The inflation outlook is on a tear and the PPI and CPI trends have recently diverged.

The PPI report in July was much hotter than the CPI report and interestingly, the Services PPI component has been on a trajectory towards hinting of a core inflation re-acceleration in the US in 3-5 months from now.

Moreover, we see how the input cost pressures have been building in the EM space, which is something that typically happens ahead of the same input cost pressures showing up in the DM space.

Energy will not subtract as much from the momentum as it did a month ago with markets seeing a roughly flat contribution from energy/food in the PPI today.

Our cyclical indicators continue to see upside risks in PPIs, which is also the direction we lean in today.

Precious metals and bonds will likely react negatively to an upside surprise in PPIs, while energy will most likely benefit.

Let’s see how it plays out. It’s a bit of a last-chance saloon for our precious metals shorts (which are firmly in the money overall), but we haven’t seen much traction over the past few days. We will adjust our positions unless momentum picks up.

Chart 1a: EM leads DM