15.07.2026 - Second Inflation Surprise - Bull Trap?
Producerr prices unexpectedly declined in June, providing financial markets with a second consecutive day of encouraging inflation data.
The Producer Price Index (PPI), which measures wholesale inflation, fell 0.3% during the month, surprising economists who had expected no change. Core PPI rose just 0.2%, while the closely watched core measure excluding trade services increased only 0.1%, also coming in below expectations.
This follows yesterday's softer-than-expected CPI report, where headline inflation rose only 0.4%.
Together, the two reports reinforce the view that inflation pressures eased during June, largely thanks to declining energy prices over the reporting period.
Markets:
Equities: supported by positive inflation reading
Bonds: US government bond yields fall for a second day, US 10y yield around 4.55%, Japan 10y yield 2.68%
Commodities: Oil prices extended rally, with WTI around USD 80/barrel and Brent around USD 86/barrel
Precious metals: slightly lower, gold to USD 4’050/oz, silver trades near USD 58/oz
Currencies: USD fell a second day
Cryptos: rallied - Bitcoin moving above USD 65k
Volatility: The VIX index fell back below 16 (attractive for hedging)
My View: I continue to believe investors should be careful not to overinterpret these inflation reports.
Both yesterday's CPI and today's PPI are backward-looking. They largely reflect the sharp decline in oil prices that occurred during the reporting period. Since then, the environment has changed considerably.
Following the renewed escalation in the Middle East, the United States is officially back at war with Iran, while energy prices have already rebounded significantly. If oil prices remain elevated, or rise further, the inflation picture could deteriorate again over the coming months.
Higher energy costs eventually feed through transportation, manufacturing and services, creating the risk of renewed second- and third-round inflation effects across the broader economy.
For that reason, I continue to view these two encouraging inflation reports as a potential bull trap. Financial markets appear to be pricing a much more benign inflation outlook than current geopolitical developments justify.
As a result, I still believe US interest rates are likely to remain higher for longer than markets currently expect. Inflation risks have not disappeared, they may simply have been delayed.
Another factor currently worth watching is volatility. Despite ongoing geopolitical uncertainty and rising inflation risks, implied market volatility remains at relatively low levels. This makes equity hedging more attractive, as option premiums are still comparatively inexpensive. For investors looking to protect gains or reduce downside risk, the current environment offers an opportunity to establish hedges at a lower cost than during periods of market stress.
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