Stocks Rally as PPI Slows and Supports Hopes for Less Hawkish Fed

Morning Markets

September S&P 500 futures (ESU22) this morning are up +0.7% after this morning’s U.S. PPI report provided support for the idea that U.S. inflation may have peaked and the Fed may be able to trim its rate-hike ambitions.  Stocks on Wednesday rallied sharply after the dovish CPI report raised hopes that inflation may be headed lower.  The S&P 500 index on Wednesday closed up +2.13%, and the Nasdaq 100 index closed up +2.85%.  On the negative side, today’s initial unemployment claims report rose to a 9-month high, raising some questions about the U.S. labor market.

Today’s July final-demand PPI report of -0.5 m/m and +9.8% y/y was weaker than market expectations of +0.2% m/m and +10.4% y/y.  On a year-on-year basis, the July PPI report of +9.8% y/y was down by -1.5 points from June’s +11.3% y/y and was -1.8 points below March’s peak of +11.6% y/y.

Meanwhile, the July core PPI report of +0.2% m/m and +7.6% y/y was weaker than market expectations of +0.4% m/m and +7.7% y/y.  On a year-on-year basis, the July core CPI of +7.6% y/y fell by -0.6 points from June’s +8.2% and was -2.1 points below March’s peak of +9.7% y/y.

Today’s PPI report provided support for ideas sparked by yesterday’s CPI report that inflation may have already peaked.  The July CPI on Wednesday fell by -0.6 points to +8.5% y/y from June’s 40-year peak of +9.1%. The July core CPI was unchanged from June at +5.9% y/y and remained -0.6 points below the 40-year peak of +6.5% y/y posted earlier this year in March.  The CPI report caused short-term T-note yields to fall Wednesday and caused market participants to mildly reduce their expectations for Fed tightening in the coming months.  The market is now discounting a 100% chance of a +50 bp rate hike at the next FOMC meeting on September 20-21 and about a 50-50 chance of a +75 bp rate hike.

U.S. weekly initial unemployment claims in the week ended Aug 6 rose by +14,000 to 262,000, which showed a slightly stronger labor market than expectations for a rise to 265,000. Still, initial claims rose to a 9-month high, raising concerns about higher layoffs and a weaker U.S. labor market.

Sep WTI crude oil prices this morning are up +1.1% after the International Energy Agency (IEA) raised its forecast for global crude oil demand this year due to pressure for some electricity producers to switch to oil as fuel due to soaring natural gas prices.

The Euro Stoxx 50 today is up +0.34%.  China’s Shanghai Composite index today closed up +1.60% on support from yesterday’s rally in U.S. stocks.  The markets in Japan were closed today for a holiday.

Pre-Market U.S. Stock Movers

Disney (DIS) is up +9% in pre-market trading after the company reported strong growth in its streaming business with 14.4 million new Disney+ subscribers in the quarter ended July 2.  Most of that growth was in overseas markets.  Disney also raised its price for Disney+ by 38%, which should boost Disney’s income from the service and stem losses from the division.  There was also optimism about higher income from Disney parks as travel rebounds from the pandemic.

Bitcoin (^BTCUSD) this morning is trading sharply higher by +3.0%, providing support for crypto stocks.  Coinbase (COIN) is up +12% in pre-market trading, adding to Wednesday’s gain of +7.37%.  Marathon Digital (MARA) is up +6% in pre-market trading, and Riot Blockchain (RIOT) is up +4.5%.

Oil company stocks are seeing support with today’s +1.3% rally in WTI crude oil futures.  ConocoPhillips (COP) is up +2.0% in pre-market trading, Occidental Petroleum (OXY) is up +1.4%, and Marathon Oil (MRO) is up +3.6%. Exxon Mobil (XOM) is just marginally higher in pre-market trading. 

HP Inc (HPQ) is slightly higher by +0.1% in pre-market trading even though Morgan Stanley today reduced its outlook for PC sales this year due to weaker demand from consumers and rising PC inventories. Dell Technologies (DELL) has not yet traded in pre-market trading.

Today’s U.S. Earnings Reports (8/11/2022)

Cardinal Health Inc (CAH), ResMed Inc (RMD), Illumina Inc (ILMN).

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