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Upstream US inflation cooled as June PPI was flat, while political threats to Fed independence lifted TIPS hedges. Banks beat Q2, home-insurance premiums surged, and dollar swings underscore the need for FX diversification.
⚙️ June PPI flat at 0.0%, easing upstream inflation concerns
The US Producer Price Index for final demand was unchanged in June, matching forecasts of a 0.0% month-over-month change and marking the smallest gain since last year. Year-over-year, PPI rose 2.3%, slightly below May’s 2.7% and economists’ expectations, as service-sector price declines offset tariff-driven goods inflation.
Stable upstream costs can alleviate margin pressures for businesses and slow pass-through into consumer prices, supporting both bond and equity valuations. Long-term investors may view this as a signal that aggressive Fed rate cuts are less likely near-term, but that the Fed could pivot if input costs remain muted.
🛡️ Political pressure on Fed spurs investor hedging
Renewed calls from President Trump to replace Fed Chair Jerome Powell have heightened concerns over central-bank independence, prompting investors to pile into Treasury Inflation-Protected Securities. This drove the five-year TIPS breakeven inflation rate to a three-month high as a hedge against politicized monetary policy
Eroding confidence in the Fed’s autonomy could lead to looser policy and higher inflation, increasing market volatility. Long-term portfolios may benefit from allocation to real assets and commodities to guard against political shocks to monetary policy.
💼 Major banks beat Q2 expectations, stocks tick higher
Bank of America, Goldman Sachs and Morgan Stanley all reported stronger-than-expected Q2 profits, lifting their shares modestly in premarket trading (BOA +0.4%, GS +0.4%). Trading and advisory revenues helped offset headwinds in other divisions.
The earnings beat across diversified franchises underscores the value of broad financial-sector exposure over single-name concentration, offering stability through market cycles.
🏠 Home-insurance premiums surge, fueling delinquency risk
Average US home-insurance premiums surged 20% from 2022 to 2024 and are projected to rise another 8% in 2025, driven by climate-related losses and rebuild-cost inflation. Lower-income borrowers, especially those with FHA-backed mortgages, are increasingly unable to cover both insurance and mortgage bills, raising delinquency risks.
Rising insurance delinquencies can strain mortgage-backed securities and signal broader housing-market affordability pressures, potentially weighing on related sectors and economic growth.
💱 Dollar firms despite deep first-half slump
The US dollar strengthened on Wednesday alongside rising Treasury yields, bolstered by concerns that Trump’s tariffs are stoking inflation and delaying Fed rate cuts. Yet in the first half of 2025, the ICE US Dollar Index plunged 10.8%—its steepest six-month fall since 1973—driven by political uncertainty, policy shifts, and investor repositioning.
Currency moves can materially affect returns on international holdings, impacting export competitiveness and import costs. Long-term investors should consider FX diversification and hedging strategies to manage volatility.