PPI Comes in Soft, Oil Top of Mind

Rates fall post-PPI, rise throughout afternoon. Swap rates and Treasury yields ended slightly higher on the day after falling to their session lows in the morning, largely the result of soft PPI levels and an initial jobless claims beat. The 10-year yield climbed 5bps on the day to 3.44% after falling as low as 3.37%, while the 2-year yield rose 1bp to 3.97%. Elsewhere, equities rose significantly, the S&P 500 up 1.33% on the day while the NASDAQ Composite rose nearly 2%.

Russia-Saudi oil alliance a foreboding development for the US economy. The US’s declining influence over OPEC+, a cartel of oil producing nations including Russia and Saudi Arabia among others, is yet another example of shifting geopolitical realities with impacts on the US economy. On April 2nd, the cartel announced a 1 million barrel per day production cut which lifted oil prices by ~$5 per barrel, following a 2 million per day cut in mid-2022. This is expected to have an inflationary impact on the US economy and may pose recessionary risks by eating into consumer’s discretionary spending capacity. US shale fields, which were a major competitor to OPEC and decreased its influence, have become less of a threat in recent years as investment in new production has declined and new wells are yielding less oil. Looking ahead, the US Energy Information Administration projects a decline in the price of crude oil to ~$75 dollars in 2024 because a US recession could lead to reduced demand.  

Day ahead. Retail sales figures will lead the day at 8:30 AM, which will be followed by industrial production data at 9:15 AM. Hawkish Fed voter Christopher Waller will make public comments at 8:45 AM.