Just finished talking about an adverse macro shock, which could reverse the markets and there it is: The unexpectedly high PPI numbers put a question mark on the FED rate-cut in September.
The U.S. Producer Price Index (PPI) jumped 0.9% in July, marking the strongest monthly gain in over three years and lifting the year-over-year rate to 3.3%. Core PPI (excluding food and energy) also rose sharply by 0.6% MoM, a sign that underlying pricing pressures are gaining traction across the supply chain.
The spike was broad-based: food prices soared (fresh vegetables +38.9%), while diesel and meat costs also surged. Service-sector inflation accelerated as well, particularly in wholesaling, portfolio management, and transportation. While some of this reflects supply constraints and strong seasonal demand, a closer look reveals a more structural catalyst: import tariffs.
Recent policy moves—including expanded tariffs on Chinese and Asian imports—are beginning to ripple through the economy. U.S. producers reliant on imported intermediate goods are now facing higher input costs, which are increasingly being passed on. Rising wholesale margins, especially in machinery and equipment wholesaling, reflect this pass-through inflation—amplified by logistical bottlenecks and energy cost volatility.
This sharp PPI surprise raises new doubts about the timing and likelihood of Fed rate cuts. For markets, it signals that inflation is not fully contained—and that upstream cost pressures may soon feed into consumer prices. If this trend persists, the Fed may be forced to rethink its easing cycle amid renewed inflationary risk.
What’s next? The first hefty down-move, on low liquidity in premarket, does not mean too much. The price action during the cash session should be watched carefully, whether Dip-Buyers are stepping in or whether the selling continues..
--------Earlier Today ---------------
“Late-Cycle Risk-On: Small Caps and Alts Lead as Tariff Pressures Build”
Market picture. The crypto market has clearly entered alt-season, and equities show a similar rotation: the Russell 2000 is outperforming the Nasdaq and the Magnificent Seven—typically seen in the last leg higher of a bull market. When “shitcoins” rally or unprofitable stocks gain, the cycle is aging. This is happening on expectations of Fed rate cuts, which would provide cheaper funding for firms that rely on it most—unprofitable small caps. A September rate cut looks increasingly likely given softening labor signals and sticky (though not surging) inflation. Still, the setup remains questionable: lower rates often re-ignite inflation. Quantitative easing effectively shifts public debt burdens onto private balance sheets, and public debt is expected to rise sharply with the so-called “Big Ugly Bill.” Near term, this backdrop tends to support equities and other liquidity assets (including crypto) as new liquidity finds its way into risk assets. Meanwhile, tariff-related price pressures are already visible in several categories.
1) Inflation. Pass-through is building in tariff-sensitive goods. July CPI was benign overall, but categories exposed to new levies showed above-trend gains. The Fed is openly debating whether tariff effects are transitory or persistent. The tariff regime has effectively reset the price baseline, implying a structural cost upshift. Electronics face additional upside pressure from a proposed 100% chip tariff, with carve-outs for firms producing in the U.S., creating uneven consumer-price impacts across brands.
2) Trade volumes. “Front-loading” ahead of tariff start dates has been followed by softer trade into H2-2025 and 2026. Independent modeling points to lower growth and higher inflation in the U.S. and abroad when retaliation is considered.
3) Market angle. Rates and FX remain a tug-of-war: headline inflation is muted for now, but tariff-inflation concerns are cited as support for the long end of the curve. Watch for “rolling pockets” of price pressure as tariff timing shifts.
Our indicator. The S&P500 Indicator moved back above 30, confirming a bullish trend. That level is already elevated, so momentum can cool—or we may see a pullback—before the uptrend resumes. In this regime, orderly dips tend to be buyable, barring an adverse macro shock.