Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com ROASTING ON AN OPEN FIRE: PRODUCERS, SMALL BUSINESS, FED FEEL INFLATION HEAT (1045 EST/1545 GMT) Welcome to Fed Tuesday, where inflation is hot and the Federal Reserve is feeling the heat. And with the polar icecaps melting, the mercury is also on the rise at Santa"s Workshop in the North Pole, according to November"s PPI print. The Labor Department"s producer prices report (PPI) (USPPFD=ECI), a gauge of the prices U.S. goods-producers get for their wares at the factory door, came in significantly hotter than analysts expected, unexpectedly accelerating to 0.8% from 0.6% and well above the 0.5% consensus. read more Year-over-year, the headline print jumped to a sweltering 9.8%, while the core number (which strips out food, energy and trade services) gained 0.6 percentage points to 6.9%. "Price metrics have been running well above target for much longer than anticipated," says Rubeela Farooqi, chief U.S. economist at High Frequency Economics. These data support the Fed’s switch to a faster taper that will likely precede a quicker tightening of policy next year. As seen in the graphic below, core PPI, along with other major indicators, has been launched into orbit, sailing well above the Federal Reserve"s average annual 2% inflation target. The picture it paints provides a rather clear rationale for the Fed to stop batting the word "transitory" around like a shuttlecock in its monetary policy game of badminton. Inflation Inflation And, increasingly, U.S. businesses are planning on passing those prices along to the consumer. While the National Federation of Independent Business" (NFIB) Optimism index (USOPIN=ECI) inched up 0.2 points to a reading of 98.4 last month, you"d never know it from accompanying NFIB press release. "The outlook for business conditions is not encouraging to small business owners as lawmakers propose additional mandates and tax increases," writes Bill Dunkelberg, NFIB"s chief economist. "Owners are also pessimistic as many continue managing challenges like rampant inflation and supply chain disruptions that are impacting their businesses right now." And the typical respondent is putting their money where their mouth is, namely on the consumer"s plate. As Lydia Boussour, lead U.S. economist at Oxford Economics points out: "Small firms continue to pass along higher prices onto consumers," Boussour says. "The share of firms raising prices – a leading indicator of core inflation – jumped 6 points to a new record 59%. And in a sign that high inflation is not going away any time soon, the share of firms planning to raise prices climbed to a new record." The uptick in the Optimism index was attributable to a slight easing in the inability to find qualified workers and an increase in inventories. It should be noted that the NFIB is a politically active membership organization. Inflation Inflation Wall Street fluctuated in morning trading, with the market-leading tech associated stocks weighing on all three major U.S. stock indexes. The Dow flipped nominally into negative territory, its losses mitigated by financials. Value stocks (.IVX) are a pale green, while growth stocks (.IGX) are resolutely lower. (Stephen Culp) ***** AND THEN IT WAS TUESDAY: S&P 500 EXTENDS ITS SELL-OFF (1001 EST/1501 GMT) U.S. stocks wobbled in early trading on Tuesday, as the latest in a string of hot inflation reports appeared to raise concerns over just how soon the Fed will whisk the punch bowl away. That said, all three major stock indexes are off initial lows, with the blue-chip Dow flipping green as producer prices came in well above consensus read more , just as the Federal Reserve is convening its two-day monetary policy meeting, during which inflationary concerns were likely to take center stage. Value stocks (.IVX) are off to a better session than growth (.IGX) and the biggest drags on the S&P 500 and the Nasdaq, once again, are the market leading tech-plus megacaps. Apple Inc (AAPL.O) is the exception, resuming its trudge toward reaching the $3 trillion market cap milestone. Meanwhile, in Washington, lawmakers were expected to vote on raising the federal government"s debt limit, ending a months-long stalemate. read more Here"s your opening snapshot: Opening snapshot Opening snapshot (Stephen Culp) ***** MIGHT MICRO-CAP MELTDOWN LEAD TO S&P 500 MISHAP? (0900 EST/1400 GMT) Despite a stellar-start to the 2021, micro-caps have struggled to keep pace for much of the year. The iShares Micro-cap ETF (IWC.P) peaked in mid-March, and is posting a 15% year-to-date gain vs the SPDR S&P 500 ETF Trust"s (SPY.P) 25% rise. Of note, on a weekly basis, the IWC/SPY ratio peaked in mid-March just shy of a 15-year resistance line: SPY12142021 SPY12142021 Perhaps not surprisingly, it was also around this time, that the retail-driven meme-stock mania was its most intense. Highly speculative stocks, like micro-caps, tend to have greater volatility and are thus inherently riskier than larger-cap shares. They can, therefore, be especially sensitive to the key drivers of liquidity and psychology. Recently, the performance disparity between the IWC and SPY has been particularly acute. Since November 8, the IWC has lost more than 13%, while the SPY is off just 0.6%, having just recorded a fresh record close last Friday. With this, the IWC/SPY ratio has plunged to its lowest level since November 2020. Meanwhile, the severity of the ratio"s decline from its peak has been especially sharp. In fact, in the time since the IWC topped in relative strength vs the SPY, the ratio"s 40-week rate-of-change has collapsed to an all-time low. It now remains to be seen if the micro-cap ship can be righted in the midst of tax-loss season and building fear-of-the-Fed. However, of concern for the S&P 500, from 2007 to 2020, the five biggest SPY declines from record-high territory were all preceded by protracted IWC/SPY ratio divergence. (Terence Gabriel) ***** FOR TUESDAY"S LIVE MARKETS" POSTS PRIOR TO 0900 EST/1400 GMT - CLICK HERE: read more Terence Gabriel is a Reuters market analyst. The views expressed are his own Our Standards: The Thomson Reuters Trust Principles.