Market 10/11: Producer price inflation higher than expected

SPX pull back amid collapsing liquidity and geopolitical instability

From Viet Hustler yesterday:

However, above 4400, the market is “overextended” temporarily at least until the end of Thursday when volatility from PPI and CPI reports disappears… Although the auction wasn't too large, it created clear conditions for buyers to take profit and the market also began to be “over-extended”. With upcoming PPI and CPI reports, end-of-day de-risking is entirely possible.

Market opened Thursday's trading session with fairly stable sentiment as bond yields continued to retreat from highs. SPX fluctuated strongly trying to touch the 4400 call wall in the first 30 minutes before the market noted a clear decline in supportive liquidity from buyers compared to yesterday, pulling SPX back before finding support at 4350.

Overall, the market continues to maintain uptrend at present with suppressed volatility. However, de-risking activity is clearly occurring along with investors deciding to sit on the sidelines as political tensions develop complexly, combined with tomorrow's CPI report. Much of the market has temporarily identified temporary lows and highs (SPX range ~4350-4380) in the second half of today's trading session.

Political tensions escalate in Finland and Israel

Terrorist organization Hezbollah officially attacks Israel from the northern Lebanon border. The severity of the clashes remains unclear. Meanwhile, the US officially confirms 22 American citizens killed in Israel.

NordStream 2.0 as the gas pipeline from Estonia through Finland is sabotaged with suspicions of Russia behind the act. Finland officially becomes a NATO member since 4/2023.

PPI rises higher than expected due to high gasoline prices

September PPI rose 0.5% from the previous month, higher than the expected 0.3% due to high energy prices, continuing to hinder the path to inflation stabilization, marking 3 consecutive months of increases. Core PPI (excluding food and energy) rose 0.3%.

Goods prices contributed largely to PPI's increase, up 0.9% from the previous month.

Of which gasoline prices surged 5.4% as the main driver of the growth. Oil prices reached the highest level in over 1 year in September, threatening inflation containment efforts.

Food prices also recorded the strongest increase since November 2022.

Final Services Index up 0.3%, largely contributed by deposit services surging (13.9%). High interest rates have made depositing attractive.

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August core PPI revised up from 2.2% to 2.5%.

• August jobs report adds 40,000 jobs.

• Mortgage rates rise for 5 consecutive weeks, highest in decades

• According to today's data from MBA, mortgage rates rose 14bps to 7.67%, a continuous 5-week increase pressuring home buying activity. Purchase applications index at 137.5, slightly up but still near three-decade lows.

Credit card rates at record high, expectations of household delinquency rates worsening

Credit cards are often the fastest way for consumers to feel the impact of interest rates. The average annual rate consumers pay on credit card balances hit a record 22.8% at end of August, implying about $40 billion in interest payments next year

Chart of average annual interest rate on card balances shows Credit Shock

Chart of average annual interest rate on card balances shows Credit Shock

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debt delinquency expectations oct 2023.jpg (1268×694)

Other news:

• Volvo will lay off 700 people and 500-600 consultants.

• Exxon Mobil acquires Pioneer for nearly 60 billion USD, becoming one of the key companies in the shale oil production industry.

• Bitcoin drops 1.49% below 27,000 USD, the lowest level in the month.

• Chinese stocks rise after news that Beijing plans to increase government debt to spend on infrastructure to boost economic growth.