Stocks Add To Rally After Better Than Expected PPI Inflation Report  Image: Shutterstock Stocks closed modestly higher yesterday, adding to Tuesday's sharp gains. Yesterday's better than expected Producer Price Index (PPI) report showed headline inflation fell -0.5% m/m vs. last month's 0.4% and views for 0.1%. On a y/y basis it came in at 1.3% vs. last month's 2.2% pace and the consensus for 2.0%. Core inflation (ex-food & energy) was flat at 0.0% m/m vs. last month's 0.2% pace and views for 0.3%. On a y/y basis it came in at 2.4% vs. last month's 2.7% and estimates for the same. Between Tuesday's better than expected Consumer Price Index (CPI) (retail inflation), and yesterday's PPI report (wholesale inflation), it shows a picture of significant improvement with inflation on the decline. And it's giving strong signals to the Fed that they may not need to hike rates any further. After pausing on rates for two meetings in a row, there's a growing likelihood that they may pause yet again when they meet in December (12-13), and possibly call it quits. While nobody is calling for the Fed to lower rates this year, the Fed itself is suggesting they could lower rates by -50 basis points next year, bringing the Fed Funds rate down to a midpoint of 4.88%. But UBS came out with a report on Tuesday forecasting the Fed will cut rates next year to a target range of 2.50% to 2.75% (midpoint of 2.63%). That suggests interest rate cuts of -2.75%. Granted, that assumes the U.S. economy falls into a recession. But the first cuts are expected to come before that as inflation continues to go down and the neutral rate shifts down along with it. We shall see how that all plays out. But their estimates for deep interest rate cuts of -2.75% is likely making people think that the Fed's -50 basis point forecast is much too low. In other news, yesterday's MBA Mortgage Applications were up 2.8% w/w with purchases up 3.3% and refi's up 2.0%. Retail Sales slowed less than expected dipping -0.1% m/m vs. last month's upwardly revised 0.9% and views for -0.3%. Ex-vehicles it was up 0.1% vs. last month's 0.8% and estimates for -0.1%.
The Empire State Manufacturing Index jumped to 9.1 vs. last month's -4.6 and forecasts for -3.0. Business Inventories were up 0.4% m/m, in line with last month's pace and views for the same. And the Atlanta Fed Business Inflation Expectations ticked up to 2.5% for the year-ahead period vs. last month's 2.4%. Today we'll get Weekly Jobless Claims, the Philadelphia Fed Manufacturing Index, Import and Export Prices, Industrial Production, and the Housing Market Index. We'll also get more earnings. Yesterday's better than expected earnings by retail giant Target, before the open, when they reported a positive EPS surprise of 41.9%, and a positive sales surprise of 0.62%, sent shares soaring by 17.8%. Although, after the close, tech company Cisco posted a positive surprise of 7.77%, and a positive sales surprise of 0.40%, but offered weak guidance for the next quarter, and full fiscal year. Shares were up 0.21% in the regular session, before earnings, but were down more than -11% in after-hours trade. Today we'll hear from 149 companies, including retail names like Walmart, Alibaba, and Macy's before the open. And varied names like Applied Materials, Copart, and Compass Minerals after the close. Stocks have put in a blistering rally over the last 3 weeks. And the Q4 rally looks like it has much more to go. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
Post a Comment
Post a Comment