Inflation Fears Ease as Producer Prices Rise Slightly Below Expectations

Inflation

Inflation fears gave way to partial relief on Thursday with a slightly soft reading on producer prices. The producer-price index, which measures prices received by producers for their output rather than final prices paid by consumers, rose 0.2% in March, lower than economists' expectations of 0.3%. That represented a 2.1% increase from a year earlier, the largest since April 2023 but in line with expectations.

But the big picture remains unchanged. "Cool inflation on the PPI doesn’t cancel out the message from March’s hot CPI report, which was the third in a row to exceed expectations," wrote Bill Adams, chief economist at Comerica, in a note. He added that he expects the Fed to cut rates at its July or September meeting.

Stocks rose on the news, partially reversing Wednesday's big selloff. The S&P 500 gained 0.7% while the Nasdaq rose 1.7%. The Dow Jones Industrial Average finished flat, dragged down by a 1.9% decline in component UnitedHealth Group.

Yields on 10-year U.S. Treasury notes were little changed, rising 0.017 percentage point to 4.575%. Precious metals kept up their bull run, with front-month gold futures rising 1.1% to a new record high, and silver futures rising 0.8%. At 11 consecutive sessions, that is the longest winning streak for silver s

Netflix

Netflix Needs to Put on Another Big Subscriber Show

Hopefully, Netflix missed some freeloaders the first time around. The streaming giant began cracking down on password sharing in the middle of last year. To call the effort successful would be an understatement. Netflix added nearly 22 million net new paid subscribers in the second half of 2023—a record for that period and more than double what it added in the second half of 2022. The company cited paid-sharing “interventions”—prompts for subscribers sharing their passwords with others outside their households to pay extra or get them their own account—as a big driver of that growth, and suggested there was more to come.

China Shock 2.0

Treasury Secretary Janet Yellen’s trip to China sent a clear message—a flood of cut-priced exports isn’t welcome. It will likely fall on deaf ears in Beijing. Cheap Chinese goods aren’t new to global markets, but a recent surge has some in the West calling it “China Shock 2.0.” Overcapacity in China could undercut American businesses and workers and lead to overconcentration of supply chains, Yellen said.

The situation with China's stock, particularly in sectors like electric vehicles (EVs) and green technologies, reveals the intricate balance between domestic policies, market dynamics, and international relations. Initially, China bolstered its EV sector through substantial government subsidies, leading to an influx of new companies and heightened investment. This approach not only expanded the industry but also created a competitive environment flooded with numerous players. As these subsidies receded, a price war ensued, notably among key companies such as BYD, which even briefly outpaced Tesla in sales volume.

This strategic withdrawal of subsidies and the ensuing industry consolidation have significantly driven down costs. While this benefits powerful entities like BYD, enabling economies of scale and lower production costs, it poses challenges to innovation and diversity within the sector. Simultaneously, these dynamics have prompted Western nations, where the automotive industry holds historical significance, to consider heightened trade barriers against Chinese products. This move aims to protect local manufacturers and preserve domestic jobs, complicating China’s export ambitions.

On a broader scale, China's dominance in manufacturing critical components for green technologies is strategically positioned to reduce its reliance on foreign technology—a lesson sharpened by recent U.S. sanctions affecting its semiconductor access. This ambition to lead in advanced manufacturing and control vital supply chains is not just economic but a strategic maneuver in response to global tech restrictions.

For Americans, the evolving landscape could have mixed implications. On one hand, the dominance of Chinese companies in green technologies could lead to more affordable products and accelerated global adoption of sustainable technologies, beneficial from an environmental standpoint. On the other hand, it could intensify job losses in traditional sectors and heighten economic tensions, as the U.S. seeks to protect its industrial base. The potential increase in trade barriers might lead to higher costs for American consumers and could stifle the broader economic benefits of cheaper green technology.

China pushes forward with its export-led growth strategy in sectors like EVs and green technologies, the repercussions for American markets and employment could be significant. The landscape ahead may feature both competitive challenges and opportunities for cooperation in advancing global sustainability goals.