15.08.25 - An explosive cocktail
US producer prices surged in July, with the PPI up 0.9% month-on-month (forecast: 0.2%). It marks the strongest monthly rise since 2022. The annual PPI reached 3.3%, the highest level since February.
Import prices also moved higher, up 0.4% in July after a downwardly revised -0.1% in June. Forecasts expected no change. Although tariffs are excluded, the data suggest exporting countries are unwilling to absorb the extra costs, passing them on instead.
Consumer sentiment in the US deteriorated for the first time since April. The University of Michigan index fell to 58.6 in August (July: 61.7, est.: 62). Inflation expectations rose, and households reported much worse buying conditions for durable goods.
Markets: slowly change to profit taking
US equities slightly negative after reaching new all-time highs
US yields moving higher with the 10-year Treasury above 4.3%
US dollar continues to weaken
My View: The data mix is an explosive cocktail: rising producer and import prices paired with weakening consumer sentiment. Tariffs are beginning to seep into inflation metrics, and higher costs are now visible in wholesale and import data. At the same time, households feel the squeeze, reflected in the sharp decline in sentiment and buying conditions.
Markets are still hoping that rate cuts will shield the economy, with September expectations leaning toward a 25 bps cut, and even chatter of 50 bps. But such aggressive easing would not be a sign of strength—it would confirm underlying weakness.
For now, the contradiction persists: inflation is heating up while consumer sentiment turns down. Investors should not ignore the risks. The cocktail of tariffs, higher prices, and weakening demand could quickly undermine the current optimism in risk assets.
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