Stocks Under Fire, Dollar Up as Markets Finally Face Tariff Inflation
Stocks Under Fire, Dollar Up as Markets Finally Face Tariff Inflation
By:Ilya Spivak
The markets jeered as US consumer prices showed early signs of tariff-linked inflation. More pain may be ahead.
- June US CPI data appears to show first signs of tariff-linked inflation rise
- Stocks fall, dollar gains as traders wind back 2025 Fed rate cut outlook
- The market mood may sour further if PPI data points to shrinking margins
US inflation perked up in June, as expected. The headline consumer price index (CPI) rose 2.7% year-on-year, matching economists’ forecasts. The core measure excluding volatile food and energy prices – the focus for Federal Reserve officials – came in at 2.9%, a touch lower than the 3% penciled in ahead of the release.
These outcomes mark the fastest US price growth in four months. The core services sector remained the biggest contributor, accounting for 2.24 percentage points (ppt) of the headline reading. Core goods notably perked up, however. While the increase here was just 0.13ppt, this was also the biggest uplift from the sector since July 2023.
US consumer prices data reveals first signs of tariff-linked inflation
Monthly changes in contribution measures make the point more emphatically still. The upside push from the core services side of the ledger increased by 0.02ppt from May to June. It was 0.08ppt from core goods, suggesting a stronger inflationary thrust on that side of the ledger.
This might imply that the belated influence of the many tariff policies introduced by the Trump administration since the beginning of the year are finally beginning to appear in the data. The markets seemed to interpret the data as such, with price action suggesting the result will limit scope for Fed interest rate cuts in the near term.
Benchmark Fed Funds futures now price in 38 basis points (bps) in cuts this year, marking the least dovish reading in five months. The implied path for 2026 has moved in the opposite direction, with 67.5bps now on the menu. That is the most dovish since the underlying futures contracts began trading three years ago.
Markets rejected US CPI data, and PPI may bring more of the same
Traders were pointedly displeased. Stocks finished the session with losses despite probing new record highs intraday. The S&P 500 closed down 0.43% having traded up as much as 0.51%, while the Nasdaq 100 finished flat, erasing a rally of as much as 0.81%. The small-cap Russell 2000 fell 1.95%, its biggest daily loss in two months.
Treasury bond yields rose across the curve while gold prices fell, although the metal managed to hold within its three-week range. The US dollar roared higher, buoyed by higher rates and reclaiming its mantle as a defensive asset in risk-off markets. Cycle- and sentiment-sensitive crude oil and bitcoin prices fell.
June’s producer price index (PPI) data is up next. A downtick in wholesale price growth is expected, but traders will be keen to see where it comes from in the report’s internals. If weakness is driven by further compression of wholesalers’ margins as firms try to insulate consumers from tariff-linked price hikes, the markets may jeer louder.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts #Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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