Bitunix said softer U.S. producer price data reduced pressure for a near-term Federal Reserve rate hike, though the firm argued that long-term funding costs and yen carry trades still leave limited room for rates to fall quickly.
According to the analysis cited by BlockBeats on Aug. 14, U.S. July PPI came in unexpectedly flat on a monthly basis, while the annual reading slowed to 4.7%. Together with the cooler CPI print released a day earlier, the data suggested that falling energy prices are easing inflation pressure at the producer level. Market bets on a Fed rate increase in September fell from about 50% to around 35% to 40% after the releases.
Core price pressure remains in place
Bitunix noted that inflation has not fully cooled beneath the surface. Core final demand PPI, which excludes food, energy and trade services, rose 0.4% month over month. Initial jobless claims also climbed to 209,000, pointing to some moderation in the labor market.
Long-term financing costs have not eased with inflation
The firm said the more important issue is that softer inflation has not solved the United States’ long-term financing problem. A $25 billion auction of 30-year U.S. Treasurys cleared at a high yield of 5.216%, the highest issuance yield since 2001.
In an environment of large fiscal deficits, heavier Treasury supply and a Federal Reserve that is no longer the main buyer, longer-dated government bonds need a higher term premium to absorb supply. In practice, that means the cost of capital across the U.S. economy may not drop quickly even if short-term inflation pressure cools.
Yen carry trades remain a source of volatility
Bitunix also pointed to the foreign-exchange market. After Japan intervened to support the yen, USD/JPY moved back toward 160, and some carry traders used the post-intervention rebound in the yen to rebuild funding positions.
As long as the rate gap between the United States and Japan remains in place, the yen is likely to retain its appeal as a low-cost funding currency, the analysis said. If the Bank of Japan raises rates again or steps in with another round of intervention, exchange-rate moves and leverage swings could become more pronounced.
What markets need to watch next
Bitunix said the July inflation data gives the Federal Reserve more room to observe incoming conditions, but that does not mean financial conditions will loosen quickly. Even as pressure on short-term rates eases, fiscal deficits, long-dated Treasury supply, energy prices and yen carry trades can still shape asset pricing through long-end yields and global funding costs.
For markets, the more important question is not a single inflation release, but whether disinflation can continue and whether long-term funding costs can fall at the same time.