Why it’s important?
The ranges of estimates are
important in terms of market reaction because when the actual data deviates from the
expectations, it creates a surprise effect. Another
important input in market’s reaction is the distribution of forecasts.
In fact, although we can have a range of
estimates, most forecasts might be clustered on the upper bound of the
range, so even if the data comes out inside the range of estimates but
on the lower bound of the range, it can still create a surprise effect.
Distribution of forecasts for PPI
PPI Y/Y
- 2.4% (11%)
- 2.3% (68%) – consensus
- 2.2% (16%)
- 2.0% (5%)
PPI M/M
- 0.4% (2%)
- 0.3% (13%)
- 0.2% (74%) – consensus
- 0.1% (7%)
- 0.0% (2%)
- -0.1% (2%)
Core PPI Y/Y
- 3.1% (12%)
- 3.0% (47%) – consensus
- 2.9% (35%)
- 2.7% (6%)
Core PPI M/M
- 0.3% (57%) – consensus
- 0.2% (40%)
- 0.1% (3%)
Analysis
We
can ignore the headline PPI as the market will focus on the Core
figures. We can notice that the expectations are skewed to the downside, so a higher than expected reading would be taken as more hawkish and likely give the US Dollar another boost. Conversely, a soft print could trigger a pullback.
The US Dollar remains in an uptrend as the market continues to price out the rate cuts expected in 2025. Right now we have another 25 bps cut priced for December and just two 25 bps cuts priced in 2025 which is already much lower than the Fed’s projection of four.
Therefore, there’s still a couple of rate cuts to price out in 2025 if the data continues to run hot, but at that point we would need a real acceleration in inflation to have the market pricing in a rate hike. For now, the bar for rate hikes is really high as the maximum the Fed is willing to do is to pause the easing cycle.