Economic Data Could Rule Out QE3, 4 and 5

Producer Prices and Retail Sales came in much hotter than expectations this morning which may rule out the probability of further stimulus:

Producer Prices:

  •  Producer Price Index (PPI) MoM: 0.3% vs. expectations of 0.2% 
  •  PPI Ex Food & Energy MoM:   0.4% vs. expectations of 0.2% 
  • Producer Price Index (PPI) YoY:   0.5% which was in-line with expectations
  •  PPI Ex Food & Energy: 2.5% vs. expectations of 2.3% 

On a year-over-year (YoY) basis, producer prices have remained fairly subdued.   However, any increase in these levels, or any slope higher, will weigh on the Fed’s Zero Interest Rate Policy (ZIRP).   As this is the first increase that has been observed in some time, it should not signal a major cause for concern, but will need to be watched carefully in the future along with Consumer Prices to show that inflation stays in check.

Retail Sales:

  •  Advance Retail Sales: 0.8% vs. expectations of 0.3% 
  •  Retail Sales less Autos:   0.8% vs. expectations of 0.4% 

Retail Sales were very strong (compared to expectations and the previous reading) during the month of July with Sporting Goods leading the way, up 1.6% on a month-over-month (MoM) basis.   The strength from this reading may partially be inflated by June’s heavily deflated numbers.   As stated with PPI, this is one of the first significant positive turns in Retail Sales and doesn’t necessarily rule out further stimulus, but if the trend continues, the Fed may keep its powder dry.