Good morning contrarians! It is Friday, Feb. 17.
Stocks dropped yesterday after producer prices printed ahead of expectations. Most of January’s figures were revised upward in the latest sign that inflation is persistent and may even intensify. The tech-heavy Nasdaq saw most of the selling, declining by 1.8% on the day whilst the S&P 500 dropped 1.4%. Bonds dropped as well. More on that in the bottom line.
State of Play
As of 0630 we are looking at continued selling across asset classes:
Stock futures are down, with the Nasdaq pointing to a loss of ~1% at the open. S&P futures are down 0.7%;
Bonds are selling off, with the yield on the 2-year up 9 basis points to 4.71%, a fresh multi-decade high. The 10-year yield is up 7bps to 3.91% (yields move inversely to prices);
Commodities are selling off, with WTI crude oil down 2.5% to trade around $76.50/barrel. Copper is down 1.7%. Gold and silver are selling off as well, down 1% and 2.5%, respectively.
Economic Data Releases
A few of these to tell you about: Import and export prices are out at 0830. Economists expect both to drop by 0.2% month-over-month, but maybe the producer prices (and CPI earlier in the week) are harbingers of that figure, too, coming in ahead of expectations.
Then we have the US leading index at 1000. This is supposed to track the business cycle. No clue how it’s computed, but it’s expected to drop another 0.3% MoM after declining 0.8% last month. That may actually drop it to its lowest level since the height of the pandemic.
Earnings
Before the market open we’re due to hear from Deere (DE 0.00%↑), CenterPoint Energy (CNP 0.00%↑), and AutoNation (AN 0.00%↑), among others.
The Bottom Line©️
Finally, something that spooked markets. Interesting that it was the oft-ignored PPI that did the trick. Maybe the PPI will be this year’s CPI? It certainly should be more closely watched than it has been, seeing how it is a reliable leading indicator for consumer inflation.
Also interesting that bond prices didn’t budge as much as stocks yesterday, but as you can see the 10-year has been on a precipitous climb all month:
In case you’re wondering, the high during last year’s Fed fear hysteria was 4.34%, so we still have a ways to go before we hit that. Still, this is quite a jump in bond yields, and as mentioned above the 2-year has set multi-decade highs. This all speaks to renewed concerns about things that would cut into the value of bonds — such as inflation and Fed rate hikes.
Fridays are usually slow, especially ahead of a three-day weekend, but today could be telling. Next week we’ll get another inflation reading, this one in the form of the PCE Deflator. But that’s not until Friday. By then the ‘persistent inflation’ narrative could already be in place.
Inflation Persistence: Watch This Space