Will PPI Trigger the Fed to Drop Rates?
Market signals a Decline
KR Opinion
In my analysis in last night's report, I anticipated subdued market performance, which indeed materialized, as evidenced by a notably narrow trading range between 5217 and 5247. This was one of the tightest ranges observed in recent weeks, likely indicating an imminent phase of range compression, which often precedes a downward movement.
In the following section on the S&P, I will delve into the implications of current signals, which seem to diverge from what one might infer from the upcoming Producer Price Index (PPI) figures. Despite not anticipating a significant downturn, the data suggests we may encounter a modest pullback before gaining any substantial momentum.
Regarding the PPI, the market anticipates a 0.3% increase and 2.6% Y/Y. Should the actual figures exceed expectations, it could influence the Federal Market Committee's (FMC) decisions in the forthcoming week. However, it appears that the market is currently in a phase of high-level consolidation, which could lead to an adjustment period. Despite the potential for adjustment, today's news could still prompt a spike in volatility, possibly skewing toward the upside.
Should a sharp rally occur following the release of these figures, I would consider adopting a strategy to 'fade the move', potentially utilizing a 5-minute chart to identify opportune moments when the algorithmic trends reverse direction.
Regarding other market dynamics, we have upcoming reports on job claims and continuing claims, though I do not foresee these having a significant impact. Notably, several stocks, including NVIDIA, experienced declines yesterday, which could indicate a broader trend of high-level consolidation and potential resistance at current levels.
Adding to the economic indicators, the weekly MBA Mortgage Applications Index experienced a 7.1% increase, with refinance applications surging by 12% and purchase applications by 5%. This demonstrates that even minimal shifts in interest rates can unexpectedly stimulate demand, underlining the market's sensitivity to rate changes.
Lastly, please note that there will be no YouTube session on Thursday. Instead, I plan to host a live stream on Friday, including a live trading session utilizing algorithmic analysis.
Looking Back on Wednesday Action
Today's stock market exhibited varied performance. The Dow Jones Industrial Average and the Russell 2000 posted modest gains, increasing by 0.1% and 0.3%, respectively, whereas the S&P 500 and the Nasdaq Composite experienced declines, dropping by 0.2% and 0.5%.
All major indices experienced a sudden, sharp decline in the afternoon without an apparent trigger. This downturn is attributed to a sell-off program, as evidenced by a simultaneous pullback across most sectors, which subsequently stabilized. A notable recovery was observed in many stocks before the market closed, with the Invesco S&P 500 Equal Weight ETF marking a 0.1% increase.
NVIDIA significantly underperformed today, following a 7% increase the previous day and closing with a 1.1% decrease. Other prominent companies that faced declines include Apple, Meta Platforms, and Tesla, with Wells Fargo downgrading Tesla to Underweight from Equal Weight.
Most S&P 500 sectors ended the day positively, with seven sectors advancing and four declining. The information technology sector was the day's poorest performer, decreasing by 1.1%, closely followed by the real estate sector, which is sensitive to interest rates, with a 0.6% decline.
Conversely, the consumer staples sector achieved the smallest gain among the advanced sectors, partly influenced by a significant earnings-related drop in Dollar Tree's stock value.
In the bond market, Treasuries closed lower, with the 10-year note yield increasing by four basis points to 4.19% and the 2-year note yield by two basis points to 4.62%. Additionally, the reopening of a $22 billion 30-year bond was met with substantial demand.
Thursday's economic calendar, according to the KR forecast, includes the following key data releases:
- At 8:30 AM ET: The Producer Price Index (PPI) for February is anticipated, with the consensus expecting a 0.3% increase, matching the previous month's rise. The Core PPI, which excludes food and energy prices, is also expected, with a consensus forecast of a 0.2% increase, following a 0.5% increase in the prior month.
February's Retail Sales are projected to have risen by 0.7% after a decline of 0.8% in the previous month. Retail sales excluding automobiles are expected to increase by 0.5%, after a decrease of 0.6%.
The weekly initial claims are forecasted to be 218,000, slightly above the previous week's 217,000, alongside continuing claims, which were reported at 1.906 million. KR forecasts this to be higher in this report.
At 10:00 AM ET: January Business Inventories are expected, with a consensus forecast of a 0.3% increase, slightly below the prior month's increase of 0.4%.
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