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US Producer Price Index Backs Expectations of Falling Inflation

Miguel A. Rodriguez
Miguel A. Rodriguez
16 November 2023

More economic data from the US flooded the market yesterday. Retail sales slowed in October and the Producer Price Index (PPI) fell to its lowest level since April 2020. Read on to see how this influenced markets. 

US Retail Sales Slowed in October  

The stock market had a calmer day with declines in technology stocks that came under pressure amid a rise in bond yields.

The American 10-year bond rose around 9 bps yesterday in what can be considered a technical correction. It plummeted almost 20 bps when the US CPI data was published on Tuesday.

The economic data published yesterday is in line with the latest releases. The perspective on the future of interest rates and the Federal Reserve’s (Fed) next steps have not changed.  

Retail sales slowed in October. Over the last months the data was revised upward, suggesting some slowdown in demand ahead of the holiday season.

US PPI Fell by The Most Since 2020

On the other hand, the US PPI unexpectedly fell to its lowest level since April 2020. This price data confirms expectations of falls in inflation.

Therefore, economic figures were not the cause of this rally in bond yields. Also, interest rate expectations remain unchanged from the previous day, with rate cuts forecast for between Q1 and Q2 2024.

Target’s Shares Soared 17.9% on Flying Quarterly Earnings

The star of yesterday's session was Target Inc. Target shares soared after the big-box retailer easily beat quarterly earnings estimates. Its fourth-quarter guidance was in line with expectations. Shares rose 17.9%.

This is a good sign that retail chains are performing well. The upbeat in performance completely rules out the worst-case scenario of an economic recession. The anticipation now is one of optimism and a soft landing for the economy.

Target chart 16 nov 2023.png

Target Corp monthly chart, November 16, 2023. Source: WebTrader. 

Biden and Xi Jinping Met for First Time Since Spy Balloon Incident

Another relevant event, although it went somewhat unnoticed yesterday, was the meeting in San Francisco between Chinese President Xi Jinping and American President Biden. It is the first meeting after the spy balloon incident that threatened a return of an economic war. This could be the start of improvements in trade relations that would undoubtedly provide a boost to the markets.

In fact, the Chinese Hang Seng Index rose almost 3% in yesterday's session.

Key Takeaways

  • Bond yields rose yesterday while the stock market calmed.
  • US retail sales for October slowed, suggesting a slowdown in demand.
  • The US PPI fell to its lowest level since April 2020, confirming expectations of falls in inflation.
  • Target shares soared after news that it beat quarterly earnings estimates.
  • An economic recession may be ruled out and a soft landing for the economy is now expected.
  • Presidents Joe Biden and Xi Jinping met for first time since spy balloon incident, and this could mean an improvement in trade relations.  
  • The Chinese Hang Seng Index rose almost 3%.

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Sources: Bloomberg, Reuters 

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.