US Economic Indicators and the Fed Rate Path
US producer prices rose 2.4% year over year in October, up from 1.9% in September. As a leading inflation indicator, the sharp rise in producer prices pointed to higher inflation, dampening expectations for a Fed rate cut in December.
US unemployment claims also lowered expectations for a Fed rate cut in December, from 221k (week ending November 2) to 217k (week ending November 9).
Following October’s inflation data and unemployment claims, Fed Chairman Powell also issued a warning, stating that the Fed would be cautious on monetary policy until there was more clarity.
The CME FedWatch tool emphasized the importance of the data and Powell’s commentary on market sentiment toward Fed rates. The probability of a 25 basis point Fed rate cut fell from 82.5% on November 13 to 58.9% on November 14.
China’s mixed economic signals
On Friday, November 15, crucial economic indicators from China impacted market risk sentiment. Significantly, retail sales, industrial production and unemployment figures provided investors with insight into the effectiveness of Beijing’s recent stimulus measures to boost the economy.
Retail sales and unemployment indicate improved domestic demand. However, the lackluster production figures indicate ongoing problems, partly due to looming US tariffs.