WHO NEEDS OIL??MARKET FUELED BY CORE PPI
Bonds have headed back to the high end of the trading range on a favorable PPI report. Thirty-year bonds are up 21/32, yield 6.04%. Ten-year notes are up 13/32, yield 5.91%. Two-year notes are up 2/32, yield 5.64%.
Slicing and dicing the data. PPI rose .5% while the core rate (ex food and energy) fell .1%. Expectations were for a rise of .3% and .1% respectively. The market really likes the decline in the core data. The larger than expected increase in PPI was attributable to energy prices. Energy prices rose 3.7%. Computer prices fell 3.2%, passenger car prices fell .1% and tobacco prices rose .1%. PPI year/ year is growing at 2.3% vs. 1.5% the previous month. The pipeline numbers do have some analysts concerned. Crude prices (those goods in the beginning stages of production) rose 4.6%. Core crude prices rose 1.8%. Intermediate prices (those good in the middle stages of production) rose .8%. Core intermediate prices rose .2%. The bottom line is this number provides further evidence that monetary policy will be on hold at the next FOMC meeting.
Venezuelan oil workers have said they will not strike. This is positive news for oil prices.
Show me the money! Bank of Japan intervened in the currency markets last night by selling yen and buying dollars. This pushed the dollar from a low of 107.69 yen to its current level of 108.80 yen. This intervention is not expected to have long term implications. Currency intervention has never been proven to work in the long run.
Next week will bring data lots of data, the most important being CPI and retail sales.
US CRUDE, INTERMEDIATE PPI 12-MO RATES MOVE TO POSITIVE
09:17 EDT 09/10 --But Crude Construction Materials Turn Negative
By Denny Gulino
WASHINGTON (MktNews) - Returning to the positive territory of 1997, the rates of change of both crude and intermediate prices in the U.S. Producer Price Index have broken out on the positive side in August, the Bureau of Labor Statistics reported Friday morning.
The overall jump in the PPI finished goods index was every bit as big as expected, and then some, up 0.5% in August, as both food and energy prices soared. But the core rate came in weaker than expected, down 0.1%.
Intermediate goods prices rose 0.8% in August while crude goods prices jumped 4.6%. Intermediate prices, which had the 12-month rate turn barely positive with a 0.1% increase in July, put on more positive weight through August, with the 12-month rate up to 1.2%. For the first time since '97 crude goods in August also showed a positive annual rate as well, up 8.3% through August.
Pipeline pressures have been widening this year, and that trend appeared to continue in August, according to BLS analyst Brian Catron. He told Market News International, as the PPI report was being made public, "If you look at the column of figures, you get a sense there are more increases." Although the BLS does not do a diffusion index, "you do get a sense there's an increase."
"On an intermediate goods level, for a longer term trend, in 1998 we had 12-month changes that were negative that peaked in December 1998, and now we've broken positive," he said. "There has been a climbing out of the negative territory, not that we're at a zooming acceleration pace. But it's something we haven't seen for quite a while in the intermediate level."
"The same thing," he continued, "can be said for the crude level. This is the first month we've actually broken positive on the 12-month rate of change since 1997" with the exception of a 0.1% positive result in January of 1998.
"Crude core is still negative over 12 months, but it's gone from its (negative) peak which was December 1998, and has been climbing steadily with smaller negatives every month in 1999."
Overall for the PPI, as expected, "the big weight came on a move in finished energy goods where you're looking at a 3.7% increase, led primarily by gasoline. The month before finished energy was up 3.4%."
But if analyzing the rate of change, he continued, "you really had to look at food, which came from a negative 0.9% in July to a positive 0.4% this month." Food "has just over 23% of finished goods weight so that much larger increase in finished energy was working on a smaller weight in the report, almost 12%."
Year to date, he said, "We've got something going for finished goods that looks a little different from last year. At a seasonally adjusted annual rate, the first eight months are up 2.3%. At the same time last year, we were actually down 1.3%" in this month.
"If you look at, for example, the No. 1 item this month, gasoline," Catron continued, "taking a longer picture through 1999, there is an increase of 65%, so we really had something different going on. For the 12 months of 1998 you had decline there of 33.1%."
With the crude core category, which was up 1.8% in August, he said, "We have a 9.5% rate through August for 1999. In the same time period last year, there was a negative 12.8% rate."
The common cause of 1999's turnaround throughout the PPI was unambiguously energy. "If you look at items through all three stages of processing these are the same petroleum-based products. There has been quite the swing negative in 1998 followed by the big rise in 1999," Catron said.
In August, crude core showed iron and steel up 4.7%.
At the intermediate level, steel mill product prices have been falling a number of months in succession "but in the last couple of months we have had some increases," Catron said.
Year to date for core intermediate goods, "you have a 1.7% increase. A year ago, the same period would be a negative 1.0%."
"As far as intermediate goes, we've been watching some changes on the positive side," Catron said, "particularly for construction materials which had a increase every month this year until this month, August, when it is down 0.1%."
"The real reason, softwood lumber and plywood had been moving up with pretty good increases but this month they turned in the other direction, with a decline in softwood lumber of 6.0%, the biggest decliner, and plywood was down 2.7%," Catron said.
Expectations in a Market News International survey of economists centered on a rise of 0.4% in the overall finished goods index, but a 0.1% rise in the August PPI's core rate. |
