The PPI rose more than forecast in September, bolstered by higher energy and food costs that continue to wrinkle the path toward sustainably lower inflation. The data suggests the economy still has not seen the end of sticky inflation. What will today’s release of the CPI infer?
Analysts are expecting a 0.3% increase in both the headline and core reading. Year-over-year prices are forecasted to increase 3.6% on the headline number; 4.1% on core.
The markets appear to shrug off the escalating conflict in the Middle East and stronger than expected PPI data.
Lowering inflation from last year’s highs was one challenge, however getting the rate down to the 2.0% Federal Reserve mandated level is another.
Earnings season commences tomorrow with the release of several mega sized banks; Citicorp, JP Morgan and Wells Fargo. A major question at hand is the increase in non-performing loans. Analysts are expecting NPAs to double over last year’s level, a daunting statistics given that economic activity may be the greatest since the 3Q03 (Ex Covid distortions).
Overall, Bank America has indicated that analysts have been boosting third quarter expected results by the greatest amount since the first quarter of 2022. Earnings for the S & P 500 are still expected to decline for the period, but the rate of decline has slowed considerably to a forecasted pace of 1.1%. Last quarter’s [second quarter] year over year earnings decline was 5.7% according to Bloomberg.
It should be noted, however, the five biggest companies in the S& P 500 are expected to post a 29% profit expansion in the three months through September from a year ago. If these five firms are omitted, S & P 500 earnings would decline 4.3% according to Bloomberg.
The profit recession is expected to end in the fourth quarter, but some believe it may occur this quarter as companies routinely exceed analysts’ forecasts. Bloomberg writes that over the past three decades, around 60% of companies typically beat profit forecast in a given quarter. But since 2021 it has been around 80%.
Commenting on the release of the Minutes from the recent FOMC meeting, equities fluctuated as the markets waded through the Minutes for clues on policy outlook. Nothing new was gleaned from Minutes as it verified the prevailing view that policy should remain restrictive for “some time” to keep cooling down inflation—while noting risks had become “more balanced.”
Last night the foreign markets were up. London was up 0.75%, Paris up 0.47%, and Frankfurt up 0.62%. China was up 0.94%, Japan up 1.75% and Hang Seng up 1.93%. Futures are up about 0.4% ahead of the CPI which is expected to show a slowing in inflation. Oil gained after leaders of OPEC + reaffirmed their close cooperation to support the crude market. The 10-year is off 1/32 to yield 4.56%.
