US August PPI Rises 0.2% MoM, In Line with Expectations
New and Continuing Unemployment Claims Increase from Previous Week
The three major indices of the U.S. New York Stock Exchange showed mixed movements around the flat line in early trading on the 12th (local time). The market digested the August Consumer Price Index (CPI) released the previous day, followed by the Producer Price Index (PPI) data published that morning. Amid expectations that the U.S. Federal Reserve (Fed) will proceed with gradual interest rate cuts, the stock market remained cautious and showed little significant movement.
As of 10:55 a.m. in the New York stock market, the blue-chip-focused Dow Jones Industrial Average was down 0.12% from the previous trading day, standing at 40,812.22. The large-cap-focused S&P 500 index rose 0.16% to 5563.01, and the tech-heavy Nasdaq index increased 0.41% to 17,467.57.
By individual stocks, the tech rally continued. Nvidia, which surged more than 8% the previous day, was up 2.09%. Alphabet, Google's parent company, and Meta, Facebook's parent company, rose 1.59% and 1.86%, respectively. Trump Media & Technology Group (TMTG), the parent company of the social networking service (SNS) Truth Social owned by former U.S. Republican presidential candidate Donald Trump, fell 3.86% after dropping more than 10% the previous day. This was seen as a negative factor for the stock following the strong performance of Democratic candidate Vice President Kamala Harris in the presidential TV debate held on the 10th.
That morning, the wholesale price index for August, the Producer Price Index (PPI), was released. According to the U.S. Department of Labor, the August PPI rose 0.2% month-over-month, matching the Dow Jones experts' forecast (0.2%). This was a slight increase compared to July (0%). The PPI rose at an annual rate of 1.7% over the past 12 months, significantly easing from 2.1% in July. The core PPI, which excludes volatile food and energy prices to show the underlying inflation trend, increased 0.3% month-over-month in August. This exceeded both the expert forecast (0.2%) and July's figure (-0.2% decline).
The wholesale price index PPI is considered a leading indicator of retail prices as it affects the CPI with a time lag. Since May, the month-over-month increase in PPI has remained between 0% and 0.2%, supporting the recent trend of easing inflation. The U.S. August CPI released the previous day rose 2.5% year-over-year, marking the lowest level in three and a half years since February 2021, continuing a slowdown for five consecutive months.
Bespoke Investment Group stated, "Over the past three years, CPI and PPI reports have been the most important during the weeks they are released. However, as the Fed shifts its focus from inflation to employment, the CPI report released the previous day received less attention than usual, and many traders probably were unaware that the PPI report was released today."
The employment market showed gradual slowing as initial jobless claims increased compared to the previous week. According to the U.S. Department of Labor, initial jobless claims for the week of September 1?7 totaled 230,000, up 2,000 from the previous week's 228,000. This exceeded the expert forecast of 227,000 by 3,000. Continuing jobless claims, which count those claiming benefits for at least two weeks, were 1.85 million for the week of August 25?31, up 5,000 from the revised previous week's 1.845 million. This matched market expectations of 1.85 million. With recent assessments that the U.S. labor market is rapidly slowing, investors are closely monitoring employment trends.
These inflation and employment indicators are the last key economic data released before the Federal Open Market Committee (FOMC) meeting scheduled for the 17th?18th. With signals confirming that the labor market is gradually cooling in the crucial August employment report, the market expects the Fed to cut the benchmark interest rate by 0.25 percentage points at this month's FOMC. Currently, the interest rate futures market reflects an 87% probability of a 0.25 percentage point rate cut and a 13% chance of a 0.5 percentage point cut. Some had hoped for a big cut of 0.5 percentage points, but the probability of a big cut has sharply dropped from 40% a week ago to 13%.
Government bond yields are rising. The U.S. 10-year Treasury yield, a global bond yield benchmark, rose 3 basis points (1 bp = 0.01 percentage points) from the previous trading day to 3.68%, while the 2-year Treasury yield, sensitive to monetary policy, increased 2 basis points to 3.67%.
International oil prices are rising amid concerns over production disruptions caused by a hurricane in the U.S. West Texas Intermediate (WTI) crude oil rose $1.02 (1.5%) from the previous trading day to $68.33 per barrel, and Brent crude, the global oil price benchmark, increased $0.95 (1.4%) to $71.56 per barrel.
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