Producer inflation could prepare traders for crucial CPI release – Invesco QQQ Trust, Series 1 (NASDAQ:QQQ), SPDR Gold Trust (ARCA:GLD)

There’s a lot of inflation data for investors to process this week, starting with the U.S. government’s release of the Producer Price Index (PPI) for July on Tuesday, followed by the highly anticipated Consumer Price Index (CPI) on Wednesday.

With economists expecting producer prices to cool in July, the Producer Price Index (PPI) could be an early sign of easing price pressures in the economy, providing potential optimism to markets ahead of the Consumer Price Index report.

Currently, the probability of a 50 basis point rate cut in September is 48 percent, CME Group’s FedWatch tool showed on Monday, slightly lower than the 52 percent probability attributed to a smaller rate cut by the Federal Reserve.

Producer Price Index Report: What Economists Expect

• The consensus among economists tracked by TradingEconomics is that the producer price index (PPI) for final demand will rise 0.1 percent in July compared to the previous month, a slowdown from the 0.2 percent increase in June.
• On an annual basis, the PPI is expected to be 2.3% higher than in July 2023, down from the previous increase of 2.6%.
• Excluding energy, food and trade services, core PPI is expected to rise 0.2% month-on-month in July 2024, moderating from the 0.4% increase in June.
• Compared to July 2023, core PPI is forecast to increase by 2.7%, down from the 3% increase recorded in June.

Also read: Markets experience best and worst days since 2022: What’s next on Wall Street’s rollercoaster ride?

Insights from current economic surveys

Latest data from the ISM manufacturing price index showed a reading of 52.9% in July, up from 52.1% in June, indicating that commodity prices rose for the seventh consecutive month in July after eight months of declines.

Timothy FioreChairman of the ISM Manufacturing Business Survey Committee, noted that 23% of companies reported higher prices in July, compared with 20% in June.

Chris WilliamsonChief Economist at S&P Global Market Intelligence, stressed that in the manufacturing sector, “input cost inflation cooled for the second month in a row after hitting a 13-month high in May.” However, he also pointed out that input costs for services continued to rise sharply due to higher wages and transportation costs.

How the markets reacted to the previous PPI report

The latest PPI report for June, released on July 12, showed a slightly better-than-expected result. The PPI for final demand rose 0.2 percent month-on-month, up from the unchanged reading in May and beating economists’ expectations of a 0.1 percent increase.

Core PPI rose 0.4 percent month-on-month, above May’s growth of 0.3 percent and beating estimates of 0.2 percent.

The June PPI report was released after the June CPI inflation index fell more than expected. On July 12, the following market reactions occurred:

• The S&P 500, tracked by the SPDR S&P 500 ETF Trust SPYrose by 0.6 percent.
• The technology-heavy Nasdaq 100, tracked by the Invesco QQQ Trust QQQalso increased by 0.6 percent.
• US government bonds, followed by the iShares 20+ Years Treasury Bond ETF TLTclosed 0.4% higher.
• Gold, pursued by the SPDR Gold Trust GLDclosed 0.2% lower.
• Oil prices are being driven by the United States Oil Fund USOfell by 0.9%.

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