Inflation spike: July CPI report was much better than expected

(Wednesday Market Open) The report everyone has been waiting for this week has finally come out with the consumer price index (CPI) lower than expected and prompting stock index futures to rally.

Market potential movers

Analysts estimated the CPI would rise 0.2% in July, but the impression was 0.0% or no growth. The CPI rose 8.5% year-on-year (YOY), which was also below the estimate of 8.7%. July core CPI rose 0.3%, which was below the forecast of 0.5%. Finally, core CPI rose 5.9% year-on-year, which was below the estimate of 6.1%.

Stock index futures rallied after the news with Nasdaq Futures Contracts climbing by 2.31% and the S&P 500 Futures Contracts up 1.7% in premarket stock. However, both indices were still encountering resistance levels. The Cboe Market Volatility Index (VIX) fell 5.33% and is finally trading near 20, suggesting investor confidence is rising.

The 2-year Treasury yield fell 17 basis points to 3.11% and the 10-year Treasury yield (TNX) fell nine basis points to 2.69%. CME FedWatch tool swung again after CPI report; before the market opened, he forecast a rise of 50 basis points in September with a probability of 72.5%. After last week’s jobs report, he favored a 75 point gain. However, the Fed doesn’t meet again until September 21, which means another CPI report must be released before the meeting.

The US dollar index ($DXY) fell hard on the news, dropping 1.27%. This may not seem like much compared to other assets, but it’s a big drop in the forex market where most transactions are measured in fractions of a penny.

The fall in the dollar should help multinational companies that have seen their profits drop due to the exchange rate. Additionally, growth stocks should rise as yields fall, helped by more favorable valuations.

That said, the Producer Price Index (PPI) is still due out tomorrow, and investors can see inflation at the wholesale level, or, in other words, what companies are paying for. raw materials.

In earnings news: Ahead of today’s open, Honda engines HMC reported earnings below expectations despite higher revenue estimates. However, the company raised its full-year earnings forecast, which helped it rise 0.92% pre-market.

The Wendy’s Company MAGNIFYING GLASS exceeded revenue despite no revenue estimates. However, same restaurant sales increased 5.6%, which was better than the forecast of 2.8%. Margins declined due to rising raw material and labor costs.

After closing on Tuesday, Roblox RBLX announced a bigger-than-expected loss despite higher-than-expected revenue. Beyond the loss, the online gaming company reported a drop in bookings – sales of in-game products and services – and that reduced its deferred revenue. This turned out to be bad news for RBLX’s short-term outlook and its stock fell 15% after hours trading.

Meanwhile, the crypto winter continues as Coinbase global PIECE OF MONEY reported a big miss, losing $4.98 per share for the quarter, nearly double its projected loss of $2.44 per share. COIN shares fell 4.55% during the extended session. Coinbase user forecasts have also been disappointing as cryptocurrency trading becomes less popular due to the huge losses suffered by many investors recently.

After closing today, waltz disney SAY should report income and should provide more information on streaming activity.

Market Minutes Review

Shares fell on Tuesday as investors awaited today’s CPI results. The S&P 500® Index (SPX) lost 0.42%, the Nasdaq ($COMP) fell 1.19%, and the Dow Jones Industrial Average ($DJI) fell 0.18%.

The Nasdaq again felt the pressure of the semiconductor space as the PHLX Semiconductor Index (SOX) fell 4.57% during the session. Micron MU issued a profit warning on Tuesday, sending the stock down 3.74% just a day after Nvidia NVDA earnings warning. NVDA is down more than 10% this week.

Switch from tokens to gems, Bookmark Jewelers GIS also fell 11.7% after issuing its own profit warning. He also announced his intention to buy SPAC Blue Nile for $360 million in cash just before Blue Nile went public.

biotechnologies Novavax NVAX plunged 29.6% after missing earnings and revenue estimates and offering weaker earring forecasts.

On the rise, western oil OXY rose 3.9% on the news Berkshire Hathaway (NYSE: BRK-A) bought more shares, bringing its total stake to 18.7%

OXY’s performance propelled the energy sector to the top spot of the day. The sector was able to retain much of its gains despite WTI Crude Futures jumping higher on the day, then falling back to settle 0.3% lower.

Three things to watch out for

MONEY IS KING AGAIN: The BofA Global Fund Manager Survey found that fund managers have shifted their focus to companies that are cleaning up their balance sheets and paying down their debts. Executives used to favor companies that increased capital spending, but now they seem to be going back to basics. Fund managers have also started to move away from companies that try to return money to shareholders through share buyback or dividend programs or those that focus on mergers and acquisitions (M&A). .

DIVERGATE FROM THE MERGER: According to data from Wall Street Horizon, M&A activity is slowing. There were 41 deals completed in May, 33 in June and 28 in July. Business activity is likely drying up as companies increasingly want to conserve cash in anticipation of a possible recession.

However, many smaller companies have seen their stock prices plunge over the past seven months and are at much better valuations that could make them takeover targets. Of course, if a recession hits and the bear market resumes, these good stocks can become clearance items available at bargain prices.

WINTER IS COMING: According to Bloomberg, Britain is bracing for the possibility of a harsh winter which could lead to blackouts, blackouts, soaring energy prices, gas shortages and more. The government’s ‘doomsday’ plan includes capping energy consumption per household, potential power cuts for ‘days’ and closing stations, libraries and government buildings.

The plan would likely be put in place in January, which is usually when energy needs are greatest and costs are highest.

However, sanctions against Russia are blocking access to natural gas and it may be difficult for Britain to get help from its European neighbours. Norway recently announced that it would limit electricity exports to avoid its own blackouts. And France, which normally exports electricity, currently has half of its nuclear power plants in operation.

Notable Calendar Items

August 11: Producer Price Index (PPI) and Brookfield Earnings BAMIlluminated ILMNRivian SHOREand Cardinal Health HAC

August 12: Michigan Consumer Sentiment

August 15th : James Hardie Industries Profits JHX and ZipRecruiter ZIP *: ENGLISH

August 16: Building Permits, Housing Starts and Walmart Revenue WMTHome Depot HDand TJX companies TJX

August 17: Cisco Retail Sales and Revenues CSCOLowe’s DOWNAnalog devices ADITarget TGTand Macy’s M

TD Ameritrade® Commentary for educational purposes only. SIPC member.

Image from Shutterstock

This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investment advice.

Carol N. Valencia