PPI NO Surprise?
Markets Market Render New High!
KR Opinion
As we wind down an eventful week, it's been quite the rollercoaster in the markets, especially after those eye-opening CPI numbers on Tuesday. It seems like the markets have been playing a game of pin the tail on the economic donkey, zigzagging in search of a clear path.
By Thursday, we witnessed a bit of a comeback, with the markets bouncing back stronger than before, vaulting past Tuesday's peak. Interestingly, the S&P 500 shrugged off some less-than-stellar retail sales figures and mixed economic indicators to hit a new all-time high, showing a bit of sass amidst the uncertainty.
But wait, there's more! Friday is poised to add another layer of intrigue with the PPI report on deck. Expected to show a modest increase of 0.1% and a year-over-year figure of 2.5%, it's a moment of truth following the CPI's unexpected leap. While the anticipation is palpable, the consensus hints at a steady-as-she-goes outcome, with few expecting any dramatic twists from the PPI's performance.
Looking ahead, the market's vibe seems to be leaning towards optimism, maintaining an upward trajectory as we move through February and eye March with a hint of cautious enthusiasm.
The bounce back from Tuesday's dip has been notably resilient, raising hopes for reaching new heights, possibly nudging the 5100 level as we close out the week.
The Dollar/Yen pair has been holding its ground, suggesting continued strength in the dollar for the next couple of weeks. Predictions are floating around that we could see the dollar aiming for the 108 to 111 range against the yen in the not-too-distant future, targeting those Fibonacci levels with a calculated gaze.
As we navigate through these mixed economic signals and brace for the latest on inflation, it's clear the market narrative is keeping us on our toes, blending a mix of caution, optimism, and a touch of unpredictability. The journey ahead promises to be interesting, with each new data point potentially steering the story in unexpected directions.
Looking Back on Thursday’s Action
On Thursday, the stock market showed some resilience, bouncing back from the turbulence caused by Tuesday's CPI report. It was like the market had its own rebound narrative, although not every player was on board with the rally.
Despite the overall positive momentum, some of the market's heavyweights opted to take a breather, engaging in a bit of profit-taking, which slightly curbed the gains for both the S&P 500 and the Nasdaq Composite. Nonetheless, the S&P 500 managed to close higher than its position on Monday before the CPI news hit the stands.
The Russell 2000 index stood out with a 2.4% jump on Thursday, erasing the 4% loss it suffered on Tuesday in reaction to the CPI figures. This recovery was a highlight in the market's broader effort to regain lost ground.
However, not all was rosy. Big names like Apple, Microsoft, Alphabet, Amazon.com, and NVIDIA saw their shares dip, contributing to the day's mixed sentiments. These declines particularly impacted the information technology sector of the S&P 500, which ended the day down by 0.4%.
Cisco also caught attention for the wrong reasons, as it reported fiscal Q2 results and a less-than-stellar outlook, including a workforce reduction plan, which didn't sit well with investors.
Despite these setbacks, broad-based buying activity lifted most of the S&P 500 sectors, with ten out of eleven finishing the day in the green. Notably, the energy and real estate sectors led the charge, each gaining more than 2.0%, buoyed by rising WTI crude oil prices and a dip in market rates, respectively.
A slight ease in interest rates lent some support to the stock market, although treasuries pulled back from the highs reached earlier in the day. Economic data released in the morning showed a mix of below-expected retail sales for January, an unexpected drop in jobless claims, and better-than-anticipated manufacturing surveys from New York and Philadelphia, adding layers to the day's market narrative.
By the close, the yield on 2-year notes had fallen slightly, reflecting the day's cautious optimism and complex interplay of market dynamics and economic indicators.
Reviewing today's economic data:
Thursday's economic reports offered mixed insights into the U.S. economy, highlighting both growth and challenges across various sectors:
1. Retail Sales: There was a 0.8% decrease in retail sales for January, more than the expected 0.2% decline, following a revised 0.4% increase in December. Excluding autos, sales dropped 0.6%, contrary to the expected 0.1% increase. The reduction in spending, particularly in online retail, which also saw a 0.8% decrease, suggests a slowdown not solely attributable to January's severe weather.
2. Jobless Claims: Initial jobless claims fell by 8,000 to 212,000, better than the anticipated 221,000, indicating ongoing economic growth. However, the increase in continuing claims to 1.895 million suggests challenges in finding new employment post-layoff.
3. Import and Export Prices: Both import and export prices rose by 0.8% month-over-month in January. Despite the monthly increase, there was a notable year-over-year decrease in prices, indicating deflationary pressures, with import prices falling 1.3% and export prices dropping 2.4%.
4. Manufacturing Indices: The New York Empire State Manufacturing Index improved significantly to -2.4 from -43.7, though it still indicates contraction. Conversely, the Philadelphia Fed Index showed expansion at 5.2, a considerable improvement from -10.6 in January.
5. Industrial Production and Capacity Utilization: Industrial production slightly declined by 0.1% in January, influenced by weather-related issues, with the capacity utilization rate slightly below expectations at 78.5%. The year-over-year figures were flat, indicating a slowdown in industrial activity.
6. Business Inventories and Housing Market: Business inventories saw a 0.4% increase in December, in line with expectations. The housing market showed signs of improvement, with the NAHB Housing Market Index rising to 48 in February, indicating better sentiment among homebuilders.
7. Natural Gas Inventories: There was a decrease in natural gas inventories, with a draw of 49 billion cubic feet, compared to 75 billion the previous week, reflecting fluctuations in energy supply and demand.
Overall, the reports reveal a nuanced economic landscape with areas of both strength and concern, including a slowing retail sector, a resilient job market with emerging challenges, deflationary trends in international trade prices, mixed manufacturing activity, and tentative signs of recovery in the housing market.
Looking ahead, Friday's economic calendar:
On Friday, several pivotal economic data points were on the agenda, each expected to carry a significant impact on trading. The focus was on the construction sector, with January's housing starts anticipated to show a slight increase, as per KR Forecast's prediction of 1475K, marginally higher than the consensus of 1470K and an improvement from the previous 1460 K.
Building permits for January were also projected to climb, with forecasts suggesting a rise to 1520K, compared to a consensus of 1510K, pointing to a buoyant construction outlook from the previous 1495K. Inflation indicators were keenly observed, with the Producer Price Index (PPI) and Core PPI for January both expected to register a modest uptick of 0.1%, hinting at mild price pressures following prior declines.
Moreover, the preliminary University of Michigan Consumer Sentiment for February was forecasted to edge up to 80.0 from 79.0, indicating a slight uplift in consumer confidence amid the current economic recalibrations.
08:30 ET: Housing Starts
For: Jan | Trading Impact: High | KR Forecast: 1475K | KR Consensus: 1470K | Prior: 1460K
08:30 ET: Building Permits
For: Jan | Trading Impact: High | KR Forecast: 1520K | KR Consensus: 1510K | Prior: 1495K
08:30 ET: PPI
For: Jan | Trading Impact: High | KR Forecast: 0.1% | KR Consensus: 0.1% | Prior: -0.2%
08:30 ET: Core PPI
For: Jan | Trading Impact: High | KR Forecast: 0.1% | KR Consensus: 0.1% | Prior: 0.0%
10:00 ET: Univ. of Michigan Consumer Sentiment - Prelim
For: Feb | Trading Impact: High | KR Forecast: 80.0 | KR Consensus: 79.3 | Prior: 79.0
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