Analysts at Nomura explained the key data points that supported the dollar’s advance across the board.
Key Quotes:
“Review PPI:
PPI inflation came in at 0.3% m-o-m in June after registering 0.5% m-o-m in May. Excluding volatile food, energy and trade prices, PPI inflation was at 0.3% m-o-m. Pipeline price pressure appears to have remained modest despite elevated readings of the ISM manufacturing prices paid index. Prices of processed materials for intermediate demand rose only 0.7% m-o-m, while those of unprocessed materials fell 1.0% m-o-m. Finished consumer goods prices excluding food and energy rose a modest 0.1% m-o-m. Overall, the impact on our June CPI forecast appears to be muted after considering offsetting effects. Consumer food prices fell 0.9% m-o-m, suggesting some downside risk to CPI food prices. However, residential electricity prices were up decently by 0.4% m-om, pointing to some upside risk to CPI energy prices.”
“The implications on June core PCE prices appear to be somewhat mixed. Finance and insurance service prices continue to fall, and contracted 0.2% m-o-m. The prices of scheduled passenger flights were down 0.8% m-o-m. However, the changes in prices of brokerage services and portfolio management were within their steady range. Hospital services fell 0.1% m-o-m (non-seasonally adjusted). The implications on y-o-y inflation of core PCE prices appear muted as February estimates were revised down while March estimates were revised up notably as the BLS reflects incoming data. “
Wholesale inventories:
The final estimate of wholesale inventories revised up the May reading by 0.1pp to a 0.6% m-o-m increase. Excluding petroleum and related products, inventories were up 0.5% m-o-m. Most durable goods inventories rose steadily except for motor vehicle and vehicle parts. The inventories-to-sales ratio fell to 1.24 in May from 1.31 in April, driven by improvement in sales. It appears that continued buildup in inventories has been driven by wholesalers’ optimistic outlook on economic conditions, which appears consistent with the firm momentum in the economy in Q2.
GDP tracking update: PPI of residential property sales, brokerage fees, and commissions increased more strongly than we expected in June, suggesting less real residential investment in Q2. The inflation of PPI of intermediate goods moderated in June after a strong pickup in May, but this slowdown was not as sharp as we expected. This implies less real changes in inventory in Q2. In addition, the final report of wholesale inventories revised up May estimates, but the revision was not big enough to offset the price effect. Altogether, we lowered our Q2 real GDP tracking estimate by 0.1pp to 4.7% q-o-q saar.
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