Bitunix analyst: PPI cooling reduces pressure to raise interest rates, but core prices and long-term bond supply still limit interest rate space
Comparatively, the monthly PPI rate in the US unexpectedly remained flat in July, and the annual growth rate fell to 4.7%. Coupled with the simultaneous cooling of the CPI announced the day before, it shows that the fall in energy prices is easing inflationary pressure on the production side, and the market's bet on the interest rate hike in September has also dropped from about 50% to about 35% to 40%. However, after excluding food, energy, and trade services, the core final demand PPI increased by 0.4% per month, indicating that the underlying price pressure has not completely subsided; the number of people receiving initial unemployment benefits has risen to 209,000, which also reflects some signs of cooling down in the job market.
What is really noteworthy is that cooling inflation has not simultaneously solved America's long-term financing problems. The US 30-year Treasury note was auctioned for $25 billion at a bid interest rate of 5.216%, the highest issuance yield since 2001. In an environment where there is a high fiscal deficit, an increase in the supply of treasury bonds, and the Federal Reserve is no longer the main buyer, long-term US bonds require a higher maturity premium to absorb supply, which means that capital costs for the US economy will not necessarily fall rapidly as short-term inflation cools down.
Meanwhile, after Japan interfered with the yen, the dollar once again approached 160 against the yen. Instead, some arbitrage traders used the yen's rebound after the intervention to re-establish financing transactions. As long as the spread between the US and Japan still exists, it will be difficult for the yen to lose its appeal as a low-cost financing currency. If the Bank of Japan raises interest rates or intervenes again in the future, it may lead to higher exchange rate and leverage fluctuations.
Overall, the July inflation data does provide more room for observation, but this does not mean that financial conditions will ease quickly. While short-term interest rate pressure is falling, the US fiscal deficit, long-term bond supply, energy prices, and yen arbitrage may still affect asset pricing through long-term yield rates and global capital costs. For the market, what really matters next is not a single inflation data, but whether inflation can continue to cool down and whether long-term capital costs can fall at the same time.
