Thursday, July 14, 2016

"Wholesale Inflation Increases in June; Treasuries Fall"

In March both the Fed Chair and Vice-Chair commented on how headline inflation would play out, which we relayed in "Barron's Cover--'Bill Gross: Why Interest Rates Must Rise'":
...Combined with inflation rising just by virtue of commodities, especially oil and metals, not falling, a phenomena both Fed Chair Yellen and Vice-Chair Fischer mentioned in speeches last month, we are set up for a bit of minor stagflation.
From Barron's Income Investing:
June’s Producer Price Index (PPI), a measure of inflation at the wholesale level, surprised investors by posting a bigger than expected gain. The headline number rose 0.5% , according to the Labor Department’s report, when a 0.2% gain was expected. Last month it rose 0.4%. The core rate also jumped vs. expectations.

The increase is due to the rise in commodities since February and isn’t unexpected. But it does foreshadow potential for a higher than expected Consumer Price Index (CPI) report, which is due Friday morning.

Treasuries fell with their yield climbing above 1.54% — the highest level since before the Brexit vote. Investors were embracing risk as signs of economic strength in the U.S. emerged, including a dip in jobless claims, at the same time foreign central banks considered more easing of monetary policy. The yield on the benchmark 10-year note was 7 basis points higher than Wednesday’s close by 9:15 a.m. ET, according to Tradeweb.

MarketWatch’s Jeffrey Bartash offered this context on Thursday’s PPI report:...MORE
"The Fed Is Going to Let Price Inflation Run Hot"
"Janet Yellen reiterates need for interest rates caution" (TIP)