Economy

A hotter-than-expected PPI data sent stocks lower.

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A hotter-than-expected Producer Price Index (PPI) sent stocks lower after rising in pre-markets. The annual rise of 1.6% in PPI was by far the largest since last September. This is in contrast to the expectation of 0.3%.

📖What does the PPI cover?💼

It tracks the cost of a basket of items domestic producers need to produce goods, services and construction. Next to it is the Core PPI, which will exclude more volatile components such as food and energy. The Core PPI had risen by 0.3%, higher than the 0.2% forecast but lower than the 0.5% seen in January. Hence, investors took comfort in the progress.

🎲Why is there a sudden surge in February’s PPI?📤

The main culprit, also seen in CPI data, was energy cost. The surge of 4.4% in the prices boosted the headline PPI, sending goods inflation.

💡Are things that bad?🧮

The latest PPI data may cause the Fed to reconsider the aggressiveness of the rate cut possibility, but it is still in neutral gear. If we exclude the energy and food portion, the figure turns out to be only 0.3% in Feb. Hence, it wasn’t that terrible data.

We do have a positive sign from the sticker services inflation. The data showed a 0.3 increase in the service prices incurred by producers. This is a drop from 0.5% seen in January. The slowdown in service prices is welcome for the market and could give investors the benefit of the doubt on whether inflation is indeed accelerating and be a concern.

📪What’s on the menu today? 🗽

A few critical data for the last day of the week.

1) At 8.30 pm, we will have the NY Empire State Manufacturing Index (Mar).

2) The industrial production figure will arrive at 9.15 pm.

3) Michigan’s 1-year and 5-year inflation figures will be critical as the Fed wants to see consumers anchor at the lower bound of the inflation expectation.

It is 15 March, 9.10 am in Singapore and 9.10 pm in New York. We are seeing late volatility in the equity market and softer volume as we approach the quarterly expiry of many options classes. This often causes ball-on volatility, and we hope to avoid that safely in our trading.