The Danske Research Team reports that the US Producer Price Index (PPI) for March increased by 0.5% month-over-month seasonally adjusted, matching February's figure but coming in below the consensus expectation of 1.1% [1]. Goods prices rose 1.6% month-over-month, largely driven by an 8.5% increase in energy prices, while food prices declined by 0.3% [1]. Despite the softer-than-expected PPI, market expectations for Federal Reserve rate cuts were largely unchanged, with only a one-in-three chance of easing priced in for this year [1].
The US NFIB small business optimism index also showed weakness, dropping to 95.8 in March from 98.8 in February, and falling below its historical average of 98.0 [1]. The NFIB attributed this decline to a dramatic spike in oil prices, which has unsettled both consumers and business owners [1]. Additionally, hiring plans and the number of job openings that companies were unable to fill continued their downward trend from February, suggesting potential signs of a cooling labor market [1].
Market sentiment was buoyed by hopes for a new round of peace talks between the US and Iran, which contributed to a 3-4% drop in oil prices [1]. This decline in oil prices helped pull global yields lower, with the US 10-year Treasury yield at 4.25% and the German Bund at 3.02% as of the morning report [1]. Treasuries were further supported by the softer US PPI data [1].
CONCLUSION
Despite a softer-than-expected US PPI for March and weakening small business sentiment, market expectations for Federal Reserve rate cuts remain largely unchanged. Lower oil prices and hopes for US-Iran peace talks have supported risk sentiment and contributed to a modest decline in global yields.