Investors reached the midway point of an eventful week with inflation, manufacturing and housing data to ponder.
Following one cooler-than-expected inflation report with another, the Labor Department showed producer prices (PPI) USPPFD=ECI, which tracks the prices U.S. companies get for their goods and services at the figurative factory door, unexpectedly fell by 0.3% last month.
Analysts expected no change in the wake of May's downwardly revised 0.6% monthly spike.
Year-over-year, PPI jumped 5.5%. That's a hot number, but a solid deceleration from May's 6.0% and well below the 6.2% consensus.
Stripping away volatile food and energy prices, PPI jumped on monthly and annual bases by 0.2% and 4.7%, respectively. Both were cooler than economist projections.
Core PPI, which excludes food, energy and trade services, increased by a nominal 0.1%, marking an abrupt slowdown from last month's 0.8% print, but repeated May's 5.1% year-on-year print, which was the highest year-on-year core reading since October 2022.
"Today’s data confirms the weaker-than-expected inflation trend from yesterday’s CPI," writes Stephen Coltman, head of macro at 21shares. "Barring an escalatory spiral in the Middle East, the Federal Reserve should be satisfied that current policy settings are sufficiently restrictive to get inflation gradually back towards the Committee’s target."
Unfortunately, that escalatory spiral in the Middle East might well be afoot.
As the third major take on June price growth, PPI remains the hottest inflation indicator of the bunch (by far), hovering well above the Fed's average annual 2% target.
The report lands as Fed Chair Warsh sits for his second day of Congressional testimony, this time in front of the Senate Banking Committee. With war-related price pressures starting to ease, so are worries that the central bank will raise borrowing costs.
"It appears that the 2026 inflation resumption crested last month and headed back to its pre-conflict trend lower," says Jamie Cox, managing partner at Harris Financial Group. "This really helps the Fed avoid the mistake of hiking rates into a supply shock."
Mortgage demand softens as rates rise
Last week it got even more expensive to finance home loans, according to the Mortgage Bankers Association.
But would-be borrowers were generally unimpressed.
The average 30-year fixed contract rate USMG=ECI increased by 7 basis points to 6.65%, its highest level since May.
Demand for loans to purchase homes USMGPI=ECI slid 7.3%, handily offsetting a baffling 3.5% increase in refi applications USMGR=ECI, which accounted for a growing 43.2% share of the mortgage pie.
Combined, home loan demand softened by 2.7% last week.
"Purchase applications were down over the week and dipped below last year’s pace in the week following the July 4th holiday,” writes Joel Kan, MBA’s deputy chief economist.
The 30-year fixed rate currently sits 17 basis points below where it was during the same week a year ago.
Over that same period, purchase applications have dipped 1.5%, while refi demand has increased by 7.1%.
Empire State manufacturing strengthens
On a regional level, factory activity in New York State has put the pedal to the metal this month.
The New York Fed's Empire State index USEMPM=ECI jumped 9.9 points to print at 15.6, a nice acceleration from June's 5.7, and leapfrogging over the 8.8 reading economists projected.
The index has now posted four straight months north of zero, the dividing line between expansion and contraction.
"New York State manufacturing activity increased substantially in July, with new orders and shipments picking up sharply," says Richard Deitz, economic research advisor at the New York Fed. "Employment grew for a sixth consecutive month."
However, Deitz adds, "Price increases remained elevated and supply availability continued to worsen."
On Thursday, the Philadelphia Fed will release its Philly Fed manufacturing report, which should help connect the dots regarding Atlantic region factory activity during the month of June.
Markets broadly higher on cooler inflation data
Main U.S. indexes were modestly green, with the Dow out front, up about 0.5%.
Communication services led S&P 500 sector gainers, while energy was the weakest group.
The Euro STOXX 600 index was up about 0.2%.
The dollar dipped, U.S. crude slipped, gold edged up and bitcoin rose more than 1%.
The U.S. 10-year Treasury yield fell to about 4.56%.
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