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Briefing.com Summary:
*The July CPI report came in as expected, which was a relief of sorts for the market.
*Earnings reports from CoreWeave, Super Micro Computer, and Lumentum have energized the AI momentum trade
*Oil prices have dipped a bit, although the jawboning tension between the U.S. and Iran has risen.
The stock market has some things on its mind this morning. Most of those things have engendered positive thoughts, namely earnings reports from CoreWeave (CRWV), Super Micro Computer (SMCI), and Lumentum (LITE) that have ignited the AI momentum trade and the July Consumer Price Index (CPI), which has proffered some hope that the Fed will hold off on a rate hike when it meets in September.
Currently, the S&P 500 futures are up 37 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 290 points and are trading 0.9% above fair value, and the Dow Jones Industrial Average futures are up 159 points and are trading 0.2% above fair value.
The truth of the matter is that most of these gains were in place before the 8:30 a.m. ET release of the July CPI report. It was almost as if market participants knew this report wasn't going to ring any new alarm bells.
The emphasis is on the word "new," because the market already knew more work needs to be done to get inflation back down to the Fed's 2% target. That work can be done either through ongoing disinflation or with a rate hike.
The July CPI report, at the least, did not stoke new concerns that the Fed will have to raise rates at the September FOMC meeting. That is the key takeaway from the report, and it was embedded in the realization that this report came in as expected.
According to the CME FedWatch Tool, there is a 42.1% probability of a 25-basis point hike at the September FOMC meeting versus 45.9% prior to the release.
Total CPI was up 0.1% month-over-month (Briefing.com consensus: 0.1%) following a 0.4% decline in June. That left the year-over-year rate at 3.4%, down from 3.5% in June. Core CPI, which excludes food and energy, was up 0.2% month-over-month (Briefing.com consensus: 0.2%) following an unchanged reading for June. On a year-over-year basis, core CPI was up 2.5% versus 2.6% in June.
These inflation readings are still above the Fed's 2% target, but the year-over-year numbers tipped in the right direction for the Fed, as did the 1.9% year-over-year increase in the all items index less food, shelter, and energy.
Consistent with the notion that the report came in as expected, the 2-yr note yield is at 4.18% and the 10-yr note yield is at 4.65%, precisely where they were right before the release.
We'll look for changes in the wake of the $42 billion 10-yr note auction at 1:00 p.m. ET. For now, the calmness of the Treasury market has been a tailwind for the equity futures market, which has been enthused by the aforementioned earnings reports and somewhat relieved not to see oil prices (WTI $82.94, -0.26, -0.3%) ratcheting higher.
