CPI inflation drops more than expected
Headline and core CPI both cool more than expected - CPI Supercore growth remains anchored at high level
June headline CPI rises +3% YoY (lower than estimate: +3.1% | previous: +3.3%).
Core CPI rises +3.3% YoY (lower than estimate and previous: +3.4%) - slowest in 3 years.
=> Inflation pressure is easing, bolstering confidence that Fed officials will cut interest rates.
CPI falls for the first time vs previous month
Headline CPI falls -0.1% MoM (previous 0%) - first negative growth since Covid.
Core CPI rises +0.1% MoM (previous +0.16%).
CPI Supercore (core CPI excluding housing) has fallen below 5% YoY but remains high.
…mainly due to auto insurance prices still high - contributing significantly to CPI Supercore.
Goods and services prices both cool - Energy prices drop sharply
The share of CPI components with inflation above 4% since 2022 has decreased significantly, nearly back to post-pandemic levels.
On a yearly basis, both goods and services prices fell.
Goods prices fall the most since 2004.
Price energy and core goods lead the decline in both headline and core CPI.
Shelter price growth - the largest category - also slows, contributing only 0.62pp to inflation - lowest since early 2021.
Owners' equivalent rent also falls +5.4% YoY, smallest increase in 3 years.
Market reaction:
Lower-than-expected CPI boosts expectations for September rate cut to over 90%.
10Y bond yield drops sharply after CPI report.
Unexpected sharp drop in inflation raises concerns about rapidly declining consumer demand, the entire market flooded with red:
… despite real estate stocks rebounding (due to hopes Fed will cut rates soon)…
… while bigtech drops sharply as investors dare not bet on the AI wave amid declining CPI data…
Initial jobless claims decreased last week
Initial jobless claims for the past week decreased to 222K (lower than estimate: 236K | previous: 239K).
However, according to seasonally unadjusted data (NSA), initial claims rose to the highest since February.
Continuing claims slightly decreased to 1.852 million (still at a high level).
FYI: Weekly statistics often fluctuate sharply and cannot reflect the overall market trend.
$22 billion 30Y T-Bond auction fails: foreign demand decreases
High Yield: 4.405% (market yield: 4.383% | previous session: 4.403%)
=> Tail: 2.2bsp
Successful bid ratio at High Yield: 88.80% (previous session: 8.49%)
Bid-to-Cover: 2.3 (previous session: 2.49)
Competitive awarded components:
Dealers: 15.88% (previous session: 13.7%)
Foreign investors: 60.76% (previous session 68.5%)
Earnings reports: Pepsico, Delta
Pepsico: Mixed earnings - signaling declining consumer demand
Revenue 22.5 billion USD (lower than expected: 22.6 billion)
Net revenue growth: +0.8% Q/Q, +1.5% YTD
However, foreign exchange rate impact reduced revenue by ~-1%
EPS (GAAP): USD 2.23 for Q2/2024 - up +13% Q/Q (USD 3.71 YTD) — FX adjustment down -1%.
Core EPS (Non-GAAP segment): USD 2.28 Q2 (> forecast: USD 2.16)
However, the company also reported that sales volume of many mass-market brands decreased due to reduced consumer demand:
for example, Lay's snacks down -4% Q/Q, beverages segment down -3% Q/Q sales volume globally…
Delta Airlines: Revenue and EPS below forecast
EPS: USD 2.36 (below forecast: USD 2.38)
Revenue: 15.41 billion USD (also below forecast: 15.43 billion USD)
Q3 revenue guidance in the range of: 14.8-15.1 billion USD — below market expectations (15.31 billion USD)
Delta stock dropped sharply after this earnings report:
Some other news:
Costco raises membership fees in the US and Canada for the first time since 2017.
Annual fee for regular members will increase +5 USD/year, executive members +10 USD/year starting 09/01.
Tesla plans to delay Robotaxi launch to October to produce more vehicle prototypes.
MicroStrategy announces 10-for-1 stock split, after Bitcoin price hit a high in March.
Pfizer stock rises after announcing human trials for daily oral weight-loss drug.
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