Producer Prices increased in March from a year earlier by the most in 11 months, highlighting the sticky nature of inflation. The headline number was 2.1% from March 2023 while the core rose by 2.4%. The data largely met expectations.
Markets were bifurcated on the data. The Dow was essentially unchanged while the NASDAQ advanced about 1.7%, the result of AAPL’s 4.4% surge on the news that its next generation Mac chips will focus on AI. AAPL’s surge was the catalyst for buying in the other mega caps.
Yields on Treasuries rose across the spectrum, perhaps the result of the data as well as from a slightly weaker than expected demand for the $22 billion 30-year Treasury auction. Some thought demand could be robust given the recent carnage in the Treasury market. Auction yields were around the highest levels of the past decade.
Bloomberg writes Wednesday’s rise in yields for the 10-year was the 10th biggest since 1990.
What is this suggesting?
Today is the start of first quarter earnings season as several mega sized financials post results; JP morgan, Wells Fargo and Citicorp. Analysts followed by Bloomberg are predicting a 3.8% year-over-year earnings growth for the quarter.
An argument can be made that earnings must exceed expectations given the possible change in monetary policy expectations. A higher risk-free rate demands higher corporate cashflows to support valuations.
Bloomberg writes the expected earnings yield of the S & P 500 is 4.8%, a key valuation metric that “now sits near the smallest in two decades.”
Today import/export prices and a sentiment survey are released. Will the data impact trading?
Last night the foreign markets were up. London was up 1.12%, Paris up 0.76% and Frankfurt up 0.81%. China was down 0.49%, Japan up 0.21% and Hang Seng down 2.18%.
Futures are down about 0.4% ahead of the commencement of the first quarter earnings season. Oil is up about 1.5% as Israel is preparing for a possible Iranian attack. The 10-year is up 16/32 to yield 4.53%.
