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.
PPI Y/Y
- 2.7% (5%)
- 2.6% (18%)
- 2.5% (64%) – consensus
- 2.4% (13%)
PPI M/M
- 0.4% (2%)
- 0.3% (42%)
- 0.2% (46%) – consensus
- 0.1% (10%)
Core PPI Y/Y
- 2.9% (5%)
- 2.8% (25%)
- 2.7% (65%) – consensus
- 2.6% (5%)
Core PPI M/M
- 0.3% (27%)
- 0.2% (64%) – consensus
- 0.1% (9%)
We
can ignore the headline PPI as the market will focus on the Core
figures. The data was actually in line with expectations and arguably on
the softer side than feared. In fact, the market didn’t really move much
following the release but roughly an hour later we started to see strong bids
in the greenback.
This might have to do with
positioning since the “short US dollar” trade has been the most crowded one and
in such instances, it doesn’t take much to see strong unwinding. The market did
pare back further the rate cut bets with the pricing now showing 44 bps of
easing by year end compared to 47 bps before the CPI release. That could still change
today after the US PPI report.
A soft report might get us back to roughly 50 bps of easing by year-end and help to erase yesterday’s dollar gains. Conversely, hot data could strengthen market’s worries that we might see even higher data in the next months
