Producer prices drop, giving Fed more space

By Jason Lange

WASHINGTON (Reuters) - Producer prices unexpectedly fell in April as energy costs dropped by the most in six months, a sign of easing inflation pressures that could give the Federal Reserve more room to help the economy should growth weaken.

The Labor Department said on Friday its seasonally adjusted producer price index dropped 0.2 percent last month. That was the first drop of the year and the biggest decline since October.

"Looking ahead consumer prices should remain contained," said Michelle Meyer, an economist at Bank of America Merrill Lynch in New York. "The Fed shouldn't be worried about inflation."

Economists polled by Reuters had expected prices at farms, factories and refineries to be flat last month.

A rise in gasoline prices last year pinched consumers and fueled higher inflation, but the Fed has maintained that the spike would be temporary. A report on consumer prices due next week is expected to give further signs that inflation is ebbing.

Still, the annual inflation rate targeted by the Fed continues to hover around the central bank's 2 percent goal, and Friday's price data did not appear to change investor's views on the outlook for monetary policy.

Futures for U.S. stocks held at lower levels, depressed by a revelation from JPMorgan that it suffered a trading loss of at least $2 billion. U.S. Treasury yields fell as uncertainty over Greece's political future underpinned demand for safe-haven debt.

A number of Fed officials appear loath to take further action to help the economy, with some arguing the central bank needs to get ready to being withdrawing its extraordinary stimulus. The Fed has maintained since January that it expects economic conditions to warrant holding overnight interest rates near zero through at least late 2014.

The report on producer prices for April showed wholesale prices 1.9 percent higher in April than a year earlier, the weakest reading since October 2009.

The drop in PPI was due to a 1.4 percent decline in energy prices, the biggest drop since October. Gasoline costs slumped 1.7 percent while prices also fell for residential natural gas and liquefied petroleum gas.

Wholesale prices excluding volatile food and energy costs rose in line with economist' expectations, up 0.2 percent after March's 0.3 percent gain.

Fueling gains in the core index, wholesale pharmaceuticals prices gained 0.4 percent. Higher prices for civilian aircraft also pushed up core prices.

In the 12 months to April, core producer prices increased 2.7 percent after rising 2.9 percent the previous month. April's reading was the lowest since August and just below analysts' expectations.

(Additional reporting by Richard Leong in New York; Editing by Andrea Ricci)

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Commodity Prices Look to Fed Officials’ Commentary for Direction

Commodity prices are looking to another dose of Fed officials’ commentary for direction as markets mull the probabilities of another round of stimulus. Talking Points

Crude Oil, Copper May Rise if Fed Officials’ Comments Boost QE3 Bets Gold and Silver Outlook Continues to Hinge on US Dollar Price Action Commodity prices continue to reflect sour global growth expectations coupled with rebuilding hopes for additional Federal Reserve stimulus. Cycle-sensitive crude oil and copper on the defensive while gold and silver edge higher on the back of demand for an alternative to paper currencies as markets look ahead to the possibility of further dilution of the money supply. The environment reflects the ramifications of last week’s disappointing US employment data coupled with downgraded hopes for PBOC rate cuts, a worry that emerged after China reported higher-than-expected inflation figures yesterday and an unexpected return to trade balance surplus today.

Looking ahead, the spotlight is pointed at scheduled commentary from Dallas Fed President Fisher, Atlanta Fed President Lockhart and Minneapolis Fed President Kocherlakota. Although only Lockhart is currently on the rate-setting FOMC committee, Kocherlakota and Fisher were voting members last year and ought to be intimately familiar with the arguments in favor of and against additional easing. This means their remarks may prove market-moving, especially in the absence of other more potent catalysts.Comments perceived as increasing the probability of a third round of Fed quantitative easing (QE3) are likely to boost risk appetite and drive commodities broadly higher, while those reinforcing the status quo will probably produce the opposite effect.

WTI Crude Oil (NY Close): $102.46 // -0.85 // -0.82%

Prices are reversing lower from resistance in the 102.97-103.21 marked by January top as well as the 50% Fibonacci retracement to once again challenge the 61.8% level at 101.19. A break below this boundary exposes rising trend line support set from mid-December, now at 100.04.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1640.20 // +3.77 // +0.23%

Prices put in a Shooting Star candlestick below support-turned-resistance at 1644.45, hinting an upswing over the past three sessions may have run its course. A reversal downward from here sees initial support at 1634.76,the 38.2%Fibonacci expansion, with a break below that exposing the 50% level at 1615.46. Alternatively, a push through resistance targets the 23.6% Fib at 1658.57.

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $31.55 // -0.33 // -1.02%

Prices continue to consolidate below resistance at 32.93, the former neckline of a Head and Shoulders (H&S) top carved out between late January and mid-March, and horizontal support at 31.04. A break blower exposes the first downside barrier at 29.79. The H&S setup broadly implies a measured downside target at 26.84.

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.720 // -0.076 // -2.00%

Prices took out the bottom of a Triangle chart pattern carved out since early February to find interim support at 3.696, the 38.2% Fibonacci retracement. A break below this boundary exposes the 50% Fib at 3.606, a boundary reinforced by a rising trend line established from early October now at 3.594. Initial resistance lines up at 3.808, the 23.6% retracement.

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

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Dismal jobs report pushes up Treasury prices

Treasury prices shot higher Friday after a weak jobs report.

The yield on the benchmark 10-year Treasury note fell to 2.06 percent after the Labor Department released its monthly employment survey. The yield was 2.18 percent late Thursday. The price of the note jumped $1.13 for every $100 invested.

Bond yields fall when their prices rise. That means more people are trying to buy the bonds, which are less risky than stocks and commodities. Investors tend to pile into Treasurys when they're worried about the economy.

Treasury yields also fell Wednesday and Thursday as traders worried that Spain could become the next European country to run into trouble with its debts.

The government said 120,000 net jobs were created in the U.S. last month, far fewer than analysts were expecting and down from more than 200,000 in each of the three previous months. The unemployment rate edged down to 8.2 percent from 8.3 percent, but mostly because more people stopped looking for work

Bond trading closed at noon Eastern for the Good Friday holiday. Stock and commodities trading were closed. Stock index futures fell sharply in the 45 minutes trading was open after the jobs report came out. Standard & Poor's 500 index futures fell 1.1 percent in the abbreviated session.

In other bond trading, the yield on the 30-year Treasury bond fell to 3.22 percent from 3.32 percent late Thursday. Its price jumped $2.03 per $100 invested. The yield on the two-year note fell to 0.32 percent from 0.35 percent.

The yield on the three-month T-bill was 0.07 percent.

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