WILL THE UPSIDE SURPRISES CONTINUE?

June’s PPI rose by 0.5%, more than the forecasted 0.3% gain and the largest increase since May 2015.  April prices rose by 0.4%.  For the 12 months prices are up 0.3%, the biggest year to year gain since December 2014.

Excluding food and energy, prices climbed 0.4% following a 0.3% advance the prior month. These costs are up 1.3% from June 2015.

Last week, weekly jobless claims fell to the lowest level since April.

Treasuries tumbled on this data, the third selloff this week following an all-time low in yields reached on July 6.

Yesterday Goldman surprised the markets with their outlook of two interest rate increases by year end, further stating the upcoming Fed meeting may warn the markets that their monetary policy views are way to dovish.  Goldman’s evidence for this view was last week’s jobs data, today’s inflation statistics, the endless rally in stocks and the lack of negative response to Brexit.

If Goldman’s forecast is indeed accurate, how much of the recent two week 1,300 point advance be retraced.  As widely discussed, stock prices have surged from the belief of yet even more central bank stimulus, an advance amplified by cross correlated electronic based trading.

Today retail sales and the CPI are released.  Will OER continue to rise from depressed levels for the third consecutive month?  If so how will the bond market respond? Retail sales are also posted.

Second quarter earnings season resumes with three large financials posting results.  Yesterday JP Morgan increased expectations for the group given their upside surprise.  The behemoth bank was also a reason for the equity advance.

Last night the foreign markets were mixed.   London was down 0.43%, Paris down 0.91% and Frankfurt down 0.80%.  China was down 0.30%,  Japan was up 0.68%and Hang Sang up 0.46%.

The Dow should open nominally lower with many thinking the averages have gone too far too fast and are perhaps overvalued based upon current earning projections.  The 10-year is unchanged at 1.53%.

 

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