The ranges of estimates are
important in terms of market reaction because when the actual data deviates from the
expectations, it creates a surprise effect. Another
important input in market’s reaction is the distribution of forecasts.

In fact, although we can have a range of
estimates, most forecasts might be clustered on the upper bound of the
range, so even if the data comes out inside the range of estimates but
on the lower bound of the range, it can still create a surprise effect.

Distribution of forecasts for PPI

PPI Y/Y

• 3.7% (19%)
• 3.6% (6%)
• 3.5% (19%)
• 3.4% (31%) – consensus
• 3.3% (19%)
• 3.2% (6%)

PPI M/M

• 0.5% (4%)
• 0.4% (40%)
• 0.3% (50%) – consensus
• 0.2% (4%)
• 0.1% (2%)

Core PPI Y/Y

• 3.8% (50%) – consensus
• 3.7% (50%)

Core PPI M/M

• 0.4% (2%)
• 0.3% (56%) – consensus
• 0.2% (38%)
• 0.1% (2%)
• 0.0% (2%)

There’s lots of dispersion in forecasts but the market will focus on the Core PPI readings. This report might set the sentiment going into the CPI report tomorrow. Given the aggressiveness of the recent moves, a miss might be the best outcome from a trading perspective. A hot report might cause some more trouble in the markets with the stock market looking as the most vulnerable.

This article was written by Giuseppe Dellamotta at www.forexlive.com.