July CPI isn’t dovish enough—this is the biggest impact on the market from yesterday. CPI can only push down the odds of a September rate hike; it can’t fully reverse it. This has caused the early-morning financial markets to start pricing in inflation pressure again.
CME futures swap rates show the probability of a September rate hike has risen from yesterday’s extreme 36% to 40% now. It’s still on the edge of danger, so tonight we’ll be watching this PPI data.
CPI reflects how inflation is affecting the consumer side, while PPI reflects how inflation affects companies. Whether it can further suppress the probability of a September rate hike depends much more on the PPI data than on earlier indicators.
Tonight’s focus in the PPI release is whether the headline PPI and core PPI come in above expectations by 0.2%.
Best scenario: headline PPI ≤ 0.1%, core PPI ≤ 0.2%. This would mean CPI and PPI cool together, further weakening expectations for a September rate hike and boosting risk assets.
Moderate scenario: headline 0.2% and core 0.3%. With a moderate inflation print—similar to CPI—this would still weigh on September rate hikes and be supportive for risk markets, but it isn’t dovish enough.
Bad scenario: headline ≥ 0.3% and core 0.4%. Corporate inflation rebounds, increasing the odds of a September rate hike and suppressing risk markets.
Worst scenario: headline ≥ 0.4% and core ≥ 0.5%. Consumer-side inflation and corporate-side inflation diverge. Inflation will accelerate going forward, overturning the optimistic expectations from July’s CPI and increasing expectations for a September rate hike.
At present, CME shows a 40.4% probability of a September rate hike. I expect tonight’s data is likely to be a moderate scenario. Looking at the direction of various assets—especially the U.S. dollar, Treasuries, and gold—there’s currently no volatility. The market hasn’t started pre-pricing yet, which suggests investors are still taking a relatively cautious stance!#美国7月CPI与PPI数据本周出炉
CME futures swap rates show the probability of a September rate hike has risen from yesterday’s extreme 36% to 40% now. It’s still on the edge of danger, so tonight we’ll be watching this PPI data.
CPI reflects how inflation is affecting the consumer side, while PPI reflects how inflation affects companies. Whether it can further suppress the probability of a September rate hike depends much more on the PPI data than on earlier indicators.
Tonight’s focus in the PPI release is whether the headline PPI and core PPI come in above expectations by 0.2%.
Best scenario: headline PPI ≤ 0.1%, core PPI ≤ 0.2%. This would mean CPI and PPI cool together, further weakening expectations for a September rate hike and boosting risk assets.
Moderate scenario: headline 0.2% and core 0.3%. With a moderate inflation print—similar to CPI—this would still weigh on September rate hikes and be supportive for risk markets, but it isn’t dovish enough.
Bad scenario: headline ≥ 0.3% and core 0.4%. Corporate inflation rebounds, increasing the odds of a September rate hike and suppressing risk markets.
Worst scenario: headline ≥ 0.4% and core ≥ 0.5%. Consumer-side inflation and corporate-side inflation diverge. Inflation will accelerate going forward, overturning the optimistic expectations from July’s CPI and increasing expectations for a September rate hike.
At present, CME shows a 40.4% probability of a September rate hike. I expect tonight’s data is likely to be a moderate scenario. Looking at the direction of various assets—especially the U.S. dollar, Treasuries, and gold—there’s currently no volatility. The market hasn’t started pre-pricing yet, which suggests investors are still taking a relatively cautious stance!#美国7月CPI与PPI数据本周出炉