Could June’s output inflation numbers dampen market enthusiasm for rate cut winners? 5 ETFs to watch Friday

The larger-than-expected drop in the consumer price index inflation rate in June fueled market expectations of an interest rate cut by the Federal Reserve.

Investors no longer seem to have any doubts and assign an implied probability of 91% to the rate cuts beginning as early as September 2024.

The upcoming producer price index (PPI) inflation report, scheduled for release Friday at 8:30 a.m. ET, will be crucial in determining whether producer price trends can continue to support rate cut expectations or dampen optimism.

June PPI Preview: What Economists Expect

• Producer prices are expected to rise 0.1% in June on the month, compared with an unexpected 0.2% decline in May, according to the consensus estimate of economists, as tracked by TradingEconomics.
• On an annual basis, producer price inflation is expected to accelerate from 2.2% to 2.3%.
• Excluding food and energy, core PPI is expected to rise 0.2% month-on-month, an acceleration from the previous stable reading.
• On an annual basis, core producer prices are expected to increase by 2.5%, up from 2.3% in May. This would be the highest annual core inflation rate since August 2023.

5 ETFs to watch on Friday

Traders on Thursday favored markets that could benefit from future rate cuts, investing in sectors that could benefit from lower borrowing costs while penalizing assets that had already strongly anticipated expectations of monetary policy changes.

Output inflation data will be key to assessing whether these market dynamics will persist.

Among the best performing exchange traded funds on Thursday, we can certainly mention:

• SPDR Exchange Traded Fund for Home Builders (NYSE:XHB) up 6.1%
• Invesco Solar ETF (NYSE:TAN) up 4.4%
• SPDR S&P Regional Banks Exchange Traded Fund (NYSE:KRE) up 4.2%
• iShares Russell 2000 Exchange Traded Fund (ETF) (NYSE:IWM) up 3.6%
• VanEck Gold Miners Exchange Traded Fund (NYSE:GDX) up 2.9%

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Image created using artificial intelligence via Midjourney.

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