Underlying inflation rose in June by less than expected for a fifth consecutive month. June also marks the fifth month since tariffs were imposed.
What gives? As previously noted, companies have been able to shield customers by stocking up on inventories ahead of levies, as well as companies and countries alike have been absorbing increased expenses to maintain market share at the expense of lower margins.
How long can this last before prices are passed onto the end user? Some believe there is some evidence that companies/countries are on the cusp of doing so, the key wording is some evidence.
The data did not alter monetary policy expectations with about a 60% chance of a September reduction and pricing in almost two cuts by year’s end.
A case can be made that worst case fears about tariffs spiking inflation have been alleviated but it is not conclusive enough to say that there is no risk of some of the tariffs being passed through. Perhaps the correct statement to make is the waiting game continues.
The S & P declined as the 30-year Treasury broached a 5% yield, perhaps the result of continued realization that fiscal policy may matter more than monetary policy for the foreseeable future.
Several mega sized banks released results, two of which exceeded expectations, one did not. A case can be made that expectations were already priced into shares. No new insight was gained…the economy is still “robust” and there is little evidence of an increase in non-performing assets.
The yield curve was essentially unchanged on the data.
What will happen today?
Today is the release of the PPI, Industrial Production/Capacity Utilization and the Biege Book. What will the statistics suggest?
Last night the foreign markets were mixed. London was up 0.15%, Paris up 0.04% and Frankfurt up 0.27%. China was down 0.03%, Japan down 0.04% and Hang Seng down 0.29%.
Futures are “softer” ahead the PPI and more mega sized bank earnings. The 10-year is up 6/32 to yield 4.47%.
