Yesterday, there was an improvement in market sentiment due to the release of producer inflation data in the USA. American stocks gained and the tech index was leading the increases. Yields on US debt decreased and the dollar lost value. Yesterday’s PPI data strengthened expectations of at least a 25-basis point cut in interest rates by the Fed in September. The VIX index fell to 18.1 after it reached nearly 66 points on Monday. Today, investors will learn the CPI report.
The positive market reaction to the PPI data also resulted from the expectation that today’s CPI inflation could also surprise with a lower result. It’s clear that the market is looking for positive news after last week’s sharp rise in volatility. Currently, Fed Funds Futures contracts fully price in a 25 bp cut in September and give about a 60% chance of a 50 bp cut.
Returning to the data, yesterday’s PPI value indicators showed lower values both compared to previous values and forecasts. On a monthly basis, PPI grew by 0.1%, and year on year by 2.2%. The base index unchanged in relation to June and year-on-year increased by 2.4%. The market certainly took into account the lower prices of services.
Yesterday, a comment appeared from Bostic from the Atlanta Fed branch, who is still waiting for more deflationary arguments before he fully supports a reduction in the cost of money in September. On the other hand, we will only hear the first opinion on the latest NFP data, inflationary processes or general monetary policy from Jerome Powell during the Central Bankers Symposium in Jackson Hole (August 22-24).
US stock indices reacted positively, evidenced by the Nasdaq Composite’s gain of 2.4%. The Dow Jones also increased (+1%) as well as the S&P500 (+1.7%). The increase in expectations for rate cuts in the US was also illustrated by the fall in yields on US bonds on both the short and long ends of the yield curve. Meanwhile, the dollar reacted by weakening, which is a completely understandable behavior of the main world currency. We were able to observe an increase in the volatility of the main currency pair, which has been consolidating in recent days. Rates once again approached 1.10.
Inflation data from the US and the dollar’s weakness and good mood on the stock exchanges support our currency. The zloty appreciated throughout the day. The USD/PLN rate fell below 3.90 and EUR/PLN below 4.2850. The zloty may react to today’s GDP and CPI data.
Łukasz Zembik, Oanda TMS Brokers
Source: https://ceo.com.pl/nizsza-inflacja-ppi-w-usa-poprawia-nastroje-i-oslabia-dolara-61272
