Prices paid to producers unexpectedly declined in April by the most in five years, largely reflecting a slump in margins, suggesting companies are absorbing most of the hit from higher tariffs.
The 0.5% decline in the PPI followed no change in March. The median forecast called for a 0.2% gain. Excluding food and energy, the PPI declined 0.4%–the most since 2015 according to government statistics.
As stated, the data suggests American manufacturers and service providers are so far refraining from passing along higher US duties on imports, an environment that will crush companies’ profit margins and earnings.
Will market volatility again increase given valuations in some sectors are almost priced to perfection?
Shorter dated Treasuries rallied on the data, and the market is again suggesting over two interest rates cuts will occur by year’s end.
The yield curve steepened as longer dated Treasuries initially sold off, perhaps the result of FRB Chair Powell’s comments that longer term interest rates might go up as the yield curve returns to a more appropriate and historical slope “given budget projections and current and expected inflationary expectations.”
Equites were relatively quiet with the Dow modestly outperforming the NASDAQ. The mantra is emerging that “next month” the data will deteriorate significantly. But has this not been the mantra for sometime?
Last night the foreign markets were up. London was up 0.45%, Paris up 0.58%, and Frankfurt up 0.58%. China was down 0.40%, Japan up 0.01% and Hang Seng down 0.46%.
Futures are up 0.35% on trade and economic optimism. The 10-year is up 6/32 to yield 4.41%. Atlanta Fed Bank President reiterated his belief there will be only one interest rate cut this year, and the economy will not slip into a recession.
