Stock and bond markets were mixed Thursday morning as investors digested another inflation report.
The Producer Price Index (PPI), a measure of wholesale inflation rose, 0.2% for the month of March according to the Labor Department. On a yearly basis, PPI rose 2.1%, the biggest jump since April of last year. Inflation came in weaker than economists had forecast, stoking hopes once again about the potential for rate cuts.
Mirroring the S&P 500 and the Dow, SPY, the SPDR S&P 500 ETF Trust and DIA, the SPDR Dow Jones Industrial Average ETF Trust took a leg lower, slipping a quarter of a percentage point and nearly half a percentage point respectively. QQQ, the tech-heavy Invesco QQQ Trust rose roughly 0.1% as the Nasdaq was also in the green early Thursday.
The weaker than anticipated PPI report comes just a day after the Consumer Price Index (CPI) rose 0.4% for the month, more than economists had originally forecast. Yesterday’s report soured investor hopes and painted a picture of persistent and stubborn inflation. According to the CME Fed Watch Tool, traders now believe the Federal Reserve will hold rates steady through June’s policy meeting, with a greater number of investors looking to July and September’s meetings for a potential rate cut.
Treasury yields dropped after today’s inflation report, and bond traders have been getting whiplash as many continue to question whether the Fed will cut rates at all this year. TLT, the iShares 20+ Year Treasury Bond ETF dropped more than half a percentage point after PPI data was released.
With high hopes that the Fed was on track to defeat inflation and cut rates, investors added nearly $25B to TLT last year. With TLT on a rollercoaster ride, investors could be rethinking that strategy. According to etf.com data, since the start of the year, TLT has lost close to $850M.
TLT YTD Flows
Across the pond, European markets sank after the European Central Bank (ECB) decided to hold rates steady. VGK, the Vanguard FTSE Europe ETF, IEUR, the iShares Core MSCI Europe ETF, and IEV, the iShares Europe ETF all dropped close to 1% on the news.
But for investors, European ETFs could prove to be a good buying opportunity after the ECB signaled that rate cuts could be on the way. In a release on Thursday the bank noted that with improving inflation outlook “it would be appropriate to reduce the current level of monetary policy restriction.”
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