June PPI Rises Less-Than-Expected

MACRO FRAME

The military exchanges between the US and Iran re-inflate the geopolitical risk premium in energy and add a hawkish skew to the macro backdrop.

STOCK INDEX FUTURES

Equity index futures moved higher following the release of PPI data, while the earnings backdrop has been supportive. The US launched a new wave of strikes against Iran overnight after reimposing a naval blockade on Iranian ports. Iran’s IRGC says it has struck US military targets in Bahrain, Kuwait, and Jordan in response to the latest strikes. The IRGC is now threatening to “shut off” more regional energy exports, warning that the US should “brace for the closure of all other export corridors that benefit the US and its allies,” implying the Bab el-Madeb off Yemen.

The market is leaning on a solid start to Q2 earnings as a key support, with big banks’ strong results providing a positive read‑through on financials and broader risk appetite. Today’s earnings focus includes Johnson & Johnson, Morgan Stanley, BlackRock, and United Airlines, with investors looking for another strong batch of reports to act as a fresh catalyst, especially amid worries that the AI boom could lose momentum. The equities environment has moved from being driven by macro headlines and AI‑related multiple expansion to one where cash flow, earnings, and company‑specific execution increasingly drive price direction. However, this could be a symptom of fatigue with current headlines as the market enters earnings season. June’s PPI data was friendly to prices, showing factory gate inflation fell -0.3%, below estimates for a reading of 0.0% MoM. Core PPI rose 0.2% MoM, below the consensus forecast for a 0.3% MoM rise while May’s figure was revised sharply lower from 0.4% MoM to 0.1% MoM. This follows June’s weaker-than-expected report, which saw core inflation making no moves on the month, while the headline figure fell -0.4% thanks to a fall is energy prices. However, against the current backdrop and rise in energy prices, traders and policymakers at the Fed could discount these readings depending on the scale of the renewed hostilities between the US and Iran and whether or not the rise in oil prices is contained.

Watch point: Equity volatility is being driven by increasingly concentrated bets in tech and semis, and that argues for a deliberate shift toward industrials and broader, real‑economy exposure amid the renewed fighting.

PPI – acronym from wooden blocks with letters, abbreviation Producer Price Index, Payment Protection Insurance PPI concept, random letters around

CURRENCIES

US DOLLAR: The USD index is little changed at 100.92 on the back of June’s PPI inflation data. Core PPI inflation is once proving to be the largest mover of the dollar today with its weaker-than-expected reading and with May’s revised figure sharply lower. However, rising oil prices and the geopolitical bid are supportive for the dollar and are likely to limit losses. For the dollar, unlike earlier phases of the conflict, the dollar is starting from a stronger base and with expectations of Fed tightening already priced in, so the scope for an additional war-driven surge is limited. The bias for the dollar is higher given Fed policy expectations and interest rate differentials that remain favorable to the dollar. Markets are pricing roughly 32 bps of Fed tightening priced by December, more or less where the market was at last week.

Watch point: June’s inflation data is bearish for the dollar, though the report’s impact may be partially overshadowed by the current geopolitical backdrop and the rise in oil prices.

EURO: The euro is little changed at $1.1424 as traders digest the escalating Middle East tensions, which would favor dollar safe haven appeal. Final CPI figures for the eurozone (Friday) will be closely watched for rate-hike timing expectations out of the European Central Bank, though against the current geopolitical backdrop and rise in energy prices traders and policymakers could discount the most recent inflation data if energy prices continue to rise. Industrial production  fell -0.2%, driven by lower output of durable consumer goods. YoY, production fell -1.2%. Expectations that the ECB will hike rates one more time before the end of the year have firmed with traders now pricing around 41 bps of tightening by December and 51 bps of tightening by April 2027.

Watch point: With the MOU seemingly done with, policy expectations are biased upwards though performance of EUR remains dependent on US inflation data and domestic growth factors.

BRITISH POUND: Sterling is 0.25% stronger at $1.3424, consolidating recent gains and holding near one-year highs against the euro and traders largely focus their expectations on a potential Bank of England rate hike later in the year ahead of upcoming data. Increased geopolitical risk, is in principle negative for the sterling given the UK’s reliance on imported energy and sticky domestic inflation. On the political side, betting markets are now favoring Yvette Cooper over the more fiscally expansive Ed Miliband. Cooper, on the surface presents slightly less near‑term risk of a sharp loosening in fiscal policy, which has helped keep gilt and FX sentiment on a steadier footing. Monthly GDP data out tomorrow will be watched for signals on the “stagflation‑lite” narrative, while a stronger print would support the idea that the economy has retained more resilience than feared, supporting rate hike expectations and the pound.

JAPANESE YEN: The yen is little changed at 162.20 yen per dollar. No new data overnight lends focus to developments in the Gulf and potential intervention from the government. For the yen, bearish pressure in expected to continue in the near-term. Investors are awaiting official intervention data later this month to determine whether the government was behind the yen’s sharp but short-lived rally on July 2. The market little changed regarding Bank of Japan policy expectations, pricing about 22 bps of tightening by year-end, with a move expected to come in January of 2027.

Watch point: With the yen sustaining a break above the 160 level, intervention from the government appears to be the greatest near-term risk against further depreciation.

AUSTRALIAN DOLLAR: The Aussie is 0.32% higher at $0.6997. Traders are still pessimistic over prospects of any tightening from the Reserve Bank of Australia. Markets are pricing a 46% chance of a hike before year-end and are flirting with the idea of rate cuts in late 2027. A survey of businesses out on Tuesday showed conditions remained soft in June, before the renewed fighting in the Gulf, while cost pressures eased modestly. Meanwhile, a separate survey showed the mood among consumers improved a little in July, but again that will be challenged by rising fuel prices. Renewed fighting in the Gulf presents a bearish risk for the Aussie. US-Iran developments will be closely watched in another thin week of economic data in Australia. With markets awaiting further data on the economy, the Aussie is likely to remain subject to geopolitical developments, mainly regarding moves in oil.

Watch point: While a durable end to the war would alleviate downside risks to growth and moderate inflation pressures, ongoing pass-through into broader prices is likely to be in focus in upcoming data.

TREASURY FUTURES

Yields moved lower across the curve post June PPI release in a bull-steepening move. Producer prices declined -0.3% MoM in June, following a downwardly revised 0.6% rise in May. Prices of goods fell -1.4% led by a 12% slump in gasoline, helping lower the headline figure, similar to yesterday’s CPI release. Meanwhile, prices of services rose 0.2%, with half of the gain coming from a 13% surge in margins for fuels and lubricants retailing. YoY, producer prices increased 5.5%; core producer prices rose 0.2%, below forecasts of 0.3 % and the annual core rate came in at 4.7%, below expectations of 5.2%. The print largely follows in the same footsteps as June CPI print: softer than May on a headline basis, but the disinflation story is still incomplete. The Fed will probably need to see further benign inflation readings before ruling out a rate hike later this year. Elsewhere, Fed Chair Warsh told the House Financial Services Committee on Tuesday that the central bank has “no tolerance” for persistently elevated inflation, and pledged to “do my job” if challenged by Trump, reinforcing the backdrop of a hawkish stance.

Watch point: Mainly, the renewed fighting and prospect that some inflation remain sticky reinforce a hawkish backdrop for the Fed despite a drop in the headline reading.

Interested in more futures markets?  Explore our Market Dashboards here.