Producer Prices Decelerate as Fuel and Food Costs Decline, International Demand for US Assets Hits New Record, Industrial Production Accelerates

- The Producer Price Index for June fell -.2% versus estimates of a .2% gain and a .9% increase in May.

- The PPI Ex Food & Energy for June rose .3% versus estimates of a .2% gain and a .2% increase in May.

- Net Long-term TIC Flows for May rose to $126.1B versus estimates of $73.0B and $80.3B in April.

- Industrial Production for June rose .5% versus estimates of a .5% gain and a -.1% decline in May.

- Capacity Utilization for June rose to 81.7% versus estimates of 81.6% and 81.4% in May.

BOTTOM LINE: Prices Paid to US producers unexpectedly dropped for the first time in five months, restrained by declines in fuel and food costs, Bloomberg reported. Excluding passenger cars, core prices only rose .1%. Fuel prices fell 1.1% led by a 23.9% decline in gas costs. Food prices fell .8% as the cost of eggs, fresh fruit and meats all declined. The price of intermediate goods rose .5% versus a 1.1% increase the prior month. Computer prices fell 3.4% versus a 2% decline the prior month. The core PPI rose 1.8% year-over-year, right at the 20-year average. I continue to believe most measures of inflation have already peaked for this cycle and will continue to show deceleration through year-end.

Foreign buying of US financial assets unexpectedly soared to a new record in May as international investors snapped up American stocks and corporate bonds, Bloomberg said. International demand for U.S. stocks jumped a net $41.9 billion vs. $27.4 billion in April. As well, international demand for U.S. Treasuries jumped by $21.6 billion vs. $376 million in April. It is also interesting to note that Caribbean banking centers, which analysts link to hedge funds, sold a net $28.5 billion of U.S. Treasuries. Despite overall record purchases of US Treasuries, China reduced its holdings by $6.6 billion, which is a positive, in my opinion. Predictions of the demise of international demand for U.S. assets continue to seem way off-base. I continue to believe foreign demand for US assets will remain strong over the intermediate-term.

Industrial Production in the US rose last month by the most since February as factories turned out more automobiles, computers and electronics, Bloomberg reported. Capacity Utilization is still right near the 20-year average. Production of consumer durable goods, including autos, furniture and electronics, rose 1.6% versus a .3% decline the prior month. Motor vehicle production surged 2.5% versus a .5% decline the prior month. Manufacturing of home electronics rose 2.6% in June. I continue to believe inventory rebuilding will help boost US economic growth back to around average rates through year-end.