#USOctoberPPIComingSoon $XAUT $BTC

PPI is the report where most people read the headline and get fooled. Tomorrow’s October reading comes at 8:30 in the morning New York time, right after a hot CPI, so let me walk through three traps before talking about BTC, stocks and gold.

Trap one, the base effect

September’s producer prices jumped 1.3% in a single month against a forecast of 0.6%, and core PPI rose 0.7% against 0.3% expected. October is forecast at 0.4% for the headline and 0.3% for core. A 1.3% month is a pace of about 16.8% a year, and 0.4% is about 4.9%, by my math. So the market is already betting on a sharp cooling. If October comes in at 0.8%, that would still look like a drop from September but would be double what is expected. Forecasts for the yearly rate range roughly from 6.1% to 6.6%, depending on the source, so I’d focus on the monthly figures.

Trap two, noise

PPI is a bumpy series. In September it beat the forecast by 0.7 points, and in July it undershot by 0.2. So a miss of 0.2 or 0.3 points either way is normal, and I wouldn’t treat anything inside that band as news.

Trap three, the gap with consumer prices

September’s producer prices were up 6.3% on the year, while consumer prices were up about 3.7%. That is a gap of 2.6 points. Either companies are absorbing the cost, which squeezes margins, or the cost will eventually reach shelf prices. Equity investors care about the first, and the Fed cares about the second.

Why the Fed will look at the details

The Fed’s favorite inflation gauge uses some PPI components such as healthcare, financial services and airfares. One estimate says 12 month core PCE is heading to 3.3% from 3.1%. After CPI came in at 0.4% headline and 0.3% core, a 25 basis point hike in December is close to fully priced, with a small chance of 50. One report says a PPI above 0.4% could bring the larger hike into focus.

My own outcome bands

Core at 0.5% or more: hot. Hike pricing firms up, yields rise and the dollar gets stronger.

Core near 0.3%: in line. The reaction is probably brief.

Core at 0.1% or less: soft. It would give risk assets a relief window, though one report is not a trend.

The levels from my charts

Gold dipped below $4,000 on Wednesday, extending a two day slide after the hot CPI, and one bank expects a retest near $3,900. My gold token chart shows 3,926.51. Support is 3,864.66, which is 1.6% lower. Resistance is 4,096.93 at 4.3% higher, 4,137.42 at 5.4% higher and 4,249 at 8.2% higher. RSI is about 39.

My BTC chart shows 73,559. Support is 73,113, which is 0.6% lower, and 72,464, which is 1.5% lower. Resistance is 75,500 at 2.6% higher, 77,020 at 4.7% higher, 77,869 at 5.9% higher and 80,949 at 10.0% higher. RSI is about 34.

For stocks, I’d watch margins. If producer costs run well ahead of selling prices, earnings estimates may come under pressure even without a Fed surprise.

My take: I’m not trying to guess the number. I’m watching core PPI and the PCE related pieces, then the first hour. A hot core print is the bad case for gold and BTC, since both are fighting yields and the dollar. A soft print could lift both, but I wouldn’t chase it until gold holds above 4,000 on a close and BTC reclaims 75,500.

Not financial advice.

Which matters more to you tomorrow, headline PPI or core? And do you think a soft PPI can really change the December hike, or is it already decided?

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