#USPPIComesInBelowExpectations

US PPI Beats Expectations - More Proof of Inflation’s Cooling Process. The U.S. Bureau of Labor Statistics released the June Producer Price Index (PPI) data, and the figures were significantly weaker than market participants had anticipated.

The top-line result came in at 5.5 percent year over year, below the consensus forecast of 6.2 percent.

This was down from 6 percent for June’s reading, and the month-over-month change recorded a 0.3 percent decline-the largest decline since April 2020. A notable drop in gasoline prices, down 12 percent, was responsible for nearly two thirds of the decrease in prices for goods. It goes without saying that this reading comes after yesterday’s milder CPI report, bolstering the notion of a widespread disinflation occurring in both consumer and producer prices. Market Implications Following the report, bets against a July Fed rate increase declined to just below 15 percent, and odds of a rate cut in September stand at approximately 45 percent.

In turn, Treasury yields decreased, as investors factor in a more accommodative policy stance in the near future.

The Fed’s Take However, Fed Chair Kevin Warsh tempered the positive data, cautioning that a “mission accomplished” message “cannot be drawn from” just “a single data report,” and reiterating the Fed’s policy of “zero tolerance for high-persistent inflation.” Warsh further asserted that “currently available indicators are, perhaps not all, up to the task of measuring inflationary pressures that are truly embedded.” Scenario Analysis: Bullish Scenario - Continued weakness in both PPI and CPI leads to a “soft landing scenario” in which policymakers begin easing policy ahead of schedule.

Bearish Scenario - Volatile factors, such as oil prices, could reaccelerate, forcing the Fed to remain tight for longer. Base Scenario - disinflation will gradually continue; the Fed will adopt a wait-and-see attitude and will remain data-dependent before acting. Strategic Takeaway The lower June PPI gives additional confirmation that price pressures from the wholesale level have retreated.

The data is clearly bullish for financial markets in the immediate term, though as Chair Warsh’s comments have shown, the Fed will remain patient, thus prohibiting an immediate pivot to ease policy.

Investors can be gradually optimistic about a risk-on environment for equities and crypto.

‍#USInflation #PPI #FedOutlook @Gate_Square