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PPI for June Came in Higher-than-Expected

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Yesterday morning, we saw a clear signal that June experienced a higher-than-expected rate of inflation with the latest Consumer Price Index (CPI) print. Today, we see its counterpart — the Producer Price Index (PPI) — also running hotter than anticipated: +1.0% tops the +0.6% estimate, and is also higher than May’s unrevised +0.8%. This is not far from the all-time high month-over-month PPI, which was January’s +1.2%.

Subtracting volatile food & energy prices (“core”), we also see a higher-than-expected +1.0%, showing some stickiness to these higher inflation numbers. Stripping out food, energy and trade, this figure slips to +0.5%, 20 basis points lower than the May print. Still, like yesterday’s CPI report, today’s PPI is likely to cast ripples through the stock market, with investors carrying a clearer understanding of how inflation is along for the ride.

Year over year, headline PPI is +7.3% — also higher than anticipated. Ex-food & energy is +5.6%, also higher. Ex-food, energy & trade, like in June’s monthly read, is the only one of these numbers to come in slightly below what was expected. In any case, inflation — long an elusive phantom in terms of Fed policy metrics — has at last shown itself in the mirror.

Is inflation still considered transitory" Many investors no longer believe so, but in Fed Chair Jay Powell’s statement ahead of his testimony to the House Financial Services Committee today, insists inflation has been boosted by year-over-year base effects, with strong demand in particular sectors having created “bottlenecks” of inflation. Powell says he expects it will remain elevated in coming months before moderating.

So in a word: “Yes,” Powell still sees inflation as somewhat transitory. As such, he says in his statement the Fed will only alter monetary policy if inflation is “materially and persistently” beyond levels consistent with the Fed’s goal, which is “still a ways off.” But consider how long the Fed has been trying to entice inflation to enter the U.S. economy; now that it’s here, Powell seems in no hurry to rub it out — especially with unemployment still at 5.9%.

Among the big banks and investment firms reporting Q2 earnings this morning, let’s do a quick recap:

Citigroup (C - Free Report) posted a big beat on its bottom line and a somewhat smaller beat on its top: $2.85 per share swept well past the $1.94 anticipated in the Zacks consensus, while $17.47 billion outpaced the $17.37 billion expected. The Zacks Rank #3 (Hold)-rated Citigroup (ahead of the earnings announcement) has not missed an earnings estimate since Q4 of 2014.

Wells Fargo (WFC - Free Report) posted its fourth-straight quarterly earnings beat this morning, with emphatic outperformance on both top and bottom lines: $1.37 per share surpassed the expected 95 cents per share, while revenues of $20.27 billion was way beyond the Zacks consensus estimate of $17.78 billion. Wells was also a Zacks Rank #3 ahead of the earnings release.

However, Bank of America (BAC - Free Report) shares are trading down nearly 2% in the pre-market on a mixed Q2 report, with earnings of $1.03 per share beating the 77 cents in the Zacks consensus but $21.5 billion in net revenues missing the $21.77 billion estimate. One-time charges amounting to $800 million, plus higher expenses in the quarter, are behind the bank’s second earnings miss in the past four quarters. For more on BAC’s earnings, click here.

Today at 2pm we will get a look at the latest Beige Book from the Fed, assessing economic conditions throughout the country. It will be the fifth of eight such reports released this year, the last being back on June 2nd. The Fed announced the winding down of its secondary market corporate credit facility in its last Beige Book report, but based on Powell’s scripted testimony this morning, we don’t expect any further news on tapering asset repurchases this time around.


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