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Perspective: Morning Commentary for October 15

By: Mike Castle, Market Intelligence - Fertilizer Analyst

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October 15 – Inflation is the feature again today, with this morning’s headline September PPI surging to 6.3% year-on-year, sharply above the average analyst estimate of 5.3% and representing the hottest reading since December 2022. Furthermore, August was revised 0.2% higher to now show a 5.6% rise. In month-on-month terms, this was a 1.3% uptick, sharply above the expected 0.5% and marking the highest monthly increase since March 2022. Stripping back the more volatile food and energy sectors, the inflationary pressures were still significant. Core PPI surged 0.7% month-on-month, sharply above August’s 0.2% and the average analyst estimate of 0.3%. In year-on-year terms, core PPI was up 5.0%, well above the expected 4.4% gain and marking the highest level seen since 2023. As with the headline print, August core PPI was revised higher by 0.2% as well, now showing a 4.8% gain.

As we’ve been covering for months now, the build-up in price pressures at the producer level shown in the various regional manufacturing and service sector indexes was undeniably going to make its way into the PPI data eventually. The next big question for the market is how sharp the pass-through from the producer level to the consumer level is. Yesterday’s CPI came in hotter than expected, but the headline 3.7% year-on-year rise is nowhere near as threatening as the inflation currently concentrated at the producer level. What’s particularly concerning is the rising pressure at the core level, with today’s blowout core PPI print pushing the spread between core CPI and PPI to another fresh high at 2.2%, its widest since June 2022. As the below graphic shows, this historically translates to stickier consumer level inflation as well, as producers attempt to recover margin. If the Fed is truly committed to their 2.0% inflation mandate, the conversation moving forward becomes increasingly hawkish.  

An impressively resilient U.S. labor market only adds to that hawkishness, as it gives the Fed permission to continue hiking rates to combat the resurgent inflation. This morning’s weekly first-time claims for unemployment benefits came in at 199k in the week ending October 10, again below the average estimate of 200k, though the week prior was revised 1k higher to 198k. The four-week average for initial jobless claims rose to 198.5k—if not for the week prior’s 198.25k, this would be the lowest level since October 2022. Meanwhile, continuing jobless claims fell to 1.710M in the week ending October 10, matching analyst estimates, while the week prior was revised down by 2k to now sit at 1.714M. This remains among the lowest since the first half of 2023, again highlighting the resilience of the U.S. labor market.

Yesterday’s hot CPI print drove a sharp rebound in October rate hike expectations, though that has since backed off despite the hot PPI data released this morning, with CME’s FedWatch now showing the odds of a 25-basis point hike this month near 30%. That’s a notable drop after pushing closer to 50/50 yesterday, but still much higher than the ~17% seen just a week ago. The base case continues to point to only one more 25-basis point hike in 2026, coming at the December meeting. However, it is worth noting that the odds of a cumulative 50-basis point increase are now roughly three times that of holding steady by year-end, again reflecting an increasingly hawkish sentiment being priced in.

Stock futures are pointing to a mostly lower open amid these hawkish fears, with the Nasdaq and S&P 500 both looking to add to yesterday's sharp losses to start the session. The VIX has pushed to a fresh one-month high near 17.5, reflecting elevated fear on Wall Street. However, the dollar is sharply lower to start the day, off 0.4% to trade near 102.1 at the time of writing after pushing to a one-week low overnight. Treasury yields are also notably lower, with 2-year yields back below 4.74%, 10-year yields are just above 5.06%, and 30-year yields are right at 5.40%. It will be interesting to see if this notable drop in Treasury yields lasts, or if this is more a reflection of positioning/short covering as money moves out of equities, particularly the tech sector given the sharpest selloff being seen in the Nasdaq, or if it’s a sign of things to come. Traders will be keeping a close eye on third quarter earnings, with the typical jitters regarding lofty tech valuations amid the ongoing AI boom returning. Crude oil prices are mixed, with nearby WTI trading lower overnight but now sitting up 0.5% on the day to trade near $95.70, while nearby Brent is down ~1.5% to trade above $104.40. The ags are quietly mixed to start the day, with September NOPA soy crush on tap in a few hours, giving us our first look at the beginning of the 2026/27 marketing year. After a weak August and a notably delayed harvest in the states with the largest soy crush capacity, it will be interesting to see if the weakness continues.

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