Interest Rate Roundup

Thursday, March 15, 2007

Morning stats: PPI hot, Empire index not

This morning's batch of economic data looks ugly -- kind of stagflationary, if you want to know the truth. In short ...

* The Empire Manufacturing Index for March stunk. It came in at just 1.9. That was down from 24.4 a month earlier, far below expectations of 17.5, and the worst reading since May 2005. The prices paid index popped up to 30.2 from 26.9 a month earlier, though the prices received reading ebbed a bit. New orders tanked, while a measure of employment was down ever so slightly. Indices that measure expectations for FUTURE inflation jumped.

* Meanwhile, the Producer Price Index came in much hotter than expected. The overall PPI surged 1.3% in February, more than twice the 0.5% change expected. More importantly, "core" PPI climbed 0.4%, twice the 0.2% rise that was expected. There was a large rise in tobacco prices (+4.1%) that's a bit out of the ordinary. But even measures of intermediate and crude goods prices look bad. Core intermediate goods prices were up 0.2%, the biggest monthly gain since August 2006. And core crude goods prices jumped 2.7%, the biggest monthly rise since May 2006.

Last but not least, Treasury International Capital (TIC) data for January just hit the tape. Foreign investors bought a net $97.4 billion in U.S. stocks, Treasuries, and other bonds, up from $14.3 billion a month earlier. That topped the $70 billion forecast. Private investment surged, while central bank buying dropped.

The net market impact: Long bonds are down 7/32 in price, but off their lows of the day post-PPI. 10-year yields are essentially unchanged.


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