Producer inflation increased the recession concerns.
Ahead of CPI data on Tuesday and the FOMC interest rate decision meeting on Tuesday and Wednesday, the risk of recession seems more serious with Jobless claims and PPI data.
While last Thursday's labor market data shows that weakness is not as profound as expected, and we still have 1.7 jobs for each job seeker, Friday's inflation data also shows that while it is decreasing, inflation still moves higher than expectations.
According to the US Bureau of Labor Statistics, the Producer prices, at 7.4% annually, were higher than consensus expectations of 7.2%. However, it is lower than 8% in October. Also, the Core producer prices Index (Core PPI), which excludes volatile food and energy prices, raised 6.2% compared with estimates of a 5.9% rise. On the Monthly scale, the PPI, with a 0.3% rise in November, repeated the same score of October, but Core PPI, with a 0.4% rise, was somehow scary, as it was much higher than the 0.1% of the previous month. Core data also decreased from the previous month's value of 6.8%.
Subsequently, the US revised its one-year inflation forecast for December to 4.6%, lower than market expectations and the previous estimate of 4.9% but still well above the Fed's 2% target level. In addition, the University of Michigan's preliminary consumer sentiment index for December rose to 59.1, beating market expectations of 56.9 from 56.8. The data has been below 60.0 for eight consecutive months and much less than 100, which we could usually see before the pandemic.
Therefore, the reasonable expectation is the 50 basis points increase in the interest rates, which was widely expected already. However, outlooks could be changed to stop the rate hike trend, the duration of maintaining high-interest rate levels, and the time to start rate cuts. Now I do not expect Fed to start any rate cut before 2024.
In response, the Dow Jones Industrial Average closed 305.02 points, or -0.90% lower; SP500 lost -29.13 points, or -0.73%, and Nasdaq Composite at 11,004.62, lost 77.39 points, or -0.70%.
The week ahead will be so volatile, and better to wait until the Fed announcement on Wednesday to make a further plan.
