there is mixed confluences for Gold currently which puts me in a bad position to take any trades. I will remain patient and monitor Gold's reaction after the PPI data being released.

Risk Warnings and Disclaimers

Comments

Add to Favorites

Ukadike Micheal

Palestinian-Israeli conflict

Economic

Commodity

Oil prices declined in anticipation of upcoming U.S. pricing data, reflecting a subdued demand outlook that counteracted the bullish sentiment prevailing in broader markets. Brent crude hovered around $82 per barrel, showing minimal changes over the week despite a spike in oil prices on Thursday, coinciding with another record closing for U.S. equities.

The oil market remains within a narrow range this year, and the International Energy Agency's warning of a potential surplus throughout the year, coupled with weakening global demand growth, has contributed to this cautious atmosphere. Although the OPEC+ alliance is implementing supply cuts to support the market, the prospect of an extended surplus has restrained significant upward movement in oil prices. Russia has reportedly come close to fulfilling its voluntary reduction targets for the first time since committing to these cuts last year. Meanwhile, Iraq and Kazakhstan have affirmed their commitment to compliance after falling short of production cut promises in the previous month.

Despite the lackluster demand outlook and concerns about a potential surplus, oil is consolidating near the upper end of its trading range for the year. Traders are displaying a measured approach, booking profits amidst uncertainties in the market. Ole Hansen, Head of Commodities Strategy at Saxo Bank, notes that crude oil seems to be establishing a slightly higher base despite the current softness.

In the Middle East, geopolitical tensions have escalated with intensified exchanges of fire between Hezbollah in Lebanon and Israel, raising concerns about a broader conflict. Additionally, in Gaza, Israel's arrest of dozens of Hamas combatants in Nasser Hospital, along with the discovery of grenades and mortar shells, adds another layer of regional instability.

While geopolitical events contribute to market volatility, the primary focus remains on the delicate balance between global oil supply and demand. The technical viewpoint emphasizes the need for continuous monitoring of these factors, as any significant disruptions in supply or unexpected shifts in demand could impact oil prices. As the market navigates geopolitical uncertainties and assesses the implications of the ongoing conflict in the Middle East, maintaining a vigilant stance becomes crucial.

Oil prices face a nuanced landscape with a cautious outlook driven by concerns of a potential surplus and geopolitical tensions. The ongoing conflict in the Middle East adds an element of uncertainty, emphasizing the need for market participants to stay informed and adaptable in response to evolving conditions.

Source: Bloomberg

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

Ukadike Micheal

Economic

Forex

After a robust end to last year, the U.S. economy experienced a slowdown in January, with retail sales declining by 0.8% from December, a more significant drop than the anticipated 0.3% decrease, as reported by the Commerce Department. Concurrently, Federal Reserve data revealed a 0.1% dip in January industrial production, contrary to expectations for a 0.2% increase. While technical issues in seasonally adjusting retail sales data and adverse weather conditions in January might have influenced the results, these factors do not entirely account for the observed weakness.

Economists from Goldman Sachs noted that cold weather alone does not explain the decline in e-commerce, as sales by nonstore retailers fell by 0.8%. Similarly, analysts at Bank of America observed persistently soft card spending in mid-February, despite the absence of significant weather events. Amid the concerning data, some positive signals emerged, with spending on food services and drinking places increasing by 0.7% from December and showing a robust 6.3% rise compared to January last year. This unexpected resilience contradicts expectations of an economic downturn.

Additional encouraging signs included stronger-than-expected Fed surveys of manufacturing activity in New York and the Philadelphia area in February, lower-than-expected weekly unemployment claims, and indications in the industrial production report affirming the U.S. shift towards high-tech manufacturing. Notably, semiconductor output increased by 23% from a year earlier, according to Capital Economics.

Economists had long anticipated that the Federal Reserve's rate increases in the previous year would eventually impact economic activity. While there has been ongoing debate about the duration of the savings cushion consumers built up during the pandemic, January's data suggests that consumers and manufacturers did indeed take a pause. Surprisingly, the economy exhibited resilience to the tightening measures implemented by the Fed.

Contrary to earlier expectations of an imminent recession, the economy's strength became evident, prompting analysts at Morgan Stanley to predict first-quarter GDP growth at a 2% annualized pace. They also anticipate a revision of fourth-quarter growth to 2.1% from the initially reported 3.3%. Acknowledging the strong yet cooling economy, they emphasized that there is no rush for the Fed to make the next move in interest rates.

The recent fluctuations in stock and bond prices in response to economic data are deemed to be much ado about little. The S&P 500 rebounded to end the week above its Monday closing level, suggesting that a slower yet steady U.S. economy should not be a cause for concern. The nuanced economic landscape emphasizes the importance of monitoring indicators and maintaining a balanced perspective in navigating market dynamics.

Source: Wall Street Journal

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Comments

Add to Favorites

Ukadike Micheal

Economic

Forex

The intensifying debate within the European Central Bank (ECB) on the timing of interest rate cuts is revealing internal divisions within the Governing Council. While the consensus leans towards a rate cut this year, the disagreement centers on when to initiate this move. The majority favors a later implementation, possibly in June, while some are inclined towards April, and one member does not rule out the possibility of a cut as early as March.

This divergence underscores the varying perspectives on inflation trajectory and the future of the sluggish European economy. The uncertainty surrounding monetary easing actions by the Federal Reserve and the Bank of England further complicates the decision-making process. The outcome of this debate in Frankfurt is poised to shape the pace and magnitude of rate adjustments.

Analysts note a diminishing consensus for the previously embraced high-for-longer policy, highlighting a shift from a time-dependent approach to a data-dependent one officially adopted by the ECB. Euro-zone inflation has witnessed a decline from a record 10.6% in October 2022 to 2.8% last month, and projections indicate a further cooling towards the 2% target this year. Nevertheless, risks persist, with elevated wage growth, scrutiny on corporate profits, and disruptions in Red Sea shipping threatening supply chains.

For those advocating caution, such as Executive Board member Isabel Schnabel, premature rate cuts could risk repeating historical mistakes, emphasizing the need to avoid a stop-and-go policy akin to that of the 1970s. Bundesbank President Joachim Nagel echoes this sentiment, cautioning against loosening too early, emphasizing potential adverse economic consequences in the long run.

Concerns about the ECB's credibility loom large among the hawks, given the underestimation of the inflation shock in 2021 and 2022. There is a fear that delaying rate cuts may erode this credibility further. However, the doves argue that unexpectedly strong disinflation may push the inflation target achievement to 2024, contrary to the mid-next year projection in the latest ECB forecasts. They also express worries about an economy recently dodging a recession and the potential undershooting of the medium-term price goal.

Bank of Italy Governor Fabio Panetta and his Portuguese counterpart Mario Centeno advocate for prompt policy easing, emphasizing the urgency to address the retreating inflation. Malta's Edward Scicluna suggests acknowledging the inflation retreat and considering rate cuts as early as March. Despite being a minority view, France's Francois Villeroy de Galhau emphasizes the importance of acting gradually and pragmatically to avoid delayed adjustments.

As this internal debate unfolds, market observers closely monitor the potential impact on the credibility of the ECB and the broader market dynamics. The divergence in viewpoints within the Governing Council adds an element of uncertainty, with implications for investor sentiment and decision-making. The evolving narrative in the ECB's policy discussions underscores the intricacies of managing monetary policy amid economic uncertainties and global factors.