Mid-Week Market Minute 10.11.23

Stocks Rally; PPI Higher Than Expected, CPI on Thursday

Stocks around the globe rallied in early trading this week as investors continued to evaluate the conflict in the Middle East following the militant group Hamas’ attack on Israeli civilians over the weekend. In both the U.S. and international markets, stocks were higher by more than 2% through the first half of this week. In bonds, investors breathed a sigh of relief as the flight-to-safety trade allowed Treasury yields to retreat from 16-year highs. The Bloomberg U.S. Aggregate taxable bond index responded favorably, gaining nearly 1% on the back of lower interest rates. 

Outside of geopolitical tensions, inflation will remain top of mind for investors through the remainder of this week. On Wednesday morning, a measure of wholesale prices came in higher than expected for September. The Producer Price Index (PPI), which measures the costs for finished goods that producers pay, increased 0.5% for the month, against expectations of a more moderate 0.3% increase. The PPI report serves as a leading indicator for inflation and comes one day ahead of the more widely followed CPI report, which will be released on Thursday morning. Core consumer prices (Core CPI) are expected to decline from 4.3% in August to 4.1% in September, while headline inflation is expected to decline from 3.7% in August to 3.6% for September. 

Despite the short-term trend lower, interest rates have trended higher over the past several weeks, as expectations set in that the Fed will keep rates higher for longer to bring inflation down toward the 2% long-term target. In recent days, Federal Reserve officials have indicated they may not need to enact additional hikes as Treasury yields (particularly on the long end of the curve) have risen sharply on their own, tightening financial conditions. With just two FOMC meetings on the calendar between now and the end of the year (Nov. 1 and Dec. 13), markets are pricing in just a 30% chance of any additional rate hikes between now and the end of the year.

Source: GSAM, CNBC, JPMorgan

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