S&P 500 rise slowed by bond market reverses

Equity markets slowed their advance on yesterday’s better CPI inflation data despite supporting data from falling PPI inflation and flat retail sales data, as bond yields rose, reversing yesterday’s strong rally. Slower retail sales mean that higher interest rates are doing their job at cooling inflation, allowing the Fed to pivot its monetary policy next year -- but it also means that the economy isn't doing well. The dollar stabilized, and oil prices saw profit-taking. Traders are rethinking the bullish view that interest rates have peaked.

TODAY’S MAJOR NEWS

Producer price index (PPI) inflation falls

Factory gate inflation fell in October, adding to yesterday's better-than-expected CPI inflation. Some of this PPI data flows into the Federal Reserve’s preferred Personal Consumption Expenditures (PCE) inflation data, providing some comfort to Fed members worried about lingering inflation risks.

• PPI inflation rose 1.3% year-on-year versus an expected 2.0% rise, down from 2.2% last month
• PPI inflation dropped 0.5% month-on-month in October versus an expected 0.1% rise, and September was revised down a notch to 0.4%
• Core PPI ex-energy rose 2.4% year-on-year in October, down from 2.7% last month
• Core PPI ex-energy was flat month-on-month in October, while last month was revised down a notch to 0.2%

Core retail sales fall

Retail sales minus vehicles and gas, a core number, fell in October – suggesting that the consumer has finally stopped spending. In yesterday’s consumer price index data, declining vehicle and gas prices provided a drag to the October numbers. After its third-quarter earnings beat expectations, Big-box retailer Target rose almost 20%, but revenues were flat.

• Retail sales fell 0.1% month-on-month in October, versus the expected 0.3% decline, and September data was revised to 0.9% growth, up from 0.7% originally
• Retail sales minus vehicles rose 0.1% month-on-month in October, versus the expected 0.1% decline, and September data was revised to 0.8% growth, up from 0.6% originally
• Retail sales minus vehicles and gas only rose by 0.1% month-on-month in October, versus the expected 0.2% increase, and September data was revised to 0.8% growth, up from 0.6% originally

US oil inventories are still below average

• US commercial crude oil inventories (ex the Strategic Petroleum Reserve) remain about 2% below levels typically seen now despite increasing by 3.6 million to 439.4 million barrels in the week ending November 10
• Gasoline stocks are roughly 1% below seasonal levels, falling by 1.5 million barrels
• Distillate stocks are putting them 13% below their five-year average, dropping by 1.4 million barrels
• Ethanol stocks have been unchanged at 21 million barrels for several weeks, down from 21.3 million in the same period last year

British government subsidizes Ukraine grain export insurance

Ukraine agreed with the British government to create a subsidized insurance program for shippers wanting to buy commodities at Ukrainian ports. Insurance costs spiked higher recently when a civilian ship was "errantly" hit by a Russian missile as it neared a port near Odessa. The new program makes insurance more affordable for shippers who buy grain and other commodities from Ukraine via the ports. Ukraine farmers bear higher shipping costs, and there are increasing worries that margins are so poor that farmers won't risk planting a crop in 2024. Despite its farming community's costs and protests, Europe will do what it can to keep commodities flowing out of Ukraine. Exports are currently running at a 3.5-4.0 million tonnes per month pace, but they must be in the 5-6 million range to support agriculture in Ukraine.

TODAY’S MAJOR MARKETS

Russell 2000 continues the rally

• The Russell 2000 rose 0.4%, making a five percent two day gain, with Nasdaq up 0.2% and the S&P 500 up 0.3%
• Foreign equity markets caught up with yesterday’s US equity market rally, with the Nikkei 225 up 2.5%, the Dax up 0.9%, and the FTSE 100 up 0.6%
• The VIX, Wall Street’s fear index, was unchanged at 14.1 (the year’s low was 13.0)

Bonds yields rise, dollar gains

• 2- and 10-year yields reversed yesterday’s substantial gains, up to 4.91% and 4.54%, respectively
• The dollar index was up 0.3% to 104.4
• Versus the dollar, Sterling was down 0.7%, the Yen 0.6%, and the Euro 0.3%

Oil sees profit-taking

• Oil prices fell 2.2% to $76.5 per barrel
• Gold prices were unchanged at $1,965 per ounce, while Silver rose 1.7% to $23.5 per ounce
• The grain and oilseed sector mainly traded weaker this morning as well, albeit with some intra-market spread trading supporting Kansas City versus Chicago wheat as dryness intensifies in the Plains

Analysis by Arlan Suderman, Chief Commodities Economist: Arlan.Suderman@StoneX.com

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com