THE TAKEAWAY: USD Producer Price Index (APR) > -0.7% versus -0.6% expected, from -0.6% (m/m); +0.6% versus +0.8% expected, from +1.1% (y/y) > USD Producer Price Index ex Food & Energy (APR) > +0.1% as expected, from +0.2% (m/m); +1.7% as expected on hold (y/y) > USD Industrial Production (APR) > -0.5% versus -0.2% expected, from +0.3% (revised lower from +0.4%) (m/m) > USD Manufacturing Production (APR) > -0.4% versus +0.1% expected, from -0.3% (revised lower from -0.1%) (m/m) > USDJPY BEARISH
A great deal of second-tier US data was released this morning, and on the whole, it is being perceived as negative for the US economy, and thus, the US Dollar. With at least five significant prints on the docket, volatility was expected to be elevated; but a clean sweep of negative data was unanticipated (the summary can be seen above).
Of note, the divergence in the headline and core Producer Price Index readings looks disconcerting, especially if you look at the world through the lens of “commodity inflation,” that is, rising prices for commodities indicate long-term rising global growth prospects. Thus, seeing the factory side (as opposed to the consumer/retail side) of the price equation come in weaker could indicate – and perhaps the reason why the US Dollar has been hit – that market participants have overestimated the near-term growth momentum of the US economy (the April Industrial Production and Manufacturing reports might agree).
However, something that is being overlooked about the PPI report, which prompted the sell-off: core prices were steady at +1.7% y/y – while the headline m/m figures fell further – as the decline in inflation can be nearly entirely attributable to energy costs. The generic RBOB Gasoline contract fell by -9.95% in April, which fits neatly in with the Advance Retail Sales (APR) report from Monday: if consumers spend less money on energy they can allocate those saved funds to other forms of consumption. In other words, the weak PPI report does not necessarily have deep negative connotations regarding the state of the US economy.
USDJPY 1-minute Chart: May 15, 2013
Charts Created using Marketscope – prepared by Christopher Vecchio
Leading up to and following the release, the USDJPY fell back from a session high of ¥102.76 to as low as 101.84, before rebound to 102.03 at the time this report was written. Intense pressure was also seen in the USDCHF, having fallen from a session high of Sf0.9747 to as low as 0.9652 following the reports.
--- Written by Christopher Vecchio, Currency Analyst
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