Coffee With Greta: Traders Bet on a BIG Rate Hike
DJIA Futures: -445 (-1.4%)
SPX Futures: -48 (-1.3%)
NASDAQ Futures: -99 (-0.8%)
Good morning friends!
Futures are lower as traders bet on a BIG Fed rate hike amid the release of more hot inflation data.
Let’s get right to it!
Traders Bet On A 1% Rate Hike
CME Group’s FedWatch Tool shows the majority of traders are now expecting the Fed to get even more aggressive at this month’s meeting.
88.1% of traders are now expecting a 1% rate hike later this month, up from the 0.75% hike in June.
Those expectations come after inflation surged to a fresh 41-year high at 9.1% annually in June.
The Fed meets July 26-27.
Wholesale Inflation Surges Higher
Producer-side inflation pushed higher again in June.
The Bureau of Labor Statistics’ producer price index jumped 1.1% monthly and surged 11.3% year-over-year.
That was higher than expectations for a 0.8% monthly gain and up from the 10.9% annual gain in May.
The core PPI, which excludes food, gas, and retail trade margins, rose just 0.3% monthly.
The report shows more inflation is in the pipeline for consumers, as companies pass down higher costs.
Largest Yield Curve Inversion Since 2000
A key part of the Treasury yield curve is inverted at the steepest level since 2000.
The 2-year yield is up nearly 9 basis points to 3.24% while the 10-year yield is up about 4 basis points to 2.97%.
The difference between the two is over 26 basis points, the highest in more than 20 years.
The inversion deepened after the release of hot inflation data and is seen as a near-term recession warning sign.
Big Banks Miss Expectations
JPMorgan Chase (JPM) shares are down 2.7% ahead of the open after profits slumped in the second quarter.
The largest bank in the U.S. reported earnings of $2.76 per share on $31.63 billion in managed revenue.
That missed analysts’ expectations for EPS of $2.88 on $31.95 billion in managed revenue.
JPMorgan’s profit was down 28% year-over-year as the bank built up its loan reserves.
Morgan Stanley (MS) shares are also down 0.6% after missing Q2 expectations.
The investment bank reported earnings of $1.39 per share on $13.13 billion in revenue.
That missed analysts’ estimates for EPS of $1.53 on $13.48 billion in revenue.
Morgan Stanley’s profits dropped 29% annually while revenue was down 11%.
The miss was mostly due to the 55% decline in investment banking revenue.
Equities trading produced $2.96 billion in revenue, above the $2.77 billion estimate.
Fixed-income trading revenue of $2.5 billion beat expectations for $1.98 billion.
But the wealth management division produced $5.74 billion in revenue, below the $5.99 billion estimate.
Weekly Jobless Claims Hit 8-Month High
Weekly jobless claims rose to an 8-month high last week.
The Labor Department reported 244,000 Americans filed initial claims for unemployment benefits.
That was up 9,000 from the previous week and sharply missed economists’ expectations for a slight decline.
It’s the highest level of claims since early November 2021, as the labor market shows signs of weakening.
Continuing claims fell by 41,000 to 1.33 million in the week ending July 2.
Oil Prices Drop on Rate Hike Jitters
Oil prices are falling today as traders are on edge about the potential of a larger rate hike later this month.
West Texas Intermediate crude futures are down 1.6% to under $95 bbl while Brent crude futures are down 1.4% to $98 bbl.
The Energy Information Administration reported a sharp jump in U.S. crude and gas inventories last week.
Crude stockpiles rose by 3.3 million barrels vs 1.4 million expected.
Gasoline stockpiles rose by 5.8 million barrels vs expectations for a 200,000 barrel decline.
Gas Prices Fall Further
U.S. gas prices fell for the 29th day in a row today.
AAA shows the national average for regular gas fell nearly 3 cents overnight to $4.605/gal.
Diesel also fell about 2 cents to $5.592/gal.
Netflix, Microsoft to Partner on Ad-Supported Service
Netflix (NFLX) shares are down 1% ahead of the open after naming Microsoft (MSFT) its partner for a new ad-supported streaming service.
Netflix’s COO said Wednesday, “Microsoft offered the flexibility to innovate over time on both the technology and sales side, as well as strong privacy protections for our members.”
The streaming company announced plans in April to launch an ad-supported tier as its struggles to keep and add subscribers.
In Case You Missed It
- Mortgage demand fell last week despite rates holding steady and prices moderating. The Mortgage Bankers Association reported a 1.7% decline in total applications. Purchase applications fell 4% weekly and 18% annually. Refinance applications rose 2% weekly but were still down 80% compared to a year ago.
- The Fed’s Beige Book showed elevated fears about inflation and a recession across the country on Wednesday. The report showed the economy grew at just a “modest” pace across all 12 Fed districts since mid-May. Business contacts in 5 districts expressed “concerns over an increased risk of recession.” The Beige Book also showed “substantial price increases” across the country but businesses say they have still been able to pass along those increases to customers.