#USPPIComesInBelowExpectations

2 days. 2 inflation prints. Both below expectations.

Fresh off yesterday's softer CPI print, June's PPI landed today at 5.5% Y/Y, significantly under the 6.2% forecast, and the prior print was revised lower from 6%. On a month-over-month basis, PPI declined 0.3%, marking the largest monthly decrease since April 2020.

This is not an isolated data point. This is confirmation of a trend.

Components Tell A Deeper Story

The headline captures one aspect. However, drilling into the details paints a clearer picture:

gasoline fell by a massive 12%, responsible for roughly two-thirds of the goods-driven contraction in prices. Core PPI, which strips out food and energy, demonstrated cooling. Services inflation, too, eased compared to previous reports.

The most important point is that this disinflation was primarily driven by energy, which is often seen as a supply-side easing, as opposed to a decline in demand that would be a clear signal of a weakening economy.

When energy costs normalise, disinflation is healthy. When the economy falls off a cliff to achieve disinflation, then it's a concern.

Fed Implications: Optimism on Pause

Traders wasted no time adjusting their expectations:

The implied probability of a July rate hike fell below 15%. Odds of a September hike are now around 45%. This suggests the market is recalibrating to the likelihood of the Fed pausing for a while, perhaps through early Q4.

Federal Reserve Governor Warsh warned, “One month doesn’t make a mission accomplished,” reaffirming the Fed's commitment to a “zero tolerance” policy for lingering inflation. The message from the Fed, though tempered with acknowledgment of positive developments, is clear: Don't count them out just yet.

This sets the stage for a period of cautious optimism for risk assets. While the Fed won’t rush to ease policy, the risk of further aggressive hikes has diminished significantly for now. Be prepared for a more nuanced market environment where positive data can fuel short-term gains, but a reversal is possible on any sign of resurgence in inflation or Hawkish language from Fed officials.

What This Means For Crypto

Crypto markets often move more on expectations of future liquidity than direct inflation figures. The path we’re likely seeing is:

Softer PPI Lower expectations for rate hikes Declining treasury yields (as a result) weakening dollar Increased risk appetite Capital flows back into risk assets like Bitcoin, Ether, and high-beta altcoins

We’re already seeing signs of this, with ETH reclaiming $1,900 and BTC holding the $64,800 level. If the macroeconomic data continues to support this narrative, the next leg up in crypto may well accelerate.

Bull Case: If this inflation trend of disinflation is confirmed by subsequent data and the Fed hints at a pause or at least less hawkish language, it will create a much friendlier environment for risk assets to rally throughout the summer.

Bear Case: Any reversion in energy prices (due to geopolitical risk) or a return to unexpectedly hot data next month could quickly send markets back into risk-off mode. The Fed's tolerance for inflation, even with easing prints, could see it remain hawkish.

Trading Strategy

For traders: Keep your position size reasonable, as a single soft data print is rarely enough to justify large swings. Focus on watching how DXY and treasury yields respond as potential leading indicators.

For investors: Disinflationary phases have historically provided an excellent environment for accumulation, particularly in Bitcoin and Ether. Watch for altcoin rotation a few weeks after a confirmation of this disinflation trend.

Key is confirmation: One good number is welcome, but two in a row confirms a trend.

Concluding Remarks

The market finally got the relief it was craving after two back-to-back softer prints on inflation. However, the Fed isn't celebrating yet, and neither should we as traders. We need more confirmation before we can definitively say that the pressure valve is fully released and that the path towards increased liquidity is open.

For the time being, we have seen a reprieve.

Whether that leads to a full opening of the door will be determined by the data we get over the next 60 days. Position accordingly, stay nimble, and respect the process.

‍#MacroAnalysis #InflationData #CryptoLiquidity @Gate_Square