US producer prices delivered a hawkish surprise, after earlier consumer prices. PPI increased by +0.7% in January, more than the expected +0.4% increase. In contrast to the forecast of 5.4%, the annual price growth rate decreased from 6.5% to 6.0%. The slowdown in the annual inflation rate is negligible due to the high base effect from the previous year, while the monthly increase remains above the historical average.

Yesterday’s data release provided an important hawkish signal for the Fed to continue raising interest rates without letting inflation expectations hang as producer prices continue to outperform consumer prices. Besides high inflation, the labor market needs further reason to pause. For the seventh straight week, initial claims for unemployment benefits were under 200K, complementing a 3% increase in retail sales in January.

Overall, this mix of data suggests the economy is in good shape. However, it now risks triggering a reassessment of the monetary policy outlook. Fed President Cleveland Mester said she saw a compelling case for a +50 bps rate hike at the last FOMC meeting, and the incoming data did not change her view of taking the fed funds rate above 5% and staying there for some time. Fed President St. Louis Bullard also conveyed that he “would not rule out a 50 bps rate hike” at the March FOMC meeting.

The impact of the PPI report pushed down the price of the stock index on Thursday. The S&P 500 Index closed down -1.38%, the Dow Jones Industrial Index closed down -1.26% and the Nasdaq 100 Index closed down -1.93%. Negative corporate earnings results are also weighing on stock indexes. Organon & Co closed down -15% after reporting disappointing Q4 earnings. Host Hotels & Resorts closed down more than -5% after forecasting a weaker-than-expected 2023 AFFO/share. Additionally, Paramount Global and Vulcan Material closed down over -4% after reporting weaker-than-expected Q4 earnings.

Technical Review

USA30, Daily

The October 2022 rebound from the price of 28,583 still persists to this day, even though from December 2022 to February 2023, trading in the range is still ongoing between 32,467 – 34,948 in a consistent narrow symmetrical triangle pattern so far.

Currently the price is trying to test the 50 day EMA at a price range of 33,600, the 100 day EMA is seen at 33,222 and the 200 day EMA at 33,000. A move below 32,467 will bring further declines. Even though the price is above the moving average, the RSI seems to show the momentum of the rally has faded at the 46 level and the MACD histogram is slightly flat.

Immediate resistance is seen at 34,513; a move above this level would allow the index to test 34,948 and higher at 35,494.

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Ady Phangestu

Market Analyst – HF Educational Office – Indonesia

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