U.S. stocks paused a bit from the recent two-day run, but still registered mild gains as another subdued inflation report hit the Street and participants await tomorrow’s Bank of England monetary policy decision. Treasury yields continued to rise from multi-month lows and the U.S. dollar furthered its fresh advance. Geopolitical concerns seemingly continued to ease and cost assessments related to the aftermath of Hurricane Irma have been relatively favorable. Crude oil prices were higher and gold experienced a minor decline.

The Dow Jones Industrial Average (DJIA) increased 39 points (0.2%) to 22,158, the S&P 500 Index added 2 points (0.1%) to 2,498, and the Nasdaq Composite ticked 6 points (0.1%) higher to 6,460. In moderate volume, 820 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.07 to $49.30 per barrel and wholesale gasoline moved $0.01 lower to $1.65 per gallon. Elsewhere, the Bloomberg gold spot price lost $9.90 to $1,321.92 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% higher at 92.45.

The Producer Price Index (PPI) showed prices at the wholesale level in August were up 0.2% month-over-month (m/m), versus the Bloomberg expectation to rise 0.3%, after July’s unrevised 0.1% dip. The core rate, which excludes food and energy, rose 0.1%, compared to forecasts of a 0.2% advance and July’s unrevised 0.1% decline. Y/Y, the headline rate was 2.4% higher, below projections of a 2.5% increase, and the core PPI rose 2.0% last month, south of estimates of a 2.1% gain. In July, producer prices were 1.9% higher and up 1.8% for the headline and core rates, respectively.

Tomorrow, the economic calendar will complete the picture of the August inflation landscape with the release of the Consumer Price Index, projected to rise 0.3% and 0.2% m/m for the headline and core rates respectively, accelerating from the 0.1% gains posted in July. Y/Y, prices are expected to be 1.8% and 1.6% higher respectively, after the 1.7% gains registered the month prior and below the Fed’s target 2.0% rate. Stubbornly low inflation has caused expectations for another Fed rate hike this year to fade, but the Central Bank is still expected to announce the beginning of shrinking its gargantuan $4.5 trillion balance sheet following next week’s monetary policy meeting.

Treasuries dipped, with the yields on the 2-year note and the 30-year bond ticking 2 bps higher to 1.35% and 2.79%, respectively, while the yield on the 10-year note advanced 3 bps to 2.19%. Bond yields and the U.S. dollar have rebounded this week from the former’s November lows and the latter’s levels not seen since early 2015, aided by eased geopolitical and domestic political concerns, as well as less-than-feared estimates of the economic cost impact of Hurricane Irma.

Schwab Center for Financial Research – Market Analysis Group

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