Has Softening Inflation Lost Its Luster? And the CEO of Archer Aviation on the Future of eVTOLs 8/10/23

0:01Right now on Fast, easy come, easy go. Stocks soaring at the open after a better than expected CPI print, but major markets closed with more of a sputter than a surge, so has the prospect of soft inflation, as one of our traders said, started to lose its luster. Plus, fashion forward, the companies behind Coach and Michael Kors are teaming up to take on the luxury giants, what a deal means for tapestry and capri and the rest of the retail space. And shares of EV toll maker Archer Aviation have been on a tear this year. The company is signing a deal with the Air Force earlier this week and just reported earnings.

0:30We've got an exclusive interview with CEO Adam Goldstein later this hour. You won't want to miss that. I'm Melissa Lee. This is Fast Money. We're live at the NASDAQ Market Site on the desk tonight. Tim Seymour, Karen Feinerman, Guy Adami, and our guest trader for the hour, Lori Calvacina of RBC Capital Markets. Welcome, Lori. We start off with that muted reaction to the markets inflation report, this morning's inflation report. The Dow coming out hot out of the gates, rising as much as 455 points early in the session, but losing steam throughout the day, closing up just 50 points. The S &P and Nasdaq following similar trajectories.

1:02The benchmark index up just a point. The reversal is coming despite the fact that consumer prices rose less than expected in July, up 3.2 percent from a year ago versus 3.3 percent estimate. The drop in gas prices outweighed by a rise in the cost of food and shelter. So does today's action suggest a shift in the market's focus, Guy? It's interesting. You know, the S &P closes flat. I get it. And Lori has some thoughts on this. And I'm interested to hear. But what I took away from today was the move in the bond market was, again, extraordinary in a word. Yields open on the lows, spent the rest of the day rallying to basically the highs.

1:38I don't think that augments particularly well. Now, I think it was last week we talked about Bill Ackman, at least in the short term, ringing the bell in terms of his bond call. He was getting short bonds, thinking yields were going higher. That top ticked it for about a week. But if 10-year yields start to meaningfully go through 4.25%, I think that's extraordinarily problematic for the market. So I didn't answer your question, but the bond market spoke volumes today, Mills. Yeah, Laurie. I agree. I mean, that was one of the first things I checked when I was trying to put the puzzle together.

2:06And I go back to the CPI report. It was a good print. I didn't learn anything here that we didn't already know. And I think the benefit, right, of inflation moderating and the Fed going on pause should be to boost the growth trade. Bond yields spiking are not going to permit that. And I think that's a tired trade that's due for a breather anyway. Yeah. Karen, what'd you make of today? I didn't know what to make of it today, to be honest. So we saw that data. It was slightly cooler, which was nice, but not wildly. Right. So I didn't understand that 400 plus point reaction. And I kind of I get that some things had bounced.

2:38Right. So the queues bounced. The queues have had a really rough go in the last couple of weeks. So that sort of made sense to me. Why the why the yield started to move so much at the end of the day? I mean, that was at 394 and we closed at 410 on the 10 year. That was sort of surprising to me. I'm short the IGV. That was up a little bit today, but it's had a rough go, which which you're short is good. But I am long things that are having a rough go. So I didn't know what to make of it. You can make an argument that this cooler is better, that the Fed is done or recession. Maybe even though we seem to think now there will not be a recession.

3:17So I was confused by the whole day, to be honest. We've had multiple different conversations in the last week about Treasury yields and why they could be moving higher for technical reasons in addition to, you know, Treasury refunding schedule, Fitch, other dynamics, foreign central banks, less buying, maybe inflation in Japan, Japanese central banks certainly buying less Treasuries. It's a combination of also you had a CPI number that, as we've all said, was pretty solid. If you look at the 12-month annualized, you're kind of at 3%, 3.2. But at some point, you saw below the surface there's a lot of stuff in that inflation number that doesn't get any better anytime soon.

3:55So owner's equivalent, rent dynamics and things. So is the best of the headline CPI behind us for now? That's kind of what it felt like. And you bring it back to a market that's been kind of directionless. And I realize let's not pick on the market. It was rock and rolling for a long time. So we're talking about 10 days of some choppiness. But when Apple is still now clinging to that hundred day, in other words, we we talked about Apple a few days ago and, yeah, it rallied and we took it, took it off the headline. But it's still right there at a very key level. And then volatility in the underlying market.

4:25There's a couple of different charts. I don't know if we have the one that just shows even over the last five days. We went we had 132 days in the calendar year of 22, which I've often said is like the best trading market I've ever seen in my career. This year, there's only been 32 of those days where you've had these 1 % moves. So that was 132 times last year we had either a plus or a minus 1 % move in the S &P. It was the fourth largest sample set we've seen of that occurrence since, I think, 1950. This year, only 32. In the last six trading days, we've had seven of these moves, up or down 1%.

5:01And today, as we've all said, you had that CPI number. And from the peak of the kind of, hey, this is a pretty good number. The jobless claims number looked like also the labor market's weakening a little bit. S &P fell 140 basis points, you know, intraday today. And so there's more of all out there. Triple Q, as we've all said, haven't really, you know, re-inspired themselves. The broadening of the market, we all know, could be somewhat limited if especially, you know, we're going to talk about Ford and some of the industrials that don't look so good. Yeah, I mean, I agree that we didn't really learn anything from this CPI report.

5:32But what it did underscore was that the consumer is still facing the pressures from the things that they have to spend on every day. Groceries rose. Utilities were up. Gasoline was higher. Rent is higher. Those are all the things that, you know, even if wages are getting better, they're still paying more. And so you're not feeling that relief as much. No. And that's something we talked about last night briefly. The fact that consumers seem to be fighting inflation with adding to credit, right, adding the debt load. I mean, we talked about last night credit card debt now meaningfully through a trillion dollars.

6:03None of these things are particularly good with interest rates where they are, which is why I think there's going to be a problem going down the line. And again, bond volatility is back. And in terms of inflation, yes, cooler, good, except now as we get into September, now things get more difficult. And I'll say it again, not suggesting I'm right, but I do think there's going to start to be a reacceleration of inflation. And I think the Fed knows that, which is why they've been as hawkish as they've been. Yeah. So when people say this is going to be it, the Fed's done, what do you think, Lori?

6:33I think that's the narrative for now. When I talk to my rate strategy team, they're like, OK, you know, there's been a coalescence around September pricing. Right. So they think we're in this boring Fed phase for a while, but that may not last forever. And I think to Guy's point, we have to be mindful that the inflation data may take an ugly turn at some point. The Fed is reserving optionality. So we are probably done with the Fed debate for a little while, but I don't think we can count it out entirely. Yeah. And what does that do, Karen? The Fed all of a sudden turns hawkish again or the data?

7:02Well, that would be hawkish as opposed to we got, you know, 25 basis points left. That would sort of be OK. Hawkish would would be bad for a lot of reasons. Obviously, the market likes being we're done narrative or close to done. There's been a big rally on that. They're getting near done. Even as they continue to raise, it was like, well, we're still we're closer. So I think that would be reversed somewhat. And then I don't know. I think I do like the broadening out of the market, though. I do think that's good because tech has just been the only game in town. I like when there's other games in town.

7:38So that I feel good about. But I am confused. I got to say. Well, we're again at one of these places where the market, if you look at Fed Fund Futures, and we've all, you know, we've talked about this for the last year and a half, that they're not really accurate. They move around a lot. But right now, Fed Fund Futures out one year have 80 basis points of rate cuts. And, you know, based upon the inflation data we had here and all what we're saying here is there's the Fed is stuck and the Fed has to toe the line. So I think a market that has rallied on peak rates, peak Fed, peak dollar, peak inflation at some point runs out of this excitement.

8:14And you have to get back to the reality that rates stay higher for longer. And that's just not good for equity. All right. Well, Wells Fargo sees a little progress on inflation ahead. Mike Schumacher is the firm's head of macro strategy. He joins us here at the NASDAQ. Michael, welcome. Great to be here. Thanks, Melissa. I thought it was a perfect time to bring into this conversation because you actually think that we've seen peak rates pretty much. And we may have seen it last week. We did see the big surge, though, today. And I'm wondering if you sort of rethink that narrative. No, not really.

8:40I mean, it's one day. Big deal, frankly. And if you think about it, I believe the big move today was predicated by Treasury supply. We had the announcement last week. It was high. Everyone knows that. 10-year auction yesterday, pretty big, went okay. 30-year auction, big again, didn't go so well. But the thing about Treasury supplies, it's very predictable. The next news out of the Treasury is not until November 1st with the next announcement. Yes, there will be auctions, but I think the market can deal with that. So I wouldn't call today a one-off, but today was really a combination of a few things coming together.

9:11So to me, it's normal volatility. Yes, rate volatility is high, but today is not crazy in that context. So when you say we've seen peak rates, we've seen peak rates, but they stay close to peak or we've seen peak rates and they start coming down. We think longer term rates actually come down a fair bit. And it's really interesting if you think about and look at historical Fed cycles. And I get it. This one's different. But still, I think it might be different in a more accelerated way. Typically, there's a pretty big rally in the bond market. Starts right around the time of that last hike. People don't wait.

9:41And we think the 10-year Treasury is going to 350 or lower by the end of the year, which seems like a big move today, but I think that's very attainable. So that's great for equities? Should be good for equities, but we have lots of equity gurus here today. I'll defer to you all, but as far as bonds go, we think that's a pretty substantial move. So 3.5 % in 10 years suggests a re-steepening of the yield curve, I would imagine. But there's this notion, and I've read a lot about it, It's the re-steepening when risk assets start to do their worst. Is that a concern at all? It's really interesting, Guy.

10:15When you think about the slope of the curve, in the early days after the last Fed hike, everything seems to come down together and yield. So maybe the two-year doesn't really quite keep pace with the 10-year, but it's pretty close. So I'd say for the next three-plus months, we don't really see a big reshaping of the curve. We think it's going to be more of almost a parallel shift for a while. So the curve shape, I think that's a topic probably three, four, five months out. So let me ask you, the front end of the curve, though, I mean, how does this fit in at five and change still? It seems to be pretty sticky.

10:47It is sticky. A lot of issuance coming. Yeah, a ton of issuance. I agree with that. And Treasury is really intent on even letting that T-bill number go higher as far as the percentage of outstanding and all that good stuff. But the front end is basically hostage to Jay Powell right now. So the next big data point for the front end, it's not PPI tomorrow. You can all sleep in. It doesn't matter. but wait for Powell at Jackson Hole in a couple weeks. That's the message people will care about. And I think that will drive the front end for quite some time. So we at Wells think it will be pretty sticky for a while.

11:17What do you think happens? I mean, what we've seen is some very tough labor negotiations, big union wins. I mean, I think the average driver at UPS will now make$170 ,000 a year. Good for them. Pretty good. Guy, you left too early, Matt. I mean, I paved the way. You are considered a hero in this. Thank you. I appreciate that. But that just shows you how this could still be an inflationary force. Do you think the Fed has to be then harder than we may even think, given CPI, just because wages will be so sticky? It's a really good point, Melissa. I suspect the Fed looks at that factor and nearshoring or onshoring or whatever and says these things all boost inflation.

12:00So that run rate is going to be higher than it was back in 2018. or 2019. So we have to be more vigilant and keep rates higher for longer than we did then. But the problem for Jay Powell is when he makes that point, people don't believe him. The bond market says, well, if you're done hiking, surely the next ease is going to be pretty soon and you see a big bid for duration. So it's a really tough message for him to get out. Michael, how about the dollar in the mix on all this? Because if the Fed is seemingly done, they've at least done everything they can to signal. I argue we've had an 11-year bull market run.

12:32We're seeing the end get back to those, you know, those all time lows, but nominally higher against the dollar. Any call on the dollar in the middle of this? Because you're talking about a backdrop where you you're kind of feeling that yields are moving down with some stability that's at least leading to a bit of a bond market rally. Dollar seems to be fighting a lot of this stuff. We've actually become more positive in the dollar, Tim. And it's interesting when you think about the Fed, you know, the Fed's about done. But in the last month or so, we've had the European Central Bank sound a lot less hawkish.

13:01Bank of England sound much less hawkish. Bank of Japan probably just confused. But still, as they are, put it all together. It seems to us that on balance, the overall mismatch, let's say, between the Fed and other central banks has come in. And on top of that, data in the U.S. are pretty decent. Data overseas have been deteriorating. We saw the news on China, obviously. So we think that actually bodes pretty well for the dollar, despite 145, give or take, on dollar yen. Laurie, I'm curious when you hear Michael talk. I mean, let's say the call for 3.5%, which seems to really stick out to me. Is that definitely good for equities?

13:33You know, it's actually what's baked into our valuation model right now, because we've been looking at consensus forecasts across the street for things like yields and inflation. And it's been around kind of that 3.5 % market year end for a while. And that should give you kind of a 21, 22 type PE multiple in the market if you take our back test that goes back to the 60s. So I think it is positive. I think it is positive for those growth stocks that have been a little bit weaker in here trying to find their footing. I mean, my question for you, though, actually, is if we get to that three and a half at the end of the year and the Fed kind of stays on pause, we're kind of getting to that point, right, where 2023 doesn't matter as much anymore.

14:08And we start thinking about 2024. And I'm just curious what your take is so far. Yeah, that's been really interesting to see the markets pricing for the Fed next year. It's been super volatile. So back in early May, three months ago, the market was priced for 175 basis points of cuts next year, got down to as low as 80. It's been sort of bouncing around low hundreds since then. A lot is going to be dictated by really the path of the data, because at the end of the day, that's what the Fed can't control very well. So I think whatever Jay Powell says matters a lot, but two, three, four, five months out, it's going to be the data path.

14:41So if inflation behaves itself, if we get a few more prints like today that are benign, frankly, then you could imagine maybe some cuts late next year or middle of next year. But if it does sort of flatline, I think that makes it a much tougher call on the Fed. What do you think Jay Powell needs to do at Jackson Hole? I suspect what he'll do is say something like this, Melissa. We've done a lot of good work. Inflation is down a bunch, which it is. You still have a lot of that impact yet to come through the pipeline, lags in policy, that sort of thing. We have to be vigilant. We have to keep our eye on the ball.

15:12Yes. We're not going to get any major reset. We're not going to get any major like walking away from 2 % target or anything intriguing or interesting? Last year was amazing, right? He gave an eight-minute talk left, and the market went wild. Equities were down three-plus percent that day. I can't imagine something like that happens again. All right. That's too bad. I know. It was fun, right? Interesting. We're just talking about volatility. You'd have it. That'd be a crazy day. All right. Michael, good to see you. Thank you. Thanks, Melissa. Michael Schumacher. Well, it's... What happens then with equities?

15:40Well, there's two ways I think about this. We're talking about an equity market that's run 30 plus percent on the S &P since that October. I mean, I feel like this is such a great time for asset allocation and to be thinking differently than people have in the past. After this kind of a move in the equity market, I hear about a rally in the bond market, the rates markets. And I hear a lot of investors that and I have investors that want to be locking in rates for longer. So that move out the yield curve and some of that, I think, is something to be thinking about. I think equities like three and a half more than like four and a half.

16:09But I don't think equities get a rally on this as much as. And again, I think, if anything, this is going to be that case where bad news, which is good news for bonds in terms of lower yields, is probably not going to be great for equities. When we first started doing this show, they told us, they brought us in a room, said don't make people's eyes glaze over. So hopefully they do that every night. But Tim mentioned dollar-yen, and quickly, I'm not saying you should trade it, but in October of last year, dollar-yen made an all-time high, 152 or so. January, 125. This stealth rally in the dollar, the yen weakness, is absolutely something to watch.

16:46And that will correlate with the bond market and will correlate with risk assets. So keep your eye on dollar-yen because I think that's going to tell the tale, Melms. Coming up, shoes, handbags, and the luxury mega merger. Today's retail deal hopes to send shockwaves through the fashion industry. What you need to know about Tapestry and Capri's team up, that's next. Plus, Baba Boyd shares jumping after a strong earnings report this morning. So should you add this one to your cart? We'll debate that when Fast Money returns.

17:23It was very clear that Capri represented a unique and strategic fit for our portfolio. It builds in this resilient category that we play in a$200 billion category for accessories, footwear and apparel, luxury accessories, footwear and apparel with complementary brands. So that's important. Welcome back to Fast Money. That was Tapestry's CEO speaking to Squawk on the Street about her company's$8.5 billion takeover of Capri, their luxury retail company behind brands like Michael Kors, Versace and Jimmy Choo. Capri shares turning in their best ever session following this announcement. Well, Tapestry, the owner of Coach, and Kate Spade fell nearly 16%.

18:08Karen. Yes. You are happy. I was happy. I was delighted. Absolutely delighted. But surprised for a couple of reasons. I get the idea of putting these two companies together. They are very similar. You can see some synergies. But the part that I'm really sort of surprised by is clearly it wasn't working at Coors, right? So they had these three different brands, Michael Coors, Versace, and Jimmy Choo. And they have tried for several years now to really see, can we get any kind of luxury premium for this company? And the answer has been a resounding no. We're giving you a mid-single-digit PE multiple.

18:51And so interestingly, Tapestry came along and bid all cash. It's surprising to me that they didn't want to do any stock or did Coors not want stock? Did they not believe in the idea of this thing merging together? I don't know. That's so the all stock. I mean, the all cash rather. It's a fair amount of debt. It's not it's not insurmountable, but it's a fair amount of debt for Tapestry. They think they'll be able to get some synergies and pay it off. They don't have bad. There's no financing condition to the deal. So they've got to come up with the money, no matter how bad the financing markets are, when they're prepared to close.

19:25I don't think there's any antitrust issue here. Retail is so giant. It's just I don't quite get how it didn't work at Coors, but Tapestry can make it work. I'm a tad skeptical. I don't know if I had heard that Tapestry was—people had a lot of long Tapestry, short Capri that maybe was turned around today. It didn't look like there was a lot of short interest in Capri, so I'm sort of surprised by that. I understand why tapestry is down. This is a higher level of risk with all this debt. They're going to be four times debt to EBITDA. That's not great. They could pay it down, but it's, I don't know, it sort of hamstrings them.

20:02And so I'm not surprised that it's down. However, I'm delighted with the entire thing. And you are out. I am gone from this morning, gone. Yeah. Well, what I don't understand is why pay, you know, eight and a half times EBITDA when it was trading at five and a half? Like, why did they need to pay that kind of premium when, in fact, the stock has had a chance to do and prove wrong people for the reasons that you said it's been struggling? So I guess I don't get that. And I hear I hear, yes, it gets tapestry more into the luxury. But as you're saying, there's still a lot of overlap. And that's kind of what I'm hearing is really the benefit.

20:39It's 200 million dollars of cost savings and synergies they achieve over the next three years. That's not a reason to do a deal. And it seems like the ability to generate free cash flow and pay down this larger kind of debt is that story that is what you get. But it's almost that you're creating the narrative after you've kind of created it. But what is the narrative here? Because it feels like this consumer, if they're trying to get the caring valuation, the LVMH. That's another universe right now. Exactly. The shopper is a completely different shopper who buys Michael Kors or Jimmy Choo handbag versus a Louis Vuitton.

21:15The price points are completely different and the demographic is completely different. So I don't know if they could ever can they ever achieve that. So if that is not the end goal, then what is if if they can do they talk about direct to consumer being somewhere where they could be more they could make it more efficient. They talk about there could be think about it. They're both in wholesalers in a Bloomingdale's in, you know, maybe a Nordstrom's or all of those. Maybe they get a little more power there. Maybe they get a little more power being at Simon Property Group malls to make it negotiate better.

21:49Maybe they can facilitate. They can do fulfillment better. A lot of different things. I don't know how the multiple changes, though. Right. How they get. But Tapestry's multiple was better than Capri's. Capri's was six. Theirs was, I don't know, 12 before today. Wouldn't that have been better to use stock than not cash? Yes, but why doesn't it want stock, which is what Karen's saying? I understand that, but they should still get it. The suspicious thing. Right. Also, John Idle, the CEO, they had tried to get a new CEO. He was sort of ready to retire. That didn't happen. This is a graceful expert for him.