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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Challo Jeregy who wrote (23066)	8/14/1999 3:37:00 PM
From: Les H	Read Replies (1) \| Respond to of 99985

US July Producer Prices Show Benign Increases Bank of Montreal, bmo.com The producer price report for July showed overall finished goods prices rose a smaller-than-expected 0.2%. The increase largely reflected continuing strong gains in energy prices, which rose 3.4% in the month. This was tempered somewhat by an unexpectedly large 0.9% drop in food prices. Excluding these two volatile components, so-called core prices were weaker than expected as well showing no change in the month. Though prescription drugs showed a large increase in the month, it was offset by modest declines in a number of other components including passenger cars and capital equipment. The good news on the inflation front was tempered by indications that price pressure may be building among less processed products. The core measure for intermediate goods rose 0.4% in the month, which represented the fifth consecutive increase after 10 months of declines. Core crude goods prices rose a more sizeable 2.3%, which represented the second increase above 2% in three months. Though both core measures are continuing to decline on a year-over-year basis (0.1% and 6.6% for intermediate and crude goods, respectively), the extent of declines has lessened from recent troughs of ?1.7% and ?15.9% at the turn of the year. Today?s report does not alter our view that the Fed will raise fed funds 25 basis points at the August 24 FOMC meeting and a further 75 basis points by the middle of next year. The pace of activity remains rapid at a time when the unemployment rate is already very low. There have been some recent indications that wage pressures are on the rise and today?s data suggest some tentative evidence that input costs could be deteriorating as well. We expect the Fed to act to prevent these pressures from becoming more entrenched by undertaking a modest tightening in policy. The smaller-than-expected increase in finished goods prices boosted asset markets. Though a hike is still widely expected later this month some doubt has likely entered the market as to further rate increases. The yield on 10-year government bonds dropped 7 basis points in trading this morning. The DJIA was up about 130 points by mid-morning.