Yesterday, the US Bureau of Labor Statistics released data on the Producer Price Index (PPI) for July. This indicator, along with others that track future production orders, is widely regarded as a leading one because it indirectly mirrors what lies ahead in the coming months. The most recent statistics were far from optimistic. PPIs surged across all categories, with the monthly figure rising from 0.0% to 0.9%, thus significantly exceeding the 0.2% forecast. The overall Producer Price Index exhibited a similar trend, hiking from 0.0% to 0.9%. Meanwhile, the core PPI excluding food, energy, and transportation increased from 0.0% to 0.6%.
The last time prices rose so sharply was in the aftermath of the COVID-19 pandemic, when the Fed aggressively stimulated the economy by making money cheap and plentiful. Markets are now witnessing the early effects of a new inflationary cycle fuelled by the US administration's tariff policies. Manufacturers are the first to feel the impact, as they must factor in higher duty-related costs when setting prices. However, these costs will eventually be passed on to buyers, meaning that consumer price indices are likely to rise in the coming months. Having hit producers, the wave of inflation will soon reach end users—those who purchase goods and services.
The market reacted in no time: the greenback strengthened against all other currencies, as well as stocks and indices. Although prices later recovered to pre-report levels, the initial response sowed significant doubt among investors as to whether the regulator will proceed with monetary easing in September. The US dollar gained clear bullish momentum, which is set to persist until the Federal Reserve's meeting next month.
In these circumstances, the S&P 500 Index (SPX) may see a second wave of corrections in the future.
The overall recommendation is to sell SPX.
Profits are taken at the level of $6,430. Stop Loss is set at $6,500.
The volume of your open position should be calculated so that the potential loss (protected by a Stop Loss order) does not exceed 1% of your deposit. If your account balance doesn’t allow opening a position of this size, it’s better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.
This content is for informational purposes only and is not intended to be investing advice.
