Analysis believes that the July PPI data in USA poses "no threat" to interest rate cuts. The momentum of the Fed's September rate cut is very clear, and if this data continues, the Fed will have enough room to further reduce interest rates this year.
The cooling of inflation enhances confidence in interest rate cuts, and the US market is full of joy. Both US stocks and bonds rose. In terms of product structure, the operating income of 10-30 billion yuan products was 401/1288/60 million yuan respectively, with a total overall sales volume of 18,000 kiloliters in 2023, a significant increase of 28.10% year-on-year.
The overnight release of US PPI in July fell beyond expectations across the board and the cost of services declined for the first time this year, proving that the inflation situation has reversed and the expectations for a rate cut by the Federal Reserve have increased. The second weighty inflation data of the week, July CPI, is expected to be released this week. It is widely expected that if signs of further slowdown in inflation continue to emerge, the Federal Reserve may take a more lenient monetary policy stance.
Boosted by this news, US stocks and bonds rose together, with the S&P 500 rising nearly 1.7%, the NASDAQ rising more than 2%, and technology giants leading the gains.
US Treasuries rose across the board, and the yield on short-term debt, which is more sensitive to interest rate policies, fell significantly. Citigroup strategist David Bieber said that the current bullish sentiment for US bonds remains strong, and the market is still long in tactics and structure.
The number of outstanding contracts for US Treasury futures has begun to rise in the past few trading days. At the same time, in the spot market, JPMorgan's survey of its Treasury clients shows that clients' net long positions have reached their highest level since December last year.
Weaker PPI is favorable for a rate cut in September, while weaker CPI may support further rate cuts.
US July PPI exceeded expectations across the board, rising only 0.1% month-on-month, lower than the expected 0.2%, and up 2.2% year-on-year. Core PPI, excluding energy and food, rose 2.4% year-on-year, lower than expected 2.6 percent and previous 3 percent. It was flat from the previous month, the lowest level in four months.
PPI proves to be good news for interest rate cuts. At present, the market has fully priced in a 25 basis point rate cut in September, and also reflects some betting on a 50 basis point rate cut.
Wall Street is also bullish on the prospect of a rate cut in September. Harris Financial analyst Jamie Cox said:
The momentum for the Federal Reserve to cut interest rates in September is very clear. If such data continues, the Federal Reserve will have enough room to cut interest rates further this year.
Evercore analyst Krishna Guha pointed out firmly that
the latest PPI data is "no threat", and the more important thing here is that we have passed such a stage that fluctuations of a few basis points in the month-on-month inflation will not have a substantive impact on Federal Reserve policy and interest rate expectations. Currently, Federal Reserve policy and interest rate expectations will be mainly influenced by labor market data.
TradeStation analyst David Russell said:
PPI data further proves that the inflation situation has reversed, especially in the service sector. As economic weakness puts pressure on commodity prices, this process may continue or accelerate in the coming months.
Matt Luzzetti, chief US economist at Deutsche Bank, said after the PPI was released:
The market is developing in a very dovish direction, with expectations for weak inflation data, which will allow the Federal Reserve to start cutting interest rates.
For Ian Lyngen of BMO Capital Markets,
Tuesday's data showed no signs that the Federal Reserve would hesitate to cut interest rates next month, although tonight's CPI inflation is more related to recent policy expectations.
Editor/Somer