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After an unexpected uptick in June, July’s Producer Price Index (PPI) posted a welcome decline Tuesday, reinforcing the broader disinflationary momentum in the U.S. economy and adding weight to the case for imminent rate cuts.
On an annual basis compared to July 2023, the overall producer basket rose by 2.2%, marking a steep reduction from the previous 2.7% and coming in below the expected 2.3%.
Prior to the PPI report, Investors assigned a 52% probability of a 50-basis-point rate cut in September, slightly edging out the 48% chance of a smaller reduction, according to the CME Group‘s FedWatch tool.
The lower-than-expected PPI reading strengthens the argument for a larger rate cut, though investors will likely assign a higher weight to the crucial Consumer Price Index (CPI) report set to be released Wednesday.
Futures on major U.S. equity averages traded higher during Tuesday’s premarket trading. Treasury yields inched slightly lower across the board.
On Monday, the broader stock market, as tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY), closed flat, while the tech-heavy Nasdaq index, monitored by the Invesco QQQ Trust (NASDAQ:QQQ) inched up slightly by 0.2%.
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