Coffee With Greta: More Good Inflation Data Boosts Stocks
DJIA Futures: +245 (+0.7%)
SPX Futures: +29 (+0.7%)
NASDAQ Futures: +91 (+0.7%)
Good morning friends!
Futures are rallying after the release of more good inflation data.
Let’s get right to it!
Wholesale Inflation Drops in July
Producer side inflation pressures fell unexpectedly in July.
The Bureau of Labor Statistics producer price index dropped 0.5% on a monthly basis but was still up 9.8% year over year.
That was better than expectations for a 0.2% monthly increase and the lowest annual rate since October 2021.
The decline was driven by a 9% drop in energy prices while food prices rose 1%.
Excluding food, energy, and trade services the core PPI rose 0.2% monthly and 5.8% annually.
The PPI is a leading indicator for CPI, signaling consumer prices will continue to slow in the months ahead.
Fed Officials Still Support Aggressive Tightening
Two Fed officials spoke about the state of the U.S. economy after the July CPI showed inflation slowing on Wednesday.
During an event at Drake University, Chicago Fed President Charles Evans said the data was “positive” but the annual pace of price increases is still “much too high.”
The CPI rose 8.5% annually in July, which Evans said is “a big number, so nobody can be happy about that.”
He said he expects the Fed to continue rate hikes through the end of this year and into 2023 to bring inflation back down to their 2% target.
Evans forecast the Federal Funds Rate will be at 3.25%-3.5% by year-end.
Minneapolis Fed President Neel Kashkari echoed that sentiment during a panel discussion at the Aspen Economic Strategy Group’s annual meeting.
Kashkari said the July CPI was the “first hint” that inflation might be slowing.
But he said the Central Bank is still “far, far away from declaring victory.”
Kashkari also scoffed at market expectations the Fed might cut interest rates in early 2023, saying that’s “not realistic”.
He said, “There’s a disconnect between me and the market.”
CME Group’s FedWatch Tool shows 69.5% of traders expect a 0.5% rate hike in September while 30.5% expect a 0.75% hike.
Weekly Jobless Claims Rise Less Than Expected
Weekly jobless claims rose less than expected last week as the labor market remains extremely tight.
The Labor Department reported 262,000 Americans filed initial unemployment claims, up 14,000 from the previous week.
The previous week was also revised lower by 12,000 to 248,000.
Continuing claims rose by 12,000 to 1.43 million in the week ending July 30.
Disney Rallies On Earnings Beat, Strong Subscriber Growth
Disney (DIS) shares are up 9.6% ahead of the open after beating fiscal Q3 expectations on the top and bottom line.
The company reported earnings of $1.09 per share on $21.5 billion in revenue.
That was better than analysts’ expectations for EPS of $0.96 on $20.96 billion in revenue.
The company’s streaming service, Disney+, had 152.1 million subscribers in the quarter, crushing estimates for 147.76 million.
But revenue per Disney+ user fell 5% in the U.S. and Canada.
Disney also announced price hikes for the streaming service.
Starting December 8, Disney+ with commercials will cost $7.99 per month while the ad-free option will jump 38% to $10.99 per month.
Revenue in Disney’s parks, experiences and products division surged 72% year over year to $7.4 billion.
Oil Prices Turn Higher
Oil prices have turned higher after falling earlier this morning.
West Texas Intermediate crude futures are up 1% to just under $93 bbl while Brent crude futures are up 0.8% to over $98 bbl.
The market has been in a back and forth over higher supply levels in the U.S. but lower demand.
The Energy Information Administration reported U.S. crude inventories rose by 5.5 million barrels last week, beating expectations for a 73,000 barrel rise.
Gasoline stockpiles tumbled by 5 million barrels vs expectations for a 1.2 million barrel drop.
Refinery utilization surged to 94.3% as gasoline demand bounced back.
Gas Falls Under $4
The national average for a gallon of gas dropped under $4 for the first time since March.
AAA shows the price dropped to $3.99/gal today.
That’s down more than $1 from the record-high and June but still $0.81 higher than a year ago.
The national average for diesel is down to $5.077/gal.
Gasoline demand rose to 9.1 million barrels per day last week, still 6% lower over the past 6 weeks compared to last year.
Federal Budget Deficit Tumbles
The U.S. federal budget deficit has narrowed by a record amount so far this fiscal year as government spending slowed sharply.
The Treasury Department reported a $211 billion deficit in July, down from $302 billion in July 2021.
The deficit was $726 billion, through the first 10 months of the fiscal year.
That’s down $1.8 trillion from the same time a year ago, which is a record-high drop.
So far this fiscal year, receipts are up by $787 billion while spending is down by $1 trillion.
But economists say the sharp slowdown in government spending is causing a drag on economic growth.
Economists at The Hutchins Center on Fiscal and Monetary Policy estimate it has reduced GDP by 3.8%.
In Case You Missed It
- Boeing (BA) shares rose 2.5% on Wednesday as the planemaker restarted deliveries of its 787 Dreamliner. American Airlines (AAL) said it received a 787 from Boeing’s factory in South Carolina. Deliveries of the jumbo plane were halted in July 2021 to address manufacturing flaws in the fuselage. The FAA cleared Boeing to resume deliveries earlier this week.