Market Matters

This week we saw an impressive beat in retail sales, +1.9% MoM, showing that the consumer is still very resilient even with stalled stimulus talks and fears of a second wave of Covid-19. With the continued stimulus talks being rather ineffective, the question is, at what point will the stimulus need to be passed before the election as it will need to be addressed once a winner is announced. Speaking of the election, we are less than three weeks away and the 10-year appears to be in a range bound trade until the market breaks in one direction. The thought is that there may be some pressure on rates to move higher once we have the election and there is a perceived winner. Looking to next week, keep an eye on stimulus talks, the Presidential race, and any new spread of Covid-19 and progress on a vaccine.

 

Initial Jobless Claims

Initial jobless claims for the week ending October 10th rose +53k to 898k, which is the highest level in seven weeks and much higher than expectations of a 825k result. Continuing claims, which we know lag by a week, fell by -1.165mln in the October 3rd week to 10.018mln, and the lowest level since the pandemic really started to gain traction. If we look back over the last 3 weeks of data here, continued claims have now dropped by 2.729mln. With the headline increase today, continued claims next week are expected to show a reversal and rise back higher of a decent amount.

 

Philly Fed Index

The Philly Fed’s Manufacturing Business Outlook Survey rose to +32.3, the best print since February, from a +15.0 prior. Getting into the main sectors of the survey, new orders increased +17.1 to +42.6, while shipments rose +9.9 to +46.5, with unfilled orders up +8.3 to +20.5. On the unimpressive side, employment dropped -3.0 to +12.7 even with the workweek up +17.5 to +25.3. Prices paid continued their climb, up +3.4 to +28.5 which is a 13-month high. Prices received, however, came back by -4.4 to +14.0. Finally, the overall future activity index rose +6.1 to +62.7, now its second highest since back in February 1993, with expected shipments up +3.8 to +51.7. Expected new orders dropped, however, down -5.3 to +51.6, the lowest since April.

 

PPI

The Producer Price Index (PPI) rose by +.4% MoM on both headline and core measures for September. Looking YoY, headline inflation is up +.4%, while the core is up +.7%. Within the data, a +3.9% increase in the index for traveler accommodation services was a major factor in the September rise in prices for final demand services. The indices for hardware, building materials, and supplies retailing, fuels and lubricants retailing, transportation of passengers, food wholesaling, and hospital care also moved higher. In contrast, the index for food retailing fell -3.2%. Prices for truck transportation of freight and deposit services also decreased. A +14.7% rise in prices for iron and steel scrap was a major factor in the September advance in the index for final demand goods. Prices for fresh and dry vegetables, residential electric power, corn, beef and veal, and oil seeds also moved higher, while the gasoline index fell by -2.8%. Prices for natural, processed, and imitation cheese and for household refrigeration equipment also decreased. Combined with yesterday's mostly softer consumer price data, the overall outlook for inflation ahead remains modest.

 

CPI

Consumer Price Inflation (CPI) increased by +.2% for September at both the headline and core measures, and in-line with market expectations. On a YoY basis, headline inflation rose to +1.4% from +1.3%, while the core measure held steady at +1.7%. Within the monthly details, we see used car prices adding their highest MoM gains in the history of the report, up +6.7% vs. last month’s +5.4%, and now up +10.3% YoY. On the softer side, apparel prices fell -.5%, while medical care services were mostly flat. Housing rents rose just +.1%, while prices for lodging away from home fell by -.4%. If we look outside the core, energy prices were up +.8%, with gasoline up +.1%, and fuel oil down -5.3%. Food prices were also weaker, posting flat overall with food at home down -.4%, and food away from home up +.6%.