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Stocks unwind wholesale inflation rally as PPI cools but stays high
June producer price inflation fell 0.3% month over month and core rose 0.2%, but both annual rates remain well above the Fed's 2% target, keeping rate-hike pricing volatile into October.
The Dow Jones Industrial Average swung sharply after a surprise negative June wholesale inflation reading, rising on the disinflation trade before giving back nearly all the gains in the final two hours. FXStreet said the index peaked around a 370-point session high near 52,830 and was around 52,500 afterward, down roughly 0.12% on the day.
The June Producer Price Index declined 0.3% month over month, beating a consensus for a flat print, and the annual rate fell to 5.5% from 6.0%. The core PPI rose 0.2% month over month versus expectations for 0.0%, with the annual core rate edging up to 4.7% from 4.6% after Tuesday's cooler Consumer Price Index helped traders scale back near-term tightening bets.
FXStreet noted that despite the softer monthly prints, both headline wholesale inflation at 5.5% and core at 4.7% are still more than double the Federal Reserve's 2% target. Research desks cited the risk that a single soft print does not fully erase the case for hikes while rate futures implied pricing has faded for this month's move but still suggests roughly 60% odds of a quarter point or half point higher by the end of October.
Beyond inflation, the New York Fed President argued there are reasons to believe inflation has peaked and could edge lower, while the July Empire State Manufacturing Index came in at 15.6 versus 8.8 expected and 5.7 prior. FXStreet also pointed to a busy calendar, with Beige Book and multiple Fed speakers, and said semiconductors drove part of the day's volatility after ASML's guidance raise was later unwound in the tape.
Latest closeDow Jones 52,508.27 ▲0.0%