Friday, August 12, 2022
We close out pre-market activities on this eventful week with one more key piece of inflation data out this morning: Import and Export Prices for July. Like we saw in favorable CPI and PPI data earlier this week, both headline and sub-headline prints are decidedly favorable in terms of inflation metrics: -1.4% on headline Import Prices last month, -0.7% ex-petrol (oil). Year over year, we’re +8.8% — still high, but well off the +9.5% expected and +10.7% in the rearview mirror.
These are exceptional numbers when we consider they come a mere few months off all-time highs (going back to 1989): +1.5% in January, a difference of nearly 300 basis points (bps). Clearly, we’re seeing the results of a stronger dollar at work, even just month over month, where headline import prices were upwardly revised to +0.3% in June. This also suggests, as CPI and PPI numbers did, that pressuring inflation on the interest rate side is having direct effects on important segments of the economy.
Exports came in at -3.3% — a huge drop from the +3.9% we saw reported back in March (also an all-time high going back to ’89), for a change of -720 bps in a matter of four months. Exports year over year came in at +13.1% in July, more than a 5% drop since May’s +18.7%. Peak prices in global trade appear firmly is our recent past; this is good news for those of us concerned with high inflation eroding economic growth in the U.S.
Traded goods prices take time to react to currency fluctuations, but when they do, as we see this morning, they can make a marked impression. To be sure, these trade figures are a result of a strong dollar, but contributions from China reopening and satisfying some of the supply-chain tension is also helping reduce costs in shipping, etc. Inventory reduction is key for growth, as well.
Pre-market futures aren’t reacting too much to this data — indices were up prior to these reports’ release, and have stayed there — but that doesn’t mean it isn’t a key element to drawing down overall inflation, the way CPI and PPI results are. In all, this has been a very good week for the Fed to see the fruits of its labor, and should we continue to see favorable inflation data this may nudge the Fed into raising rates slower than they have so far this summer.
Currently, the Dow is +150 points, the Nasdaq +85 and the S&P 500 +25 points. Over time, we’ve ascended nicely from June lows: the Dow +11.5%, the S&P +14.7% and the Nasdaq +20%. The question now becomes: can we sustain this positive, data-dependent sentiment in the markets, or should we be concerned these shifts will be pulling back too far and send us into recessionary conditions? This is why the Fed’s “soft landing” is such a challenge. But to this stage, at least, the data is favorable that the Fed is delivering.
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