Inflation: PPI Came In Mixed
PPI is volatile, so read it with care. Headline month-over-month came in at 0.4%, matching street expectations but hotter than last month's 0.1% after revision. Year-over-year headline hit 5.4%, 0.1% above the street and above the 4.8% seen last month. The bright spot was core PPI at 0.2%, below the 0.3% the street looked for, though prior months were revised up to 0.3%.
Most of the headline upside came from diesel fuel, which jumped 24.1% on the month for that benchmark. If diesel holds at current levels, expect more upside pressure on PPI. Gasoline, jet fuel, and heating oil also rose.
Final demand services rose only 0.1%, a good sign. That shows wages are not being passed on to consumers; wage growth has stayed subdued for the last couple of months.
Watch intermediate demand, a subset of PPI covering goods processed at a factory before they reach other producers. It moved strongly higher on energy, and pressure is building in transportation, which rose 2% for the month. This lands right as holiday shipping ramps up inventory for retailers and harvest season for soybeans and corn arrives, both affected by diesel prices.
CPI comes tomorrow. If prices keep rising, especially diesel and gasoline, the Fed will find it hard to hold rates here or to justify not raising them.
Labor Market: Steady Claims
Initial jobless claims keep running around 206,000 to 207,000. This week came in at 206,000 against a street estimate of 205,000 - slightly higher but close. The 4-week moving average sits at 206,000, so no real pressure there.
Monthly BLS data is far more volatile. Last month brought a strong report with strong revisions; whether that holds over the next couple of months is the question. The September data set, due in about three weeks, is usually a strong jobs report because of back-to-school hiring and holiday staffing ramp at retailers.
Housing: Weak Sales, One Interesting Chart
Existing home sales came in line with expectations, with an asterisk: sales have declined for the last four months. Higher rates are hitting both new builds and existing homes, adding supply, keeping houses on the market longer, and pushing prices down. That hurts owners tapping home equity but gives buyers more room in a high-rate environment.
The new home market has shifted sharply lower too. D.R. Horton (DHI) is trading at an interesting level: on the three-year weekly chart it sits at its 200-week moving average. Rates are high and earnings have disappointed, but some products for new builders and existing-home remodels could be a slight tailwind, along with lower input costs like lumber, which has dropped sharply. Given the high-rate backdrop and the bearish housing data of the last six to eight months, this is an interesting setup.
S&P 500 Levels and Flows
The S&P 500 (SPX) adjusted over the last hour and a half on news headlines and the economic data. To the downside, 7580 is the level, and price is trading right there. Buyers need to step in to clear it, then clear 7600. Most call activity sits at 7650. On open interest, negative gamma territory - where dealers start selling with the flow - is at 7500. Holding the 7580 area matters, because losing it could accelerate a move toward that negative gamma target. Volatility is rising.
After a big update on September 3, markets stayed contained, but things are waking up today.
Are we due for a big move, like a 2% day? Major intraday moves aren't showing up. When pullbacks come, they tend to run two or three days. Price keeps trading in a consolidation range and is now breaking below the 50-day moving average. Volatility had been low; a 13 handle on the VIX never lasts long and is the time to start hedging a portfolio.
One thing worth watching, which many technicians track: the correlation between the dollar and yields. Right now there's a decent divergence between them. That divergence doesn't last long, and it tends to coincide with market pullbacks - three such setups have occurred over the last year.
