The world’s leading economy released the producer price index (PPI) for the month of February, showing that inflationary threats remains subdued over the monthly and yearly scale; while yesterday’s FOMC Meeting showed that the Fed expects that inflationary threats are to remain subdued throughout the upcoming period.
The Monthly January PPI dropped by -0.6 percent compared with the previous reported estimate of 1.4% and the expected -0.2 percent by markets; while the yearly PPI over the same period rose by 4.4% compared with the previous 4.6%; while market expectations was set at 4.9%. In addition, the Core PPI which excludes food and energy prices rose but to meet market expectations of 0.1% and 1.0 percent on the monthly and yearly scale respectively, where the previous monthly PPI report was set at 0.3%; while the yearly PPI was set at 1.0% as well.
Throughout yesterday’s FOMC meeting the Federal Reserve affirmed that inflation trends are still subdued, while the outlook of inflation are stable; thus the Fed will proceed with terminating MBS and agency debt as scheduled at the end of this month, where the Fed sees the economy recovery process as gradual and moderate throughout the upcoming period but FOMC Committee will continue to monitor the outlook and financial development in order to use policy tools, as needed for recovery and achieve price stability in the upcoming period.
The PPI estimate clearly shows that the index is still far from the Fed target rate for inflation at 2.0%, thus easing off inflation threats on the economy which could provide investors with enough momentum to head back to markets and target stocks and low yielding assets; while dumping Gold as the precious metal is the perfect hedge against inflation, thus with no inflationary threats surfacing, investors will turn away from trading in Gold even as the Dollar might gain in today’s trading session.
But with yesterday’s FOMC rate decision that left investors confused about the Fed outlook for the upcoming period as the Federal Reserve did not provide any further plans to support the economy, where the only statement released from the Bank was “FOMC Committee will continue to monitor the outlook and financial development, in order to use policy tools as needed for recovery and achieve price stability in the upcoming period”. Investors will feel confused and might drive markets to swing between ups and downs; thus a volatile day in markets are highly projected, with Stocks and low yielding assets are most favorable to gain from today’s trading and rise.
Oil trading on the other hand will not be affected from the rise in dollar or the general trading of currencies, as today’s OPEC Meeting in Vienna would have a severe effect on oil trading, depending on what OPEC Members have to say about the upcoming period and their expectations for global demand, productivity and countries quota’s that might be subject to rise.
Furthermore, Sub-indices showed that gasoline prices dropped by 7.4% from the previous 11.5%, while consumer goods declined by -0.7% from the previous 1.8%, given the fact that consumer goods weight in the index reaches 73.79%. Rising energy prices affected goods prices over the past period where it affected spending patterns in the month of February, not to forget that unemployment remains at 26 year high at 9.7 percent along with tight credit conditions that continues to hammer down spending and trim off income thus affecting the ability of the world’s leading economy to recover as it should be, thus expectations show that the economy will witness a gradual and moderate improvement in the upcoming period before it reaches its long term growth potentials by next year.
