USD: Mixed signals from PPI and sentiment – Danske Bank

Danske Research Team highlights that softer-than-expected US PPI for March did not materially alter market pricing for Federal Reserve cuts, with only a one-in-three chance of easing this year. The bank also notes a drop in the NFIB small business optimism index below its historical average, pointing to a cooling labour market and Oil-price-related concerns.

Soft PPI but limited Fed repricing

"In the US, March PPI surprised to the downside with an increase of 0.5% m/m SA (Feb: 0.5%, cons: 1.1%). Goods prices jumped 1.6% m/m, driven by energy up 8.5% m/m, partly offset by food down 0.3% m/m."

"Given that it was the first full month covering the period with war in Iran it was a positive that the PPI did not increase even further. Despite the lower‑than‑expected PPI, it did not shift expectations for near‑term cuts from Fed, with markets pricing roughly a one‑in‑three chance of a rate cut this year."

"The US NFIB small business optimism index for March came out weak, falling below its historical average of 98.0 to 95.8 in March, down from 98.8 in February. NFIB wrote that "the dramatic spike in oil prices has spooked consumers and owners alike"."

"Hiring plans and the number of job openings that companies were unable to fill continued its downward trend from February, indicating potential signs of an easing labour market."

"The risk sentiment was supported yesterday by hopes of a new round of peace talks between the US and Iran. Oil prices dropped another 3-4%, which helped pull global yields a couple of basis points lower - UST10y at 4.25% and the Bund at 3.02% this morning. Treasuries were also supported by soft US PPI data."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)