Could the Battle Against Inflation Be at Its End?

Could the Battle Against Inflation Be at Its End?
Could the Battle Against Inflation Be at Its End?

Good news hit the market yesterday as the US Producer Price Index (PPI) came in lower than expected. Can the market expect to receive good news for three days in a row today when the Q2 corporate earnings for some of the largest North American banks start to be published? Time will tell.

US PPI declines
This month saw the release of the US PPI data, which was consistent with the Consumer Price Index (CPI) from the day before and showed reductions in both the core and overall PPI. This confirms inflation’s positive trajectory, despite the fact that it is still quite far from the Federal Reserve’s (Fed) target range.

Employment data remains strong
The employment numbers, however, continue to be overly positive. The fact that new unemployment claims for the week were lower than anticipated indicates that employment is still strong, which is another factor raising concerns among Fed policymakers that there may be a break in the fall of inflation.

With this said, the market still believes the Fed will raise interest rates by 25 basis points at its next meeting, despite the positive inflation figures. If price levels continue to rise and the labour market weakens, the decisions that will be made after that could change.

Corporate earnings reports from North American banks expected
Data for several of the major North American banks’ 2Q corporate earnings will be released soon. These include JP Morgan, Wells Fargo, and Citigroup, who have a combined capitalisation of close to a trillion dollars. This means that the results may have an impact on the stock indices, especially the DowJones30.

Indices saw modest rise
The banking industry, which stands to gain from rising interest rates, is not likely to experience the broad decrease in revenue and profits per share levels that other S&P500 sectors are forecast to experience.

Market interest rates continued to decline yesterday, pushing the US Dollar lower and helping the indices, although more subtly. The USD/JPY pair also hit new lows, completing a week of straight declines.

 

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