Gasoline Prices Fuel Hot PPI and Retail Sales

Rates rise on PPI, retail sales. Rates grinded higher throughout the session after a strong PPI print, though the figures did little to change rate hike expectations, and futures still suggest a ~33% chance of a hike by November’s FOMC meeting. Both the 2-year and 10-year yields jumped 4bps higher and closed at 5.01% and 4.29%, respectively. Meanwhile, equities jumped higher after strong retail sales provided optimism for a soft landing, as the S&P, NASDAQ, and DJIA all rose ~0.80% – 1.00%.

Higher fuel costs drive elevated US retail sales and PPI. Total retail sales increased 0.6% MoM, while core retail sales increased 0.2%, highlighting the impact that elevated gas prices are having on consumer’s wallets. Separately, headline PPI increased 0.7% MoM, with a 20% surge in the price of gasoline accounting for much of the gain. Excluding gasoline, however, core PPI was up 0.2% MoM, a more favorable picture. Viewed alongside CPI, the results indicate that while progress is being made to alleviate core inflation, elevated fuel prices may disrupt central bank efforts. Fuel prices are impacted by a range of tough-to-control variables, such as the recently announced OPEC+ supply cut extensions and global economic growth forecasts.

Curve inversion makes history. Today’s session cemented history: the 10 year and 3m Treasury yields have remained inverted for 212 straight trading sessions and surpassed the 1980 record for the longest ever streak. Despite the economy’s resiliency to date, the 10-year yield remains ~120bps below the 3m yield, as market participants remain concerned about the lag between rate hikes and corresponding economic impacts.