To The Moon

A pivotal inflation indicator is poised to capture market attention this Thursday, as the Bureau of Labor Statistics will release of the Producer Price Index (PPI) report for February.

⚠️ Trading tips: Watch out for PPI report at 8:30am to determine the move for the market today. Breaking out of the channel would be explosive another all time high or reject the double top towards the pit of channel again.

Trading the channel

The S&P 500 is in its longest stretch since 2018 without a drop of at least 2%, while Treasuries pared losses after a strong sale of 30-year bonds. 

On the consumer front, inflation nudged upwards to 3.2% year-on-year last month, defying expectations of a stable 3.1% rate. Core inflation, which excludes volatile energy and food prices, also surpassed forecasts, registering at 3.8% year-on-year compared to an anticipated drop to 3.7%.

Despite the unexpectedly robust inflation data, market momentum persists as traders maintain unwavering expectations of forthcoming interest rate cuts, assigning a 65% probability of a cut by June as per CME Group’s FedWatch.

Thursday’s release of the PPI report will be closely watched as market participants seek clarity on the direction of inflationary pressures, particularly from the standpoint of producers.

The PPI report will play a crucial role in shaping expectations regarding Fed’s rate cut adjustments going forward and will represent the last piece of inflation data ahead of next week’s Federal Open Market Committee (FOMC) meeting.

To hold or to cut?

- The consensus among Wall Street economists estimates a 0.3% monthly surge in the PPI index for February 2024, matching January’s advance.

- On an annual basis, producer prices are expected to surge by 1.1%, up from the previous 0.9% rate.

- When excluding energy and food items, the core PPI is expected to inch 0.2% up from a month earlier, decelerating from the 0.5% pace seen in January.

- In annual terms, core producer prices are forecasted to slightly ease from 2% in January to 1.9% in February.

Started a new covered call position 

Following a hot reading on consumer inflation, the producer price index likely rose amid a rebound in energy prices, according to Bloomberg Economics.

More importantly, components that enter the Fed’s preferred inflation gauge — the core PCE deflator — likely sustained some growth momentum from January, posing upside risks to BE’s core PCE estimates.

Thursday’s print will be the last before the Fed policy meeting next week. Officials are expected to hold interest rates steady for a fifth straight meeting.

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