Tech outperformance continues with yields pressured by soft PPI

• SNAPSHOT: Equities up, Treasuries steepen, Crude down, Dollar flat, Gold down
• REAR VIEW: Softer-than-expected US PPI; US initial claims rise more than expected; Weak US 30yr bond auction; Fed's Barkin said still an open question whether the Fed needs to hike; Fed's Hammack reiterates call to hike rates; Norges holds rates as expected.
• COMING UP: Data: German Wholesale Prices (Jul), French Inflation Final (Jul), EU GDP 2nd Estimate (Q2), Trade Balance (Jun), US Retail Sales (Jul), University of Michigan Prelim. (Aug), Atlanta Fed GDP (Q3). Speakers: RBA's Bullock. Supply: Australia. Credit Rating: Fitch on the UK

MARKET WRAP

US indices saw gains on Thursday, with sectors largely in the green, as a cooler-than-expected US PPI report had little sway on markets. However, it has made a hold more likely at the next FOMC confab, with a rough 60% chance, vs. a 40% likelihood of a 25bps hike. All in was a very quiet day of newsflow, with not too many market-moving headlines. The crude complex saw weakness as participants await the next US/Iran catalyst. The Treasury curve bull steepens after soft PPI raises September hold expectations, while the disappointing 30yr auction garnered little price action. Precious metals sit in the red, while the Dollar is more-or-less flat vs. G10 peers. EUR and CAD are the relative outperformers and see marginally strength, while the Kiwi and Swissy lag, albeit on no currency-specific headline. On the Fed front, hawkish dissenter Hammack reiterated the need to raise rates right now, while Barkin (2027 voter) was more coy and remarked that it is still an open question whether the Fed needs to raise rates to restore 2% inflation, or whether it is already on a path down. Looking ahead, US retail sales are the highlight on Friday.

Sectors were generally in the green, led by Communications, Real Estate, and Technology. Software (IGV) gains extended in response to reports that Silver Lake is in talks to buy Workday (WDAY). Meanwhile, Dell (DELL) and HP (HPQ) were firmer after China’s Lenovo beat Q1 revenue estimates.

US

PPI (JUL): Headline PPI was unchanged M/M in July, softer than the 0.2% increase expected and following the 0.3% decline in June. The Y/Y rate eased to 4.7% from 5.5%, below the 4.9% forecast. Core PPI rose 0.2% M/M, below the 0.3% consensus and slowing from the prior 0.4% increase, while the Y/Y rate cooled to 4.2% from 4.7%, in line with expectations. Overall, another softer-than-expected inflation report helped bolster expectations for the Fed to remain on hold in September, with CME FedWatch pricing the probability of a hold at around 68%, up from 60% following CPI and 50% at the start of the week. However, the PCE-relevant components were more mixed. Portfolio management prices jumped sharply, while airline transportation PPI declined and healthcare components were mixed. Following the report, Pantheon Macroeconomics raised its estimate for July core PCE to 0.24% M/M from 0.16% after CPI, highlighting that the 5.6% surge in portfolio management prices alone is expected to add around 11bps to core PCE. Pantheon argues that the portfolio management boost should prove temporary. However, the BEA is set to revise its methodology for calculating PCE portfolio management prices, alongside software and legal services prices, on September 30th and as such the consultancy expects those methodological revisions to subtract at least 0.2ppts from the current Y/Y rate of core PCE. Despite raising its near-term core PCE estimate, Pantheon continues to expect the Fed to leave rates unchanged in September. The desk expects core PCE to remain near 3.0%, as higher energy prices ripple through to consumer goods prices while services inflation slows.

JOBLESS CLAIMS: Initial jobless claims (w/e August 8th) rose to 209k from 200k, and above the expected 202k; 4wk average was unchanged at 199k. Continued claims fell to 1.777mln from 1.799mln, and shy of the forecasted 1.800mln. Note, unadjusted claims totalled 186,909 and seasonals expected an increase of 6,410 W/W. Looking at the unadjusted figures, Michigan (1,929), New York (1,620), and Texas (1,277) were the biggest risers, with no notable reductions outside of a couple of hundred. Overall, OxEco writes that initial claims rose back above 200k, but the signal is still that layoffs are low and labor market conditions have improved. There was minimal impact from those states affected by recent wildfires after thousands were evacuated, but it may be too early to determine the final impact.

FED'S BARKIN (2027 Voter, Neutral) said it remains an open question whether the Fed will need to raise rates to return inflation to 2% or whether price pressures are already on a sustainable path lower. He sees strong arguments for inflation to ease as wage pressures remain modest and the effects of tariffs, oil and other shocks should subside, but warned that inflation could prove more embedded, potentially requiring weaker demand or tighter policy. Barkin noted that many Fed officials believe current rates are already restrictive enough to bring inflation down. On the economy, he highlighted continued resilience in consumer spending and business investment, with employment and strong household wealth providing support, while AI is allowing firms to experiment with reducing headcount without yet prompting significant layoffs.

FED'S HAMMACK (2026 Voter, Hawk) reiterated that she believes the Fed should raise rates now, arguing that monetary policy is not currently restrictive enough to return inflation to target. She stressed that inflation has risen amid recent shocks and warned that strong growth and investment could add further price pressures and risk overheating the economy. Hammack said the labour market remains stable and businesses have shown resilience to tariff and oil shocks, while remaining optimistic on growth and credit. She acknowledged that raising rates can be painful but argued that greater monetary restraint is necessary to bring inflation back to 2% more quickly, questioning whether the public can tolerate another three or four years of above-target inflation.

FIXED INCOME

T-NOTE FUTURES (U6) SETTLED 12 TICKS HIGHER AT 108-29+

Treasury curve bull steepens after soft PPI raises September hold expectations. At settlement, 2-year -6.1bps at 4.140%, 3-year -6.3bps at 4.211%, 5-year -6.5bps at 4.315%, 7-year -6.3bps at 4.462%, 10-year -4.9bps at 4.639%, 20-year -5.2bps at 5.202%, 30-year -4.3bps at 5.210%.

THE DAY: The Treasury curve bull steepened on Thursday following another softer-than-expected inflation report. Headline PPI was unchanged M/M in July, below expectations for a 0.2% increase and following the 0.3% decline in June. The Y/Y rate eased to 4.7% from 5.5%, below the 4.9% forecast. Core PPI rose 0.2% M/M, below the 0.3% consensus and slowing from the prior 0.4% increase, while the Y/Y rate cooled to 4.2% from 4.7%, in line with expectations. Overall, another softer-than-expected inflation report bolstered expectations for the Fed to remain on hold in September, with CME FedWatch pricing the probability of a hold at around 68%, up from 60% following CPI and 50% at the start of the week.

Fed speak was mixed. Barkin said it remains an open question whether the Fed will need to raise rates or whether price pressures are already on a sustainable path lower, adding that many officials believe current rates are already restrictive enough to bring inflation down. However, he later acknowledged that it is difficult to know whether policy is actually restrictive given the uncertainty surrounding economic models. Hammack, meanwhile, largely reiterated her hawkish stance, again arguing that rates should be raised now. She described the labour market as stable but acknowledged that inflation has risen amid recent shocks.

Elsewhere, there were few fresh geopolitical developments, while crude saw two-way trade and ultimately settled lower. Iran said talks with Oman are ongoing and progressing positively, with advances made on several levels. However, tensions in the region remain elevated, with the Houthis claiming to have targeted an Aramco refinery in Saudi Arabia's Jizan with two drones.

The 30-year auction was soft, with the 0.4bps tail, below-average bid-to-cover and above-average dealer allocation all pointing to weaker demand despite the considerably higher outright yield on offer.

SUPPLY

Notes/Bonds

• US sold USD 25bln of 30-yr bonds.
• US to sell USD 16bln of 20-year bonds on August 19th and USD 8bln of 30-year TIPS on August 20th; all to settle August 31st

Bills

• US sold 4-week bills at a high rate of 3.625%, B/C 2.77x; sold 8-week bills at a high rate of 3.665%, B/C 2.85x
• US to sell USD 95bln of 6-week bills on August 18th on August 18th, USD 92bln of 13-week bills and USD 79bln of 26-week bills on August 17th; all to settle August 20th.

STIRS / OPERATIONS

• Fed Hike Pricing via CME Fed Watch: Sept 8.1bps (prev. 10bps), Dec 23.1bps (prev 27.1bps).
• EFFR at 3.63% (prev. 3.63%), volumes at USD 106bln (prev. USD 109bln) on August 12th
• SOFR at 3.62% (prev. 3.64%), volumes at USD 2.943tln (prev. USD 2.961tln) on August 12th
• NY Fed RRP op demand at 0.45bln (prev. 0.725bln) across 1 counterparties (prev. 1) on August 13th

CRUDE

WTI (U6) SETTLED USD 2.02 LOWER AT 81.25/BBL; BRENT (V6) SETTLED USD 1.91 LOWER AT 87.07/BBL

The crude complex was lower on Thursday in choppy trade, amid light headline newsflow. As alluded to, it was typical summer trading conditions today, with very limited news and choppy price action as Middle East updates even took a back seat. Overall, desks await the next breakthrough or escalation, as currently it very much seems to be in a holding pattern until newsflow dictates otherwise. Despite the lack of updates, Iran reiterated Tehran-Muscat talks are ongoing and progressing positively, having achieved progress on several levels. However, on the other side, the Strait of Hormuz authority rejected US claims and said the waterway remained blocked until Iran's conditions are met. In addition, Houthis reportedly targeted an Aramco refinery in Saudi Arabia's Jizan with two drones, according to Saba News Agency. For the record, WTI traded between USD 80.09-83.30/bbl and Brent USD 85.85-89.07/bbl ahead of a quiet day of scheduled risk events on Friday.

EQUITIES

CLOSES: SPX +0.65% at 7,799, NDX +1.15% at 30,084, DJI +0.13% at 53,845, RUT +0.24% at 3,053

SECTORS: Materials -0.73%, Energy flat, Health flat, Industrials flat, Consumer discretionary +0.27%, Utilities +0.38%, Financials +0.58%, Consumer staples +0.89%, Technology +0.96%, Real estate +1.35%, Communication services +1.56%

EUROPEAN CLOSES: Euro Stoxx 50 +0.20% at 6,547, Dax 40 -0.15% at 26,292, FTSE 100 -0.56% at 10,773, CAC 40 -0.28% at 8,651, FTSE MIB -0.01% at 53,693, IBEX 35 -0.18% at 20,169, PSI -0.21% at 9,254, SMI +0.19% at 14,476, AEX +0.66% at 1,120

STOCK SPECIFICS:

• Cisco (CSCO): Q numbers beat & issued stronger than exp. guidance; analysts note stock had already rallied sharply into earnings on optimism around its growing role in AI infrastructure.
• Cerebras (CBRS): Q rev. missed & GMs declined, raising concerns about scaling & customer adoption.
• StubHub (STUB): Q2 profit miss & GMs missed.
• Accelerant (ARX): To be taken private by Thoma Bravo for $20.25/shr; closed Wed. at 13.61.
• Ford (F): To move prod. of some Lincoln models from China to US.
• Tapestry (TPR): FY27 revenue outlook missed.
• Coherent Corp. (COHR) shares fell despite a quarterly beat and strong outlook, as elevated investor expectations for optical networking suppliers limited the upside.
• SanDisk (SNDK) expects to return 100% of excess cash to shareholders and expects adj. FCF margin at 50% FY28-30; targets mid-to-high teens revenue growth and 80% non-GAAP gross margin FY28-30.
• Apple (AAPL) to begin Mac Mini manufacturing in Houston this year; invests hundreds of millions in Houston facility, ships first advanced AI servers.
• Silver Lake in talks to buy Workday (WDAY), deliberations ongoing, according to reports, citing sources.
• Google (GOOGL) unveiled Gemini 3.7 Flash.

FX

USD was little changed against major peers on Thursday. A softer-than-expected PPI release saw bets on a Fed hold over a hike increase in response. However, USD held up despite the move lower in US 2yr yields, helped by the elevated geopolitical risk environment. Separately, weekly initial claims rose more than expected; however, current levels of around 200k remain unalarming. Meanwhile, Fed speak saw Hammack post PPI reiterate calls for rate hikes whilst Barkin remains uncertain on the future path of policy. DXY sits around 99.950, firmer from the WTD open of 99.590.

EUR and CAD were marginally firmer vs USD, whilst NZD and CHF continued to lag, albeit by small magnitudes. For NZD, 2yr inflation expectations in Q3 eased to 2.3% from 2.5%. Meanwhile, an in-line UK GDP reading (+0.4%) was met with a muted reaction in GBP/USD, which currently trades around 1.3487.

USD/JPY continues to hover on the 159 handle, now trading at 159.49. Today’s main update was a Bloomberg report that Japanese PM Takaichi’s government is said to support a faster BoJ rate hike.

EUR/NOK & USD/NOK are little changed from the levels seen before the Norges Bank decision to hold rates at 4.25% as expected. The CB kept the door open for further hikes in the future if needed. Focus turns to the next MPR and any accompanying adjustment to that guidance.