Yesterday’s Weak Inflation Data Largely Overshadows Today’s Hot PPI Print

Rates drop on CPI hangover. Despite today’s higher than expected producer price inflation figures, the rate curve bull steepened on momentum from yesterday’s weak CPI. The short end of the curve dropped ~6bps while the long end fell 2-3bps, which cemented a 7-17bp decline on the week. Fed Funds futures have ~65bps of rate cuts priced in by the end of the year, compared to just 50bps at the start of the week. Elsewhere, equities closed the week on a strong note, with the S&P 500, NASDAQ, and DJIA up ~0.60% today.

Producer prices climb. PPI was higher than expected across most measurements in June, and May’s figures were upwardly revised across the board. On a headline basis, PPI rose 0.2% month-over-month, and May’s -0.2% decline was revised to 0.0%. Core PPI was 3.0% vs. 2.5% estimates on a year-over-year basis, and above May’s upwardly revised 2.6% print. The move upward was largely driven by a 0.6% increase in service costs, while goods prices fell 0.5%. Markets largely shrugged off the results in part because elements of PPI that feed into PCE were mixed.

University of Michigan consumer sentiment falls to a 2024 low. Preliminary July data showed that consumer sentiment declined from June and underwhelmed versus forecasts. Today’s print was 66.0, marking the lowest level since November 2023’s 61.3. Meanwhile, both 1y and 5-10y inflation expectation data declined to 2.9% from 3.0%. The former matched forecasts while the latter was expected to remain flat at 3.0%.