The market is watching closely for today’s data readings, another inflation indicator that adds more fodder for the Fed when deciding the next federal rate, standing at 5.5%, the highest level since January 2001.
US CPI which was recently released showed an easing of price pressures as it increased but by less than expected in July at 3.2% (YoY) compared to a forecast of 3.3%.
One reason might be that the number of filings for unemployment benefits last week exceeded expectations by a small margin, suggesting there may be a slight easing of the tight job market; thus, contributing to a decline in inflationary pressures.
The Producer Price Index (PPI) measures the change in the price of goods sold by manufacturers, is another leading indicator of inflation. It is expected to increase further to 0.2% MoM in July from 0.1% reported in June 2023, and 0.7% YoY. While core PPI is expected to increase 2.3% YoY in July compared to 2.4% in the previous month. While on a monthly basis, it is expected to rise 0.2% MoM compared to 0.1% in the previous month. Investors highly anticipate the data as a reading higher than expected is usually bullish for the USD, and vice versa according to analysts.
Another important reading to be announced today is the Preliminary Michigan Consumer Sentiment Index which indicates the relative level of consumers’ confidence in the economic environment based on surveys of random samples of US households. If the reading beats the market’s expectations, it can be perceived as bullish for the USD and vice versa. It is expected to be revised downward to 71 points in August compared to 71.6 points reported last month, the highest reading since October 2021. historically, the index shows that consumers' confidence tends to decline during recessionary periods and increases in expansionary periods.
To sum up, the Producer Price Index (PPI) and Consumer Sentiment Index offer valuable insights into the state of the economy and consumer confidence. PPI shows the producer's perspective, whereas the Consumer Sentiment Index gauges consumers' perceptions of the economy and their propensity to spend. By monitoring these indices and understanding their significance, we can better assess our investing decisions.
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