The U.S. Bureau of Labor Statistics has published the producer price index for October. The report came out at 16:30 Moscow time. Annual growth accelerated to 6.5%, while the monthly pace slowed sharply.
PPI is inflation from the seller's side. The index shows the prices at which producers ship goods and services, before they reach the store shelf. Services account for about 68% of it, goods for 29%.
For a trader, this is a hint about the Fed rate. The market read the report as a slight relief.
What numbers came out?
The headline index came in weaker than forecast, while the core measures matched expectations.
- +0.3% m/m - headline PPI versus a forecast of +0.4% and a previous reading of +1.3%.
- +6.5% y/y - versus the expected 6.6% and 6.3% a month earlier.
- +0.3% m/m and +5.0% y/y - excluding food and energy, exactly in line with the forecast; in September the monthly gain was +0.7%.
- +0.5% m/m and 4.9% y/y - the cleanest measure, excluding food, energy and trade margins, versus 5.0% previously.
How did the market react?
The reaction was immediate. After the release, buying began in U.S. Treasuries, and the dollar was moderately sold off.
The backdrop was uneasy. Fed official Goolsbee had shortly before called inflation "on the edge of alarming" and went on air on CNBC right after the report came out.
The main point: against the backdrop of talk about accelerating prices, the market took the data as a slight relief.
What about the rate?
Ahead of the data, the market was expecting a rate hike. Here is what was priced in.
- 28.5 basis points - a Fed rate hike at the December meeting.
- slightly more than 10% - the probability of a 50-basis-point move at once.
- 86 points - total hikes over the one-year horizon.
See the date of the December Fed meeting in the economic calendar.
What's next?
The numbers will still change. PPI is revised for four months after the first publication, and the revisions often reverse the trend.
- Asset management, air transportation, physician and hospital services - these components feed directly into core PCE.
- The CPI-PPI link - core PCE is estimated from it weeks before the official release.
Core PCE is the main inflation gauge for the Fed. If you trade such data releases, pick a challenge to suit your style in advance.
Were you in a position at 16:30?
A data release gives you that very window you sit at the terminal for. Only some prop firms prohibit such trades in their rules. Entering a minute before the release or holding through it costs you your account. The second point is how the daily loss is calculated: by the close of the day or by the worst point within it. Figuring this out after your account has been disabled is too late, and there is still time before the December Fed meeting.