Business Investment. This is a new addition to the Interest Rate Factor Matrix this week.
Core capital goods orders (which excludes aircraft and military equipment spending) is seen as a barometer of business investment. This indicator has risen 2.5% and 1.8%, respectively, in July and August, to its highest level in two years, despite the enduring pandemic and economic crises.
As recently seen with consumer spending, business outlays for equipment have rebounded faster than expected. If this business investment spending continues at its current or increased pace, it can force certain wholesale prices higher, increasing the Producer Price Index (“PPI”). Often, increases in wholesale prices find their way into higher retail prices, which then increases the Consumer Price Index (“CPI”).
Both the PPI and the CPI are gauges of inflation that can translate into higher interest rates. This is one of the drawbacks that the fixed income market questions as a potential effect of the Federal Reserve’s new “average” inflation targeting policy.
We continue to monitor oil, gas, NGLs, regional markets, jet fuel, and interest rates for hedging opportunities. To learn more and see AEGIS opinion and recommendations, go to AEGIS View publications, or contact email@example.com. Like what you see? Share this article with the button on the bottom right of your desktop. Market questions or comments? Contact us at firstname.lastname@example.org.