CPI & Wholesale Inflation on the way down

TECHNICALS
Inflation Readings Lead The Way

🛒 Consumer Inflation Falls Below Key Milestone

• What happened? Consumer prices rose 2.9% over the past year, marking a slowdown from June's 3% gain and the first time inflation has dropped below 3% since March 2021.

• Key contributors: Shelter costs were the main driver, accounting for 90% of the increase. However, prices for energy, cars, and airfare remained flat or even decreased.

• Bottom line: Cooling inflation, alongside signs of a slowing economy and job market, is increasing the likelihood of the Fed cutting interest rates in their September meeting.

🏭 Wholesale Inflation Cooperates with Cool Reading

• What happened? The Producer Price Index (PPI) saw a minimal 0.1% rise in July, with the annual rate dropping from 2.7% to 2.2%.

• Why it matters: This cooler inflation on the wholesale level bodes well for future consumer inflation reports, particularly the Fed's preferred Personal Consumption Expenditures (PCE) index.

• Bottom line: This trend supports the possibility of favorable inflation readings ahead, which could further influence Fed rate decisions.

🏡 Home Builders Have Mixed Emotions

• What happened? Home builder confidence, as measured by the NAHB Housing Market Index, fell to 39 in August, the lowest since December.

• Bright spot: Expectations for future sales increased slightly, as builders anticipate lower mortgage rates could boost demand.

• Bottom line: While confidence is low, there's hope that falling rates will revive buyer interest and improve builder sentiment in the coming months.

🔨 Housing Starts Slowed, Signaling a Tight Inventory Picture Ahead

• What happened? Single-family housing starts dropped 14% in July, signaling tighter supply in the near future.

• Permits down: Building permits, a leading indicator of future construction, also fell, pointing to a potential shortage of new homes.

• Bottom line: The slowdown in construction could support higher home prices, offering continued opportunities for wealth building through homeownership.

🌞 Retail Sales Hotter for the Summer

• What happened? Retail sales rose 1% in July, exceeding expectations and signaling stronger consumer spending.

• Core reading: The Core reading, which impacts GDP, also beat estimates, hinting at a possible upward revision in GDP forecasts.

• Bottom line: Strong retail sales may lead to higher GDP estimates, reflecting a resilient consumer sector.

📝 Jobless Claims Dip Lower

• What happened? Initial jobless claims fell by 7,000 last week, and continuing claims also decreased, showing some improvement in the labor market.

• Why it matters: While fewer people are filing for unemployment, the high level of continuing claims suggests it's still challenging for some to find new work after being laid off.

• Bottom line: The labor market remains a mixed bag, with ongoing challenges for workers trying to reenter the workforce.

🔍 What to Look for This Week

• Housing Reports: Keep an eye on Existing and New Home Sales data releasing Thursday and Friday.

• Fed Focus: The Fed's July meeting minutes come out Wednesday, and the Jackson Hole Economic Symposium starts Thursday—both could impact the market.

• Technical Picture: Mortgage Bonds are moving higher, with room to climb until reaching resistance, while 10-year Treasury yields have also room to improve.