Yahoo Finance U.S. Producer Inflation Surges More than Expected in October
Trading was volatile across the board on Tuesday as investors reacted to a plethora of information including comments from Fed members, U.S. producer inflation data, Euro Zone economic data and a possible warning from the bond market.
The Fed commentary started early with Chicago Federal Reserve Bank President Charles Evans calling for a new approach to rate-setting that would allow the central bank to respond to shocks when interest-rate cuts alone are not enough.
One option he suggested was so-called price-level targeting. Under this strategy, a central bank combats bouts of too-low inflation by allowing inflation to run too high for a time.
Later in the session, Federal Reserve Chair Janet Yellen said Tuesday that one of the challenges for the central bank is how its multiple members communicate with the public.
“Individuals should be explaining in their speeches, elaborating what’s on the (Fed’s decision) statement and explaining what we have agreed upon. We agreed that have done that, individuals can go out and explain their individual perspective,” she said.
However, she added: “I would say that guidance hasn’t been totally faithfully followed, although many of my colleagues do try to do that, and the press tends to pick up on differences, (which is) particularly difficult when we have an upcoming policy decision.”
Both Fed speakers refrained from talking about monetary policy.
U.S. Economic News
U.S. producer inflation rose more than expected in October, boosted by a surge in the cost of services, leading to the biggest annual increase in wholesale inflation in over 5 ½ years.
According to the Labor Department, the Producer Price Index for final demand increased 0.4 percent last month after a similar gain in September. In the 12 months through October, the PPI jumped 2.8 percent, the largest increase since February 2002.
The PPI rose 2.6 percent year-on-year in September. Economists had forecast the PPI edging up to 0.1 percent last month and increasing 2.4 percent from a year ago.
Euro Zone Economic News
Germany’s seasonally adjusted gross domestic product rose by 0.8 percent on the quarter, beating a Reuters poll forecast of 0.6 percent.
U.S. Treasury Markets
On Tuesday, the high yield debt market was under pressure, as buyers moved into the safety at the long end of the Treasury curve. Traders blamed the volatility in the bond and stock markets on concerns that tax reform may not make its way through Congress successfully. The nagging issue for investors is the flattening of the yield curve. Traders fear that an inversion of the yield curve will signal that a recession is on the horizon.
U.S. Equity Markets
U.S. equity markets fell on Tuesday as investors reacted to a 5.9 percent plunge in shares of General Electric, concerns about a potential global economic slowdown and issues with U.S. tax reform.
GE shares fell to their lowest level since 2011 and are down more than 12 percent this week. On Monday, the company slashed its dividend by 50 percent at an investor meeting while also unveiling a massive restructuring plan.
Disappointing economic data out of China also weighed on equity prices as investors priced in the possibility of an economic slowdown in the world’s second largest economy.
Gold
Gold prices rose on Tuesday as investors reacted to falling Treasury yields, a weaker U.S. Dollar and a drop in demand for higher risk assets.
The key issues for investors at this time are U.S. tax reform and the flattening of the yield curve. Both can lead to a steep drop in demand for higher yielding assets like the dollar and stocks and this could send investors scurrying into the safety of the gold market.
Crude Oil
U.S. West Texas Intermediate and internationally-favored Brent crude oil fell on Tuesday after a report from the International Energy Agency (IEA) raised doubts over a key part of the story that had been driving prices higher over the past few months.
The IEA on Tuesday cut its oil demand growth forecast by 100,000 barrels per day (bpd) for this year and next, to an estimated 1.5 million bpd in 2017 and 1.3 million bpd in 2018.
This article was originally posted on FX Empire
