The Dow Jones Industrial Average spent most of Wednesday rewarding the disinflation trade and the final two hours dismantling it.
A surprise negative June wholesale inflation print at 12:30 GMT set off a grind that stretched 370 points to a session high of 52,830, and a late unwind then handed every one of them back
The index trades near 52,500, down around 0.12% on the day. Disinflation arrives with an asterisk The June Producer Price Index (PPI) fell 0.3% MoM against a consensus for a flat reading, pulling the annual rate down to 5.5% from 6.0% and undershooting the 6.2% forecast. The core measure rose a softer-than-expected 0.2% MoM, landing one day after Tuesday’s cooler Consumer Price Index (CPI) release had already prompted traders to scale back near-term tightening bets.
The New York Federal Reserve president supplied the rhetorical garnish, arguing there are encouraging reasons to believe inflation has peaked and should edge lower over the coming quarters. The awkward detail sits in the annual columns, where headline wholesale inflation at 5.5% and core at 4.7% both run at more than double the Fed’s 2% target; the core rate even accelerated from the prior month’s 4.6% while beating forecasts. Research desks canvassed after the release argued that single soft prints do not retire hike risk when the level remains this far from mandate, and that the tape is overreacting to one number at a time.