Market is slightly positive ahead of the release of the FOMC meeting minutes later today, despite another increase in PPI inflation which was larger than expected.
Data showed that the Producer Price Index for final demand in the US went up 0.4% month-over-month in September of 2022, the first increase in three months, and twice the market expectation of a 0.2% rise.
Cost of services rose 0.4%, with prices for traveller accommodation services jumping 6.4%. The indexes for food and alcohol retailing 2.6%, portfolio management 2.1%, machinery and vehicle wholesaling 1.5, oil and gas well drilling services, and hospital inpatient care 0.4% also rose.
The cost of goods went up 0.4%, with food prices rising 1.2%, namely fresh and dry vegetables 15.7%. Prices for diesel fuel 9.1%, residential natural gas 2.6%, chicken eggs 6.7%, home heating oil 10.7%, and pork 5.5% also moved higher.
Conversely, the index for gasoline fell 2%. Year-on-year, producer prices rose 8.5%, the smallest rate since July last year, but slightly above forecasts of 8.4%
A lot of the market’s attention is on the United Kingdom bond market as the 30-year Gilt continues to head towards the 5 percent benchmark level. The highest since September.
The influence of the gilt market; selling off in sympathy with British yields overnight and stabilizing once London left for the day until Governor Bailey’s hawkish remarks drove a partial reversal.
The fact yields drifted lower once the selling impetus from the distortions in UK subsided reflect the underlying concern that while flows and positions can certainly press yields to extremes, it’s the longer-term fundamentals of global growth and inflation expectations that will ultimately drive the outright level of 10-year yield and 30-year yield in the US.