PRICES TICKED UP
In June, producer prices in the U.S. rose slightly more than anticipated, driven by increased margins at service providers. According to data from the Bureau of Labor Statistics, the producer price index (PPI) for final demand went up by 0.2% from the prior month and increased by 2.6% compared to the same month last year. This rise in service sector costs, which saw a 0.6% increase due largely to a 1.9% jump in margins at wholesalers and retailers, offset a 0.5% decline in goods prices. Meanwhile, when excluding volatile categories like food, energy, and trade, prices remained unchanged. Furthermore, the report also highlighted mixed trends in various categories: airfares rose by 1.1%, and prices for portfolio management services increased by 1%, while health care costs saw modest hikes with physician care and hospital outpatient care edging up by 0.2% and 0.1%, respectively. Additionally, prices for processed goods, which are early in the production pipeline, fell by 0.2%, marking the third drop in four months.
STRUGGLES DESPITE OPTIMISM
Following the positive news from a U.S. inflation report, the crypto market experienced significant activity, with Bitcoin struggling to overcome a critical resistance level. The report, which announced the first drop in consumer prices in four years, initially boosted market sentiment, leading to increased bets on a Federal Reserve rate cut. This optimism momentarily pushed Bitcoin higher, almost breaking the descending trendline set around $72,000, which would have indicated a possible end to the decline observed since early June. However, these bullish expectations were short-lived as Bitcoin’s price quickly fell below $57,000, suggesting further weakness ahead. This pattern mirrored a similar rejection on July 1 that deepened the sell-off. Nonetheless, despite the current bearish momentum, it is worth noting that there are still signs of potential recovery. The daily MACD histogram indicates a possible bullish momentum shift, and the supply pressure from Germany’s Saxony is diminishing. In additiona, it is still unclear how much BTC from the 95,000 due to Mt. Gox creditors will hit the market. Crypto broker FalconX highlights that a $16.3 billion FTX repayment might boost buying, alongside a more favorable crypto stance and a potential rate cut in September, offering hope for medium- and long-term investors.
NO SIGN OF SLOWING
The U.S. budget deficit has reached nearly $1.3 trillion for the first nine months of this fiscal year, as reported by the Treasury Department, showing a 9% decrease from the same period last year. However, the deficit is expected to grow larger due to several contributing factors. In June alone, the deficit was $66 billion, a number that would have been much higher if not for calendar-related payment quirks. Compared to last fiscal year, revenue has increased by 10%, partly due to postponed tax deadlines for disaster-affected taxpayers, while spending has risen by 5%. Moreover, there is a major concern in regards to a 33% increase in interest spending on public debt, and the Congressional Budget Office (CBO) has stated that it projects the deficit to reach $1.9 trillion by the end of fiscal 2024, surpassing last year’s $1.7 trillion. Factors contributing to the growing deficit include higher costs for student-loan relief, resolving bank failures, and increased Medicaid spending.
STUBBORN HOUSING COSTS
Housing inflation in the U.S. remains notably high, even as overall inflation has cooled from its pandemic peaks. In fact, this slow decline in housing costs is the primary factor preventing the consumer price index (CPI) from hitting policymakers’ targets, according to economists. Housing, which includes rent prices, accounts for a substantial 36% of the CPI, making it the most influential category compared to others like food and energy. In addition, despite some progress, the decline in “shelter” inflation, which measures rental prices, has been slower than anticipated as although it dropped to a 5.2% annual rate in June 2024 from a peak of around 8% in early 2023, it remains about 2 percentage points above pre-pandemic levels. This sluggishness contrasts with new rental contracts, where annual inflation has plummeted to 0.4% in early 2024, significantly lower than pre-pandemic rates. Ultimately, housing infation do seem to be on a positive direction, but on a slow pace, and it is the “last remaining leg” before CPI normalizes.
MIXED EARNINGS
As for the latest earnings reports from the banking sector, Wells Fargo’s second-quarter profit fell short of analysts’ expectations due to higher deposit costs amid intense competition for customer funds, leading its shares to drop over 5%. The bank’s net interest income decreased by 9% to $11.92 billion, below the anticipated $12.12 billion, while the average deposit costs rose significantly to 1.84%, compared to 0.71% in the same period last year. Yet, it is worth noting that despite the challenges, Wells Fargo’s profit still exceeded expectations at $1.33 per share, aided by increased investment banking fees. Moreover, JPMorgan Chase reported a 25% increase in net income to $18 billion, driven by a significant gain from an exchange of Visa shares, however, its net interest income fell for the second consecutive quarter. Furthermore, Citigroup also reported positive results as it surpassed profit and revenue expectations, reporting earnings of $1.52 per share and revenue of $20.13 billion, boosted by a recovery in Wall Street activity. Nevertheless, it is important to highlight that Citi continues to face regulatory scrutiny over its risk and data management practices.
