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Stale Relief
Price pressures abated in the US last month, key data out Friday showed.
The news was welcome, but expected. It felt stale, and not just because the numbers reflected July's developments.
Headline PCE prices rose 6.3% YoY last month, less than forecast. The 4.6% core print was the coolest of 2022.
As the all-too-familiar figure (above) makes clear, calling these readings a "game changer" is a ludicrous stretch. Consensus expected 6.4% from the 12-month PCE print and 4.7% from core.
Fed off
Fair summary. If these trends continue in September you will probably see a 50bp hike in Fed targets in September. It looks like the Fed may have to go a total of 100 more this year, and rather than hiking more, leave them up there for some time (no fast pivot). At least that looks like a decent punt. Always well to keep in mind that taking Powell and the rest of the Board at face value it is all dependent on economic data going forward.
Oil curving back up, NG making new highs, US storage is low and falling, SPR releases about to end, Europe diesel demand soaring, Saudi talking about cutting output, Iraq deal mired, larger oil companies holding line on production, IRA boost to O&G will take years to manifest. The only thing that is keeping energy from resuming its MOM inflationary role is, as far as I can tell, falling crack spreads and China slump. MPC VLO price action implies spreads won’t keep sinking. China probably still deflationary for some time.
Logically Saudi should cut output ahead of midterms and Putin should cut Europe off ahead of winter.