March 14 - Stocks are weaker at mid-day after this morning's PPI data came in hotter than expected and retail sales came in weaker than expected. The VIX has risen firmly through the morning, though it remains relatively low near the 14.4 level. The U.S. dollar surged this morning following the hawkish PPI report, pushing to its highest level in over a week near the 103.4 level, though it has since fallen back near 103 at the time of writing. Treasuries are up on the day as well, with 10-year yields trading close to 4.30% and 2-year yields at 4.70%. Crude oil is up again, with nearby WTI pushing above $81 at the time of writing, and it will be interesting to see if it will be able to hold that strength and close above that $80 resistance level. The ags are mostly lower, with the initial morning strength in the soy complex fading through the day and falling back in the red.
Chinese buyers reportedly cancelled and/or postponed up to 1 million metric tons (MMT) of Australian soft red wheat today, following the large-scale cancellations of U.S. wheat seen in the last two weeks. With wheat prices falling aggressively since the start of the new year, as nearby Chicago wheat futures hit ~3.5 year lows earlier this month, China appears to be walking away from more expensive purchases. With their domestic winter wheat crop in good shape and forecasts looking favorable, coupled with their largest wheat imports since 1991 seen last year due to widespread quality issues in last year's crop, China must be feeling much better about their current supply situation. We saw USDA address this to an extent on last week's WASDE, dropping their China wheat import estimate by 1 MMT to sit at 11 MMT, and it will be interesting to keep an eye on their expectations in the months ahead if we continue to see more of the same.
Rising prices in the energy sector were a big part of the uptick in headline PPI, with a 4.4% jump in energy costs playing a big part in month-over-month PPI rising at its highest rate since August at 0.6%, while the core PPI that excludes the more volatile energy and food costs cooled to a 0.3% month-on-month rise, slowing slightly from the 0.5% in the month prior, though still coming in above expectations. In year-on-year terms, core PPI rose at 2.0% in February, matching the month prior but also coming in slightly above expectations of a cool down to 1.9% and keeping fears of resurgent inflation present after rebounding from the sub-2% readings seen in November and December to close out last year. The 1.6% year-on-year headline increase was also the highest seen since September. With ongoing geopolitical risks helping WTI crude oil again attempt to push past that $80 barrier today, the fears of sticky inflation and a more hawkish Fed continue to persist. Today's PPI and retail sales readings give FOMC members another round of data to digest ahead of next week's Fed meeting, scheduled for Tuesday & Wednesday (3/19 - 3/20). The recent rebound in inflation will put even more interest on the sentiment and commentary coming out of said meeting with hopes of getting more clarity on the timing of expected rate cuts later this year.
Business inventories in the U.S. were flat month-over-month in January according to this morning's release, marking a step back from the 0.3% rise seen in the month prior and coming in below expectations of a smaller dip to 0.2%. Inventories were up 0.4% at retailers, but saw 0.1% and 0.3% declines, respectively, at manufacturers and merchant wholesalers. Business sales fell 1.3% in January, while December's gain was also revised downward from 0.4% to 0.3%. This led to an uptick in the inventory/sales ratio, up to 1.39 from the initial 1.37 seen in the month prior and matching the high seen since July. January's brutal cold likely played a role in this, so it will be interesting to keep an eye on upcoming inventory data in the month ahead.
