Producer Prices Rise Again
The US Dollar remains subdued heading into today’s headline CPI release. Yesterday, the release of the October PPI highlighted the continuation of the trend which has been developing over the year so far, with price seen rising again last month. Higher costs for manufacturers and producers have been one of the key themes of recent months as a result of the supply chain issues and energy market crisis which have swirled into focus over Q3. With this in mind, the market was looking for the headline PPI to rise to 0.6% last month, from 0.5% prior, with the core PPI expected to jump from 0.2% to 0.5%. While the headline PPI was seen rising as expected to 0.6%, the core PPI undershot expectations slightly, hitting 0.4% on the month.
Highest Headline PPI On Record
Putting this latest monthly 0.6% headline increase in perspective; the annual PPI reading for October now sits at 8.6%, level with the highest reading on record for the index. Looking at the breakdown of the data, higher prices for final demand goods contributed to over 60% of the increase in the index reading. Prices for goods were higher by 1.2% versus an increase of just 0.2% for services. Construction prices, meanwhile, were seen soaring higher by 6.6%. As expected, the energy crisis had a big part to play in the data for October. Fuel costs were higher by 6.7%, in line with what we have been seeing in other key, global economies.
Fed's Inflation Outlook
The report comes hot on the back of the Fed’s recent tapering announcement last week. During the FOMC meeting, the Fed outlined that while inflation had run hotter than expected and the spike had lasted longer than expected, it was still mainly seen as the result of transitory factors (supply chain issues, COVID disruption, energy crisis) and is therefore still expected to pass. However, if key inflation readings continue to escalate, this might affect a shift in the Fed’s outlook.
CPI Up Next
Focus now turns to today’s CPI release. The market is looking for similar increase of 0.4% to 0.6% on the headline reading and 0.2% to 0.4% on the core reading. Given the focus on inflation currently, today’s data has the potential to create plenty of volatility on any surprises.
Technical Views
DXY
The Dollar Index continues to hold within the longer term bull channel for now. However, the 94.30 level has once again curtailed upside, with bearish divergence on momentum studies suggesting the risks of a downside reversal. Any break of the channel low and 93.71 level will open the way for a test of 93.02 next. To the topside, 94.69 remains the key level for bulls to break.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.