Market 07/12: PPI rises again - corporate profit margins still high

June PPI higher than expected: service business profit margins still high

June PPI growth higher than expected - previous month's data also revised up

Unlike yesterday's CPI report, today's PPI data shows producer inflation still high: especially as previous month's data also adjusted up…

• June headline PPI rises +2.6% YoY (est +2.3% | prev +2.4% - revised up from +2.2%).

• Core PPI rises +3% YoY (est +2.5% | prev +2.6% - revised up from +2.3%) - highest since March 2023.

Monthly PPI data also shows the same trend

• Headline PPI rises +0.2% MoM (est +0.1% | prev 0% — revised from -0.2% )

• Core PPI rises +0.4% MoM (est +0.2% | prev +0.3% — revised from 0%).

Services PPI contributes most to the rise - Energy prices fall

• PPI rise mainly due to prices services (up +0.6% MoM)

  • …offsetting the decline in energy prices.

• Trade costs (wholesale and retail services) rise +1.9% MoM.

• Prices goods have recorded declines for 2 consecutive months.

Final demand wholesale trade profit margins still high

• While PPI Final Demand rises sharply as above, raw materials and intermediate processed goods prices continue to fall:

• This shows that the profit margin of wholesale companies is ultimately quite high.

• In particular, the selling prices of service enterprises are still very high:

  • For example, financial portfolio management costs increased +12.8% YoY (although the growth rate has slowed compared to the previous month +16.7%).

• However, the consumer side is not very promising.

  • Consumer lending activity in the PPI basket decreased -8.9% MoM in June.

Market reaction:

• The PPI report does not significantly affect expectations for interest rate cuts.

• September cut expectations remain high at ~95%.

• The PPI report shows that the profit margins (profit margin) of businesses (especially in the service sector) are still high, causing the stock market to rebound:

  

UMich consumer sentiment index declined in July

• Overall consumer sentiment index fell to 66 (forecast 68.5 | previous month: 68.2).

• Current conditions fell 64.1 (previous month: 65.9) - the lowest since December 2022.

• Future expectations fell 67.2 (previous month: 69.6).

Both short- and long-term inflation expectations declined

• 1-year and 5-10 year inflation expectations both fell to 2.9% (previously 3%).

• Consumer confidence in shopping, especially for big-ticket items (like houses and cars), dropped sharply => inflation pressure on consumer behavior.

Bank earnings reports: JPMorgan, Wells Fargo, Citigroup

JPMorgan ER: Revenue beat expectations due to growth in investment activities

• Net revenue: up +22% YoY, reaching 50.2 billion USD (up 4.6 billion USD from forecast).

• Net income: 7.9 billion USD

  • …thanks to Visa stock trades.

• Net income: 18.1 billion USD.

• Non-GAAP EPS: 4.40 USD (0.11 USD lower than forecast).

• Deposits and loans unchanged from previous quarter.

FY 2024 Forecast:

• Net Interest Income (NII): ~91 billion USD (unchanged).

Wells Fargo ER: Net Interest Income misses estimates

• EPS: 1.33 USD (higher than forecast: 1.29 USD).

• Revenue: 20.69 billion USD (beats forecast: 20.28 billion USD).

• Net Interest Income: 11.92 billion USD (forecast: 12.12 billion USD).

• Average total deposits: 1.35 trillion USD (< forecast: 1.36 trillion USD).

FY 2024 Forecast:

• Net Interest Income expected to decline but not too concerning ~7-9% from 2023 levels.

Citigroup ER: Profits and revenue beat expectations

• Revenue: 20.14 billion USD (estimate 20.10 billion USD).

• EPS: 1.52 USD (estimate 1.40 USD).

• Net income: 3.2 billion USD (up from previous 2.9 billion USD).

• Operating expenses: down 13.4 billion USD.

Some other news:

1. Japan may have spent ~22 billion USD to support the Yen overnight (US time) after yesterday's US CPI report.

2. SpaceX Falcon 9 rocket experiences rare mishap, forced to land and operations suspended until the Federal Aviation Administration (FAA) approves the investigation into the incident.

3. China's M1 money supply (Real M1, often considered a leading indicator) drops sharply -5.2% YoY in June - the largest decline since January 2020.

   • M2 money supply up +6.2% YoY, but still lower than forecast +6.8%.

• Credit growth in China is at its lowest ever:

  • Total Yuan loans in the first 6 months were 13.27 trillion CNY, lower than expected 13.386 trillion.

4. SoftBank acquires UK AI chip startup Graphcore.