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Last Updated: 14-Aug-25 09:09 ET | Archive
July PPI report cancels post-CPI redux opportunity
Briefing.com Summary:
*Hot PPI data challenges CPI-driven optimism, potentially limiting Fed’s ability to cut rates aggressively.
*Equity futures weakened post-PPI, erasing earlier gains and signaling caution at the market open.
*Treasury yields ticked higher after PPI release, reversing earlier declines seen before the data.
The stock market and the Treasury market have been basking in the afterglow of the July Consumer Price Index, seeing it as a green light for the Fed to cut rates in September and a message that suggests tariff inflation is not registering broadly in prices, as many thought would be the case by now.
Small-cap stocks have been surging; the 2-yr note yield is down 10 basis points; the fed funds futures market shows a near 100% probability of a 25-basis point cut at the September FOMC meeting; and the S&P 500 and Nasdaq Composite are sitting at record highs.
Today has presented the opportunity for a redux of sorts, with the release of the July Producer Price Index (PPI), only the PPI report did not go the way of the CPI report.
Currently, the S&P 500 futures are down 26 points and are trading 0.4% above fair value, the Nasdaq 100 futures are down 117 points and are trading 0.5% above fair value, and the Dow Jones Industrial Average futures are down 153 points and are trading 0.3% above fair value.
The weakness in the equity futures market mounted after the release of the PPI data. Prior to that release, the futures were signaling a fairly flat start for the major indices. The issue at hand is that the PPI data were much worse than expected, and in inflation terms, that means the readings were much higher than expected.
The index for final demand jumped 0.9% month-over-month in July (Briefing.com consensus: 0.2%) following an unchanged reading in June. The index for final demand, excluding food and energy, also increased 0.9% month-over-month (Briefing.com consensus: 0.2%) following an unchanged reading in June.
With these readings, the index for final demand is up 3.3% year-over-year, versus 2.4% in June, while the index for final demand, excluding food and energy, is up 3.7%, versus 2.6% in June.
The key takeaway from the report, other than that it completely flies in the face of the relatively friendly CPI report, is that wholesale prices rose appreciably across all stages of production and for both goods and services. The concern will be that this inflation will register in the PCE Price Index and keep the Fed from being as aggressive with its rate cut approach as had been envisioned following the CPI data.
The 2-yr note yield is up two basis points to 3.71% after trading down to 3.66% in front of the release. The 10-yr note yield is up one basis point to 4.25% after trading down to 4.20% in front of the release.
Separately, initial jobless claims for the week ending August 9 decreased by 3,000 to 224,000 (Briefing.com consensus: 228,000), while continuing jobless claims for the week ending August 2 decreased by 15,000 to 1.953 million.
The key takeaway from the report is still the same. Layoffs are low, but finding a new job, if laid off, is taking longer.
Equity market participants will be watching the behavior of the Treasury market as a basis for a comeback trade. If the Treasury market doesn't act overly concerned in the wake of the bad PPI inflation print, then the stock market may see that as a catalyst for yet another buy-the-dip move.
There are some notable stocks that will be dipping at today's open. Cisco Systems (CSCO), Deere & Co. (DE), and Advance Auto Parts (AAP) are all trading lower in pre-market action following their earnings reports. Deere is the biggest loser after cutting the top end of its FY25 operating income guidance. Cisco and Advance Auto Parts both topped expectations and provided in-line guidance, yet both are up sharply from their April lows, so their weakness may simply be a case of not offering more robust guidance.
President Trump, for his part, offered some guidance on when he is likely to announce his nominee for Fed Chair, saying he may name that person "a little bit early," according to Bloomberg.
