US DATA: PPI Suggests Tariffed Pipeline Price Pressures Less Acute Than Feared
Jul-16 13:01
The June Producer Price Index report was roundly softer than expected - and certainly than feared given the context of rising tariffs - despite some upward revisions to prior. While core goods prices did indeed advance, the rise was consistent with the increases seen over the last 6 months rather than a sudden surge.
- The main headline reading was flat PPI % M/M (0.01% unrounded), vs expectations of a 0.2% rise (though this was offset by an upward revision to May, to 0.30% from 0.13%). That left Y/Y PPI at the softest level (2.3%) since September 2024, and down from 2.7% in May. Ex-food and energy final demand inflation unexpectedly fell, by 0.04% M/M (+0.2% was expected), though again May's upward revision must be considered (0.35%, upward rev from 0.14%).
- The core ex-food/energy/trade services reading though was negative for the 2nd month in 3, with only a modest upward rev, coming in at -0.05% M/M (+0.2% expected), with May revised up only marginally (+0.14% from +0.05%). This core category is now deflating for the first time on a 3M annualized basis since June 2020, with the 6M rate slowing to 1.8%, softest since September 2020 - suggesting momentum is waning, not increasing.
- Final demand goods rose by 0.3% M/M - the biggest rise since February - driven by core (ex-food and energy) goods rising 0.3%, with final demand energy and food rising 0.6% and 0.2% respectively. There was some potential tariff-related price hikes here, with communication and related equipment prices rising 0.8% M/M.
- But the core goods reading remained within the 0.2-0.3% M/M range that has prevailed in every month of 2025 so far, so there is not yet clear evidence that tariffs are having an outsized effect in this category. Finished consumer goods ex-food and energy actually saw inflation dip slightly, to 0.2% M/M from 0.3% in the 2 prior months, though core durables remained elevated at 0.4% vs 0.1% nondurables.
- This offset a 0.1% decrease in final demand services, though this was largely for travel services - traveler accommodation services fell 4.1% M/M and as noted earlier, passenger airfares fell 2.7% (after falling 0.9% in May).
- Trade services was a drag on PPI in June (-0.04%), there was a strong upward revision to 1.12% from 0.44% for May that appears to account for most of the prior revision, and this is a category that is not just volatile, but largely imputed from trade margins as opposed to a market-based price.
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FRANCE T-BILL AUCTION RESULTS: 13/26/28/52-week BTFs
Jun-16 12:57
| Type | 13-week BTF | 26-week BTF | 28-week BTF | 52-week BTF |
| Maturity | Sep 17, 2025 | Dec 31, 2025 | Jan 28, 2026 | Jun 17, 2026 |
| Amount | E3.4bln | E1.996bln | E483mln | E1.799bln |
| Target | E3.0-3.4bln | E1.6-2.0bln | E0.1-0.5bln | E1.4-1.8bln |
| Previous | E498mln | E1.798bln | E1.6-2.0bln | E1.899bln |
| Avg yield | 1.948% | 1.953% | 1.930% | 1.940% |
| Previous | 1.943% | 1.963% | 1.953% | 1.943% |
| Bid-to-cover | 3.69x | 2.78x | 7.65x | 3.53x |
| Previous | 5.88x | 4.68x | 2.78x | 4.54x |
| Previous date | Jun 10, 2025 | Jun 10, 2025 | Jun 16, 2025 | Jun 10, 2025 |
SOFR OPTIONS: Citi Recommend Adding To SFRZ5 97.00 vs. 0QZ5 97.375 Calls
Jun-16 12:54
Citi have recommended adding to an existing long SFRZ5 97.00 call vs. 0QZ5 97.375 call position at 5.0.
- They initially deployed this trade recommendation in April and write “while the mark-to-market has been slightly negative, we add. The vol. differential is in your favour on this structure, so the strike spread is below forwards”.
- This comes ahead of Wednesday’s FOMC, with Citi noting that they “expect a neutral to hawkish FOMC given the still-large uncertainty around the path of inflation. Our economists expect two cuts in the SEP for 2025, and that sounds reasonable to us with a risk for just one cut. Geopolitical moves make two cuts the likely outcome. To be clear, there are downside risks to the economy. Last week’s claims data could be the start of a seasonal uptrend, as seen the past few years. The front-end Fed funds market is pricing in a gradual easing cycle towards mid-3% in 2026. This is a reasonable modal outcome, but we think the downside tail risk, especially for 2025, is underpriced”.
US DATA: Poor Activity, But Much-Improved Outlook In Empire Manufacturing Survey
Jun-16 12:52
The NY Fed's Empire Manufacturing survey unexpectedly saw the headline General Business Conditions index worsen in June, to a 3-month low -16.0 (-6.0 expected) vs -9.2 in April.
- This was a surprise as the Empire survey is conducted early in the month, and May's deterioration (-8.1 to -9.2) had been seen as not reflective of the May 12 US-China tentative tariff deal which saw sentiment improve in other surveys conducted later in the month.
- New orders pulled back sharply, from a positive 7.0 reading in May, to -14.2, a 3-month low, with shipments also declining. We also note higher delivery times and lower inventory levels, with the Supply Availability index ticking up to -8.3 from -11.4 but still suggestive of worsening supply availability.
- That said, this was a very mixed report as there was some notable improvement in other subindices. Most notably, the 6-month-ahead reading jumped to 21.2 (-2.0 prior), a 4-month high. And employment rose to the first positive reading (4.7, from -5.1 prior) since January, and the best level outright since December 2022, suggesting some hiring in the month.
- Even within the 6-month outlook, results were extremely mixed: "New orders and shipments are expected to increase, and firms expect supply availability to be only slightly worse in the months ahead. Capital spending plans remained soft." Indeed capex plans were the weakest since 2020.
- There is probably more noise in this report than signal, given how mixed these readings are (and how volatile the survey is even in normal times).
- One largely clear finding though was that inflation components in the survey eased from multi-year highs in May: prices paid fell to 46.8 from 59.0, with 6-month expectations falling to 59.6 from 66.7, suggesting that the worst of the perceived price pressures may be over.
