Financial Markets Fluctuate Ahead of FOMC Annoucement

Producer Prices Hint at Rising Inflation

A light day of economic data releases was highlighted by November’s producer-price index for final demand, which reflected inflation experienced by US businesses at +0.4% MoM.  The reading exceeded estimates of +0.3% and matched those of the previous two months, largely driven by higher energy prices.  The core PPI exceeded median forecasts, and was also reported at +0.4% MoM (+0.2.% expected).  Looking at producers’ inflation over the past year, overall producer prices have increased 3.1% while core prices have risen 2.4%.  As producer prices can often be a leading indicator for consumer inflation, today’s releases represents a positive signal for consumer price growth ahead of tomorrow’s CPI release, where median forecasts call for a 2.2% YoY gain in the overall CPI index and a 1.8% rise in core CPI.

 

 

US Treasurys experienced a mild selloff in response to the PPI data, with yields/swap rates climbing 1-2 bps across the curve, bringing the yield on the 10-year note above 2.40%.  US stocks fluctuated throughout the day, with major indices paring early gains after a tweet from Senator Rand Paul led investors to jump to conclusions about the level of his support for the Republican tax bill, which the GOP hopes to get finalized by the end of the week.  Overall trading volumes were relatively low on the day as US financial markets gear up for tomorrow’s important economic announcements, beginning with consumer price data in the morning and continuing with the FOMC’s policy decision at 2pm EST (0.25% Fed Funds rate hike expected), which will be capped off by Janet Yellen’s final official FOMC press conference as Fed Chair.

 

 

Cracking Up Crude

Crude oil prices climbed from the beginning of the session following a report that one of the largest pipelines in the world would be unexpectedly forced to shut down for the next two weeks.  During a routine inspection, a hairline crack was found in the North Sea Forties Pipeline System, forcing an immediate shutdown of the pipeline, which is responsible for the transportation of a large percentage of Brent crude oil daily.  Futures of Brent crude surged more than 1% after the news to over $65/barrel – its highest mark in more than two and a half years.