Trade Desk Thoughts - PPI

PPI (July) Actual 1.2%, Expected 0.6%, Previous 1.8%

Release Explanation: The rate of inflation of manufacturers when purchasing Goods and Services; the rate of Inflation at the factory Gate. An increase in the price of raw Goods and services usually gets passed on to the consumer; therefore this is the first stage on Retail Inflation. This can go on to affect CPI, Retail Sales and Consumer Confidence. This is an inflationary report and therefore is a pre-cursor to CPI data.

Trade Desk Thoughts: Inflation came in a twice the expected rate, bring the yearly rate to 9.8%. Core PPI was 0.7% for the month, which was more than twice as high as estimated and is evidence that higher food and fuel prices spilled over to core measures. However, July's report did not pick up the full effect of the fall in commodity prices and with the slide during August, analysts expect this number to come off a bit in future readings. Traders in Fed Funds Futures have been decreasing their bets for a rate increase this year. A recent survey of money managers saw a 90% chance for the Fed to stay on hold through the December meeting and with the Fed's special lending facilities operational until the end of January 2009, it's highly doubtful to see a move before then. Market participants will be paying close attention to the upcoming meeting at Jackson Hole for any clues regarding monetary policy.

Forex Technical Reaction: The dollar was gaining on the euro, pound and yen in the first few minutes after the morning's reports were released, but was losing value against all three afterwards.

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