A report released by the Bureau of Labour Statistics shows that the US seasonally adjusted Producer Price Index for final demand rose by 0.8% in May on a monthly basis. The 12 months ending in May saw prices jump 10.8% on a seasonally unadjusted basis. The primary index grew the most due to an increase in the prices of final demand goods by 1.4%. The final demand services index increased by 0.4%.
With the PPI confirming the CPI from last week, inflationary pressures are obviously increasing and causing prices to rise above expectations. If President Biden cannot reduce the cost of energy there is a real chance that the mid-terms elections will go very badly for him and the party, he represents. Talking up reducing the US Federal Deficit by $1.6 trillion sounds good but the reality is that the money is already allocated for this fiscal year and cannot be taken out of the spending. We have already seen what happens when increased taxation removes liquidity out of the markets, and that is also not a great way to get re-elected. The US dollar continues to press higher in the US dollar index as the greenback and the US become more attractive to lower yielding currency traders looking to add an extra couple of percentage points to their returns.
The EURUSD has closed the London session higher, but the selling pressure did return following the ZEW report highlighted that there are still some major risks around. The good news had been that the report had risen by 6.3 points from the previous reading.
Brent has come off its highs having pushed through the higher from yesterday and Friday. OPEC released a report today which stated that world oil demand growth is broadly unchanged at 3.4 million barrels per day (BPD) and that Q2 2022 demand had been revised down, with H2 2022 being revised up. The report also envisages that the US and Europe will both have their GDP growth revised lower but that consumptions remains robust.
Nasdaq is flirting with its opening price after pushing through yesterday’s low. With the Australian ASX dropping by -3.55%, the major global indices have had a bad day. As of this writing, the major US indices are all relatively down, but are clearly paused at these levels awaiting the FOMC meeting tomorrow. As the Fed and Bank of England prepare to increase interest rates later this week, the FTSE 100 fell 0.3% to 7,187.46 today, its lowest closing level since March 15th. Losses for the sixth straight session were attributed to fears of a looming recession amid a tightening monetary policy environment.