Oct PPI adds to relief over cooling US inflation

NEW YORK (Reuters) – U.S. producer prices increased less than expected in October, further evidence that inflation was starting to subside.

The producer price index for final demand rose 0.2% last month, the Labor Department said on Tuesday. September was revised lower to show the PPI rebounding 0.2% instead of 0.4% and in the year through September, the PPI increased 8.0 after climbing 8.4% in September. Economists polled by Reuters had forecast the PPI rising 0.4% and advancing 8.3% year-on-year.

Last week data showed consumer prices rose less than expected last month, pushing the annual increase below 8% for the first time in eight months.

MARKET REACTION:

STOCKS: The S&P 500 was up 1.5% after a positive response to the data in futures trade

BONDS: The yield on 10-year Treasury notes tumbled and was down 4.9 basis points at 3.818%; The two-year U.S. Treasury yield was down 3.8 basis points at 4.370%.

FOREX: The dollar lost ground and the euro was up 0.77%.

COMMENTS:

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

“We had more good news on the inflation front. If you look at the core rate year-on-year, that came down more than topline. Inflation is starting to dwindle in the pipeline, and obviously that will show up in consumer inflation as well. If you look at what happening, the dollar is weakening, and stocks are surging premarket.”

“This is good news for the markets and good news for the consumer.  It confirms that we’ve peaked in inflation.”

“It’s going to take a long time to get down to 2% but it may not take that long to get down to 4.5% to 5%.”

MARC CHANDLER, CHIEF MARKET STRATEGIST, BANNOCKBURN GLOBAL FOREX, NEW YORK

“It’s like a big push on an open door. The pull-back we’ve seen, the dollar sells off last week sharply, some of the currencies were three standard deviation moves. This tells me how dramatic this position adjusting is. “We’ve seen this in the stock market too. A lot of reports about hedge funds getting out of shorts, getting caught with not enough exposure. So people have to chase the dollar.

“Look at the levels we’re going through. Like the 78.2% retracements, we’re getting close to the 50% retracements, so rapidly. The pace and the momentum speaks to a major turn, and the euphoria. The market is reading that Biden and Xi’s meeting as a watershed? The U.S. is still putting sanctions on Chinese semiconductors. What’s really changed? The Canadians are getting tougher on Chinese investment in their mining and metals sectors, especially to protect their battery metals.”

ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT

“The headline number is way better than expected, and the core number is again way better than expected. It’s going to confirm people’s hopes that inflation is starting to turn the corner. It’s going to give the market more confidence.”

“I think the pace that they’re increasing rates in will most likely be 50 basis points in December. It’s a question mark until we get more data as to what they do in January and beyond.”

IAN LYNGEN, HEAD OF US RATES STRATEGY, BMO CAPITAL MARKETS, NEW YORK

“Another downside surprise that reinforces the peak inflation narrative and offers evidence that the Fed’s efforts to combat inflation are increasingly effective. Empire Manufacturing offered a positive read at +4.5 Nov vs. -9.1 Oct and -6.0 forecast. Notable as it’s the current month’s data and it showed prices paid increased to 50.5 vs. 48.6 prior. Prices Received edged higher to 27.2 vs. 22.9 Oct. On net, the PPI series has set the tone.”

“Treasuries were higher in the run-up to the data and have extended the gains with 10-year yields declining to 3.755%. 2s/10s slipped to -57.8 bp in keeping with the deeper inversion trend. From here, we’re looking for the rally to extend ahead of retail sales tomorrow.”

(Compiled by the Global Finance & Markets Breaking News team)