the market is down not because of the ppi number right ? since the bond is up. it could've been uglier today if the bond is down(worse than the released data ?)
The whole ppi # was good. The "core" number was 3 times worse than expected. I thought the market would sell off a lot more when the #'s first came out, but the 10 yr noted firmed up pretty quick. One of the numbers the Fed watches for inflation was up .1% and over 7% for the year. It wouldn't suprise me to see a .25 hike before the next meeting. Intermediate goods prices fell 1.4%, as intermediate energy goods prices fell 7.5%. Core intermediate goods prices -- one of the Fed's favorite measures of underlying inflation -- rose 0.1% and are now up 7.4% in the past year.
As I said yesterday If todays and tomorrow numbers show inflation, rates have a 75% chance of going to 5.5% next week. To many people think the federal reserve is done. I think rates go to 5.75-6% by early 2007. The PPI # was alot worse then what they were forecasting. 0.2% was the forecast, the actual 0.6%. That is very high. Suprised to see the Dow that is already ovebought only down 70 points. I think earnings from JNJ and UTX are keep the dow from Triple Digit losses.
There is no way the fed is raising anytime this year. The economy is slowing enough already. So far during earnings season guidance has not been very strong which does not bode well for the market, but I believe the fed will stay out of it.
The last week I have been reading articles that say this economy is doing great and that a slowdown.....haha What slowdown. Thats the way the cheerleaders make it sound, that everything is great. If CPI shows extreme inflation expect the federal reserve to raise. I dont think their done. The talking heads thought the federal reserve was going to start cutting rates by the end of 2006. You dont want the federal reserve to fall behind.
You guys leave out the most important short term factor...the elections in November. I would be SHOCKED if the Fed raised rates on Oct. 25th (and that's coming from a guy who felt they paused 50 basis points too early).
Tomorrow's CPI is going to be well behaved with core just up .2% and 1.7 decline in the overall number. That would negate today's PPI eith regards to the next Fed's move. But really do not expect any Fed move before the second half of 2007. With housing collapsing the Fed will not raise the Fed Funds rate any time soon. At the same time, though, the Fed will not decrease its rate as inflation concerns will remainin well into 2007.