Courtesy of BondSquawk
The producer price index jumped by 1.6% in February, this time driven by both high energy prices and food prices. Energy prices jumped 3.3% after the 1.8% increase in the previous month. Meanwhile, foods surged 3.9% following a surprisingly weak reading in January. The increase in food prices was driven by a 48.7% surge in the price of vegetables.
Core prices (ex food and energy) posted a 0.2% increase. Core pipeline pressures picked up lately with core crude prices and core intermediate prices increasing for the seventh consecutive month. The latest report suggests that producers are passing along some of their higher input costs. The prices of certain components of core PPI such as textiles, which are directly affected by surging commodity prices, continued to increase rapidly. Men’s apparel jumped 2.3% m/m following a 0.5% increase in the month prior. Core PPI is best correlated with the core goods component in CPI. Core goods have been on a constant downward trend as of late, but there is a limit to how much further it could fall. A 0.2% increase in Core Goods CPI was seen and economists expect the reading to get firmer.
Housing starts unexpectedly fell by 22.5% in February, its biggest decline on a monthly basis in over 25 years, after rising 18.5% in January. Housing starts fell from 618k in January to 479K (annualized) in February, its lowest level since April 2009, as both single family and multi-family starts slowed. Housing permits continued to fall for a second month, declining 8.2% in February m/m. Mortgage applications as seen in the Mortgage Banker’s Association index fell by 0.7% last week even as borrowing costs declined. The average 30-yr FRM rate fell to 4.79%, the lowest in two months, but relatively high unemployment and expectations of housing prices falling further refrain Americans from buying new houses.
Stocks fell and Treasuries extended gains amidst concerns over the after effects of Japan’s earthquake on its nuclear power plants. Treasury yields fell across the curve on increased demand for the safe haven securities. The benchmark 10-yr note traded 7 bp lower at 3.23%. The 2-yr yield fell 3 bp to 0.60%. The S&P shed 0.8% and was last seen at 1270.84 as of 11:39 AM EST. DJIA and NASDAQ were both trading a percentage point lower.
