What is moving markets today has to do with Lagarde and the ECB, inflation, unemployment, plus a look at gold, silver and the US dollar.
Unemployment
September 10 (King World News) – Peter Boockvar: Initial jobless claims totaled 884k, 34k more than expected but unchanged with last week which was revised up by 3k. Delayed by a week, continuing claims were 13.39 million, about 485k above the estimate and up from 13.29 million in the week prior. Those receiving pandemic unemployment assistance rose for the 4th straight week and by 90k this past one to 839k. As of August 21st there were 14.59 million continuing to receive these payments. Thus, a total of 28 million people are receiving benefits of some sort. Combine this with the civilian labor force at 161 million and you have an unemployment rate closer to 17%.
Bottom line, economic growth will rebound sharply in Q3 and again in Q4 but these labor market stats still point to a long way to go in terms of hiring. These numbers also reflect more than a month without expanded benefits of $600 per week.
After a jump in wholesale prices in July, they continued upward in August by a pace that was more than expected. Headline PPI rose .3% m/o/m vs .6% in July and that was one tenth more than expected. The core rate, ex food and energy, was higher by .4% m/o/m, two tenths more than the forecast and vs .5% in July. Prices versus last year though are still muted with the headline rate down .2% y/o/y and the core rate higher by .6% y/o/y…
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Services inflation rose .5% m/o/m for a 2nd month driven by machinery, equipment, parts, auto’s and auto parts, truck transportation freight, food retailing, portfolio management and securities brokerage thanks to the markets (and the Fed). Goods prices ex food/energy was higher by .3% m/o/m for a 2nd month driven by plastic resins and material prices.
Bottom Line For Producer Prices
Bottom line, producer prices have now gotten back what it lost since March and then some. I continue to believe that capacity constraints will continue to lead to higher prices and many will do their best to pass on these costs to the rest of us. Those that can’t will have to eat the margin pressure. CPI comes tomorrow.
Treasury yields are at the highs of the morning in response to the higher than expected print. The 10 yr inflation breakeven is up 1 bp to 1.72%.
Euro Rallies On Lagarde Comments
With respect to the ECB and Lagarde, she said they did discuss the euro strength but repeated that they don’t target it (of course they do) and said there is no need to overreact to the recent move higher. The euro is at the high of the day in response and back to $1.19. Implying then that they will not respond via more easing, European sovereign bonds are selling off with yields at the highs of the day. … Lagarde also repeated their desire to remain highly accommodative, yet to understand that negative rates and QE are not accommodative policy, it is actually restrictive.
What That Means For Gold, Silver, US Dollar
King World News note: The euro strength has weakened the US dollar and triggered a rally in the gold and silver markets, which continue consolidating their massive gains in 2020. The consolidation process is normal and the longer it takes place, the bigger the base will be prior to the next leg higher in the metals markets. Many are looking for a pullback in both gold and silver and this may happen, but in bull markets surprises are generally on the upside. For the time being, KWN will keep an eye on the “lower highs” the bears keep discussing to see which way the gold market breaks and if we are in for another upside surprise.
Gold, Silver, Consumers, And Now That’s A Collapse
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