Coffee With Greta: Wholesale Inflation Cools Again

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DJIA Futures: +24 (+0.1%)

SPX Futures: +7 (+0.2%)

NASDAQ Futures: +32 (+0.2%)

Good morning friends!

Futures are up slightly after the worst day in more than two years on Tuesday.

Let’s get right to it!

Wholesale Inflation Cools Again

Wholesale inflation pressures cooled as expected in August, dropping for the second month in a row.

The Bureau of Labor Statistics producer price index fell 0.1% monthly and was up 8.7% year over year. 

That was in line with economists’ expectations as energy prices dropped 6% month over month.

The core PPI – which excludes food, energy, and trade services – rose 0.2% monthly and 5.6% annually. 

That was a smaller monthly gain than economists had forecast. 

This data is a leading indicator for consumer prices as producers pass down higher costs.

A continued slowdown in wholesale inflation should eventually result in lower prices for consumer goods and services. 

Treasury Yields Continue March Higher

Treasury yields are still pushing higher today as the market gears up for more aggressive Fed rate hikes. 

The 2-year yield is up 4 basis points to 3.78% while the 10-year yield is up 3 basis points to 3.45%.

The 2-year hit a high of 3.805% earlier today, its highest level since November 2007.

The hot CPI reading on Tuesday pushed the market to hike its expectations for next week’s Fed meeting. 

CME Group’s FedWatch Tool shows 66% of traders still anticipating a 75 basis point hike while 34% are predicting a 100 basis point hike. 

The central bank has not done a full 1% hike since early 1989. 

Mortgage Demand Continues to Collapse

Mortgage demand is collapsing as rates surge past 6% for the first time in 14 years. 

The Mortgage Bankers Association reported overall demand fell 1.2% last week. 

Purchase applications rose 0.2% weekly but dropped 29% annually. 

Refinance applications fell 4% weekly and were down 83% year over year. 

The average contract rate for 30-year fixed mortgages increased to 6.01% from 5.94% the week before.

That’s the first time rates have topped 6% since 2008.

Rates have since pushed even higher this week after the release of hot inflation data for August. 

Mortgage rates track alongside the 10-year Treasury yield.

Oil Prices Stabilize

Oil prices are flat today after tumbling on demand fears Tuesday.

West Texas Intermediate crude futures are just over $87 bbl while Brent crude futures are just above $93 bbl.

Prices stabilized after some signs of bullish demand in an International Energy Agency report. 

Meanwhile, the American Petroleum Institute reported late Tuesday that U.S. crude inventories rose by 6 million barrels last week vs expectations for a 200,000 barrel decrease. 

Gasoline stockpiles fell by 3.23 million barrels.

The Energy Information Administration reports official inventory levels at 10:30 a.m. ET today.

In Case You Missed It

  • Twitter (TWTR) shareholders voted in favor of Elon Musk’s takeover bid on Tuesday. A preliminary count showed 98.6% of votes were in favor of the deal. In a statement, Twitter said, “Twitter stands ready and willing to complete the merger with affiliates of Mr. Musk immediately, and in any event, no later than on September 15, 2022, the second business day following the satisfaction of all conditions precedent, which is the timeline required by the merger agreement.” But Musk is still fighting to get out of the deal and the two sides are scheduled to go to trial on October 17.
  • The market got crushed on Tuesday with all 3 major indexes suffering their largest drops since June 2020. The Dow Jones sank 3.94%, while the S&P 500 slid 4.32%, and the Nasdaq dropped 5.16%. The broad-based sell-off came after the release of surprisingly hot inflation data in August. 

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