Tag: Producer Price Index (PPI)

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Stocks rally on PPI fall

Stocks were boosted by falling producer price index (PPI) growth, which indicates low CPI readings are likely later today. Gold continues to test resistance at $2,475 per ounce, boosted by falling long-term Treasury yields and a weaker Dollar.

Stocks

The S&P 500 broke resistance at 5400 and is headed for a test of the descending trendline at 5500. The Trend Index is rising but below zero, warning of longer-term selling pressure.

S&P 500

The Russell 2000 Small Caps ETF (IWM) is testing resistance between 210 and 215, with the Trend Index indicating secondary buying pressure.

Russell 2000 Small Cap ETF (IWM)

Stocks will likely receive a further boost if we get low CPI growth for July, as expected.

Financial Markets

Bitcoin retraced to test its new support level at $60K [red line]. Respect of support is likely and will confirm rising liquidity in financial markets.

Bitcoin (BTC)

Treasury Markets

Ten-year Treasury yields are falling, headed for a test of support between 3.7% and 3.8%. Low Treasury yields are bullish for stocks, bonds, and especially gold.

10-Year Treasury Yield

Dollar & Gold

The Dollar Index is testing support at 102.5, while a Trend Index peak below zero indicates long-term selling pressure. A weak Dollar is also bullish for gold.

Dollar Index

Gold continues to test resistance at $2,475 per ounce, while rising Trend Index troughs above zero signal long-term buying pressure. A breakout is likely, offering a target of $2,600.

Spot Gold

Silver remains in a downtrend because of weak industrial demand from the Chinese solar industry.

Spot Silver

PPI Inflation

The producer price index (PPI) dipped to 2.27% growth for the 12 months to July.

Producer Price Index (PPI)

Monthly growth collapsed to an annualized rate of 1.2%.

Producer Price Index (PPI) - Monthly

Services inflation tends to be the most persistent, so a fall to 2.56% annual growth in services PPI is encouraging.

Producer Price Index (PPI): Services

Monthly services PPI contracted at an annualized rate of 1.9%, which flags a slowing economy.

Producer Price Index (PPI): Services - Monthly

Low PPI inflation is encouraging and increases the likelihood of low CPI readings later today. Negative services PPI warns that the economy may contract, increasing the probability of a Fed rate cut in September.

Energy

Nymex WTI crude respected resistance at $80 per barrel.

Nymex WTI Crude

Brent crude similarly found resistance at $82 per barrel.

Brent Crude

Low crude prices are expected to ease inflationary pressures, increasing the likelihood of a Fed rate cut in September.

Conclusion

We expect low CPI readings later today to further boost stocks. Falling long-term Treasury yields are bullish for stocks, bonds, and especially gold. The weakening Dollar is also bullish for gold, which continues to test resistance at $2,475 per ounce. A gold breakout is likely and will offer a target of $2,600.

Acknowledgments

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Inflation is coming

Inflation tops investor concerns according to Fed report

Concerns over higher inflation and tighter monetary policy have become the top concern for market participants, pushing aside the COVID-19 pandemic, the Federal Reserve said on Monday in its latest report on financial stability. ….Roughly 70% of market participants surveyed by the Fed flagged inflation and tighter Fed policy as their top concern over the next 12 to 18 months, ahead of vaccine-resistant COVID-19 variants and a potential Chinese regulatory crackdown. (Investing.com)

The market is no longer buying the Fed’s talk of “transitory” inflation.

Fed’s Bullard expects two rate hikes in 2022

St. Louis Federal Reserve Bank President James Bullard on Monday said he expects the Fed to raise interest rates twice in 2022 after it wraps up its bond-buying taper mid-year, though he said if needed the Fed could speed up that timeline to end the taper in the first quarter. “If inflation is more persistent than we are saying right now, then I think we may have to take a little sooner action in order to keep inflation under control,” Bullard said in an interview on Fox Business Network……Bullard has been among the Fed’s biggest advocates for an earlier end to the Fed’s policy easing, given his worries that inflation may not moderate as quickly or as much as many of his colleagues think it will. (Reuters)

The Fed are reluctant to hike interest rates, to rein in inflationary pressures, as it would kill the recovery.

Producer Price Index

Producer prices (PPI) climbed more than 22% in the 12 months to October 2021, close to the high from 1974 (23.4%). Consumer prices have diverged from PPI in recent years but such a sharp rise in PPI still poses a threat to the economy.

Producer Price Index (PPI) & Consumer Price Index (CPI)

Iron and steel prices, up more than 100% year-on-year (YoY), will inevitably lead to price increases for automobiles and consumer durables. Other notable YoY increases in key inputs are construction materials (+30.6%), industrial chemicals (+47.3%), aluminium (+40.7%), and copper (+34.5%).

Producer Price Index: Commodities

Underlying many of the above price rises is a sharp increase in fuel, related products and power: up 55.7% over the past 12 months.

Producer Price Index: Fuel & Energy

Conclusion

Inflation is coming, while the Fed are reluctant to hike interest rates. Buy Gold, precious metals, commodities, real estate, and stocks with pricing power —  a strong competitive position which enables them to pass on price increases to their customers — if you can find them at reasonable prices. Avoid financial assets like bonds and bank term deposits.

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