Pipeline inflation numbers boost the US dollar and weigh on US equities | Forexlive

The mounting evidence of a hotter economy and inflation may finally be enough to crack the 2023 market paradigm. So far this week, the market has bent but not broken despite high CPI and retail sales numbers. The final straw though might be today’s producer price index report.

The PPI data is a sign of pipeline inflation and shows that there will be more pressure on sellers — particularly goods sellers — to keep prices high. The headline number rose 6.0% compared to 5.4% expected and monthly PPI rose a hefty 0.7%, falling only to 0.5% when stripping out food and energy.

In the aftermath of the report, the dollar rose to the highs of the day. It continued to rise after the text of Cleveland Fed President Loretta Mester’s speech was released. She said that the Fed will need to go above 5% and stay there for awhile.

I don’t find her comments a surprise and she specifically said “at this juncture, the incoming data have not changed my view…” but price action is what it is and bond bulls are suddenly feeling vulnerable as US 10-year yields rise to 3.84% and erase the decline for the year.

Over in the stock market, the bulls have weathered the tribulations incredibly well but we may have finally reached a limit with S&P 500 futures down 51 points, or 1.2%

Overall, I’m watching whether the dollar will break the February range vs GBP, EUR, CAD and AUD as the tell.