Pre-market futures are up this morning, and bond yield rates are down. These are exactly the sorts of things we like to see, with an added bonus of the 2-year/10-year inverted yield curve now separated by fewer than 10 basis points (bps). (An inverted yield curve has long been a red flag for recessionary conditions.)
The 10-year bond yield is currently 3.88%, with the 2-year at 3.97%. The Dow is up +120 points at this hour, the S&P 500 is +34 and the Nasdaq leads the field, +160 points.
Producer Price Index (PPI) Lower Overall
Month over month, PPI — the chief wholesale inflation gauge — came down 10 bps to +0.1%, also 10 bps lower than expected. Stripping out volatile food and energy costs, the core print month over month was unchanged: 0.0%, the same as it was for June. This remains the lowest core PPI read since March of last year.
Year over year gives us a better picture of overall wholesale inflation. Headline year over year PPI came in at +2.25%, below the revised +2.7% of the previous month and the lowest since March of this year reached +2.0%. Core PPI year over year — perhaps the most important of all these metrics — reached +2.4%, a full 60 bps lower than the downwardly revised +3.0% for June.
PPI also subtracts trade services for one of its monthly prints. Ex-food, energy and trade for July rose to +0.3% month over month and +3.3% year over year. Neither of these were big jumps, but it does point to trade services muting overall abstracted PPI numbers this month. This indicates a big decline in the measure of company profit margins, meaning margins are compressing — a deflationary indication, not an inflationary one. In short, another good reason for the Fed to start cutting interest rates.
Tomorrow morning, July’s Consumer Price Index (CPI) comes out, which is the retail inflation gauge. Expectations are for a swing to the positive: +0.2% versus June’s -0.1%. Year over year CPI is expected to remain at +3.0% (still 100 bps above optimal inflation levels, according to the Fed), with core CPI year over year down 10 bps to +3.2%. Any surprises to the downside would again insist the Fed make a move on interest rates, which would likely be fuel for the stock market.
Starbucks CEO Steps Down Immediately
Starbucks (SBUX) CEO Laxman Narasimhan, who has led the world’s biggest coffee house chain since October 2022 (to a cumulative -12% in stock price), in out effective immediately, according to company reports. He will be replaced by current Chipotle (CMG) CEO Brian Niccol — a huge boon for Starbucks, as Chipotle stock has grown +52% since October ’22. It is at this time unclear whether activist investors at Starbucks will drop their quest for board seats or if this quenches their thirst, as it were. Starbucks shares are +14% on the news, Chipotle -9%.
Home Depot Beats Q2 Estimates
Home improvement retail leader Home Depot (HD) outperformed on both top and bottom lines in this morning’s Q2 report. Earnings of $4.67 per share surpassed the $4.54 in the Zacks consensus (and swung to a 2-cent profit from the year-ago quarter), on revenues of $43.18 billion which outpaced expectations by +1.4%. But warnings of a softer consumer in the current quarter are leading shares down ahead of today’s opening bell.
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