December’s Producer Prices unexpectedly cooled in December, helped by a drop in food costs and flat service prices.
The PPI rose 0.2% from a month earlier. The median estimate called for a 0.4% gain. A measure excluding food and energy was unchanged from November versus expectations of a 0.3% increase.
Compared with a year earlier, the overall PPI climbed 3.3% and the core measure advanced 3.5%, both the highest since February 2023. The data, however, was moderately lower than the expected view.
The shorter end of the Treasury market was unmoved by the data, but the longer end rose in yields, perhaps the result of the potential inflationary impact of tariffs.
Equites struggled to find direction. Bloomberg reports 41% of S & P 500 revenues are from outside the US. Foreign sales account for about 60% of the benchmark’s profits.
What will be the impact of tariffs? Who is correct…the Administration or Wall Street consensus? It is probably somewhere in the middle, perhaps the result as to how the markets have morphed, the result of the interconnectedness of the bond and currency markets.
Today the more influential CPI is released. As noted above, longer dated Treasuries sold off on the PPI data as both the 10- and 30-year Treasury are at their highest yield since November 2023. The 30-year topped 5% for the second time since Friday and the 10-year rose to 4.81%.
Commodities, specifically oil which is now at a five month high, have been rising. Will this be reflected in today’s data?
Speaking of rising, thirty-year mortgages were around 7% before the Fed started lowering rates. The yield fell to about 6% and is now back to 7%. It is generally believed that mortgages are priced correctly in today’s inflationary environment.
The question at hand is why is longer dated Treasury debt not priced correctly, defined as yields approximately 150 to 175 bps higher than today’s current yields, an environment that is perhaps amplified by the unending need for monies by the Federal government?
Expectations are rising the Administration will hit the “ground running.” Bloomberg writes that there are over 2000 people already in position. At Trump’s 2017 inauguration, there were only 25 people (no typo) in place.
How will today’s CPI data be interpreted?
Last night the foreign markets were up. London was up 0.79%, Paris up 0.63% and Frankfurt up 0.88%. China was down 0.42%, Japan down 0.08% and Hang Seng up 0.34%.
Futures are up about 0.4% as both Wells Fargo and JP Morgan exceeded profit estimates. The 10-year is up 8/32 to yield 4.76%.
