Inflation Outlook Strengthens Following Retail Sales & Producer Price Data

Retail sales and producer price data released today displayed further progress towards one of the Fed’s primary goals of inflation running closer to the 2% target rate.  Retail sales in September advanced 0.6%, in-line with expectations and rebounding from a 0.2% decline in the prior month.  While the total retail sales increase was the largest in three months, core sales (excluding autos, gas, and building materials) reported a 0.1% rise, which was below median forecasts of 0.4%.  On the positive side, September’s core retail sales demonstrated an improvement from the declines posted in the previous two months.

Producer prices exceeded expectations for September, increasing at 0.3% for the month and marking the largest YoY rise since December 2014.  After being unchanged in August, 30% of last month’s jump in producer prices can be attributed to gasoline prices.

Abroad, producer price data released in China assisted in easing investor concerns after yesterday’s weak export figures.  Chinese producers reported a better-than-expected 0.1% rise in prices, recording the first increase since 2012.  China’s consumer price inflation also beat median forecasts for September, jumping 1.9% and tallying its highest mark in three months.  The majority of Asian markets finished up on the day following the data.  

On the US swap regulatory front, non-swap dealer banks participating in swap markets received welcome news Thursday when the planned drop in the existing swap dealer registration de minimis threshold was extended out an extra year to December 31, 2018.  Originally, the regulations had been set to kick in December 31, 2017 as the date under which the current $8 billion threshold would be reduced to $3 billion.  After conducting a study earlier this year, the CFTC determined that more time is required to analyze data before definitively lowering the threshold, potentially adding the costly regulation on to more non-swap dealer banks. The additional year will allow the Commission time to obtain further information within swap markets in order to confirm the suitability of the $3 billion threshold.
 
All three major U.S. stock indexes finished up near 0.25% for the day while Treasury yields/swap rates are up 1-8 bps in a bear steepening pattern across the curve.  Both WTI and Brent crude oil traded down slightly for the day at $50.35/barrel and $52/barrel, respectively.