Sticky Areas of CPI… And Summit Therapeutics Co-CEOs On New Drug Results 9/11/24

0:01Live from the NASDAQ market site in the heart of New York City's Times Square, this is Fast Money. Here's what's on tap tonight. Housing headaches, inflation may be moderating, but one crucial component of CPI remains stubbornly sticky. What it means for the economy if rents and home prices stay high. And scaling the summit, shares of one biotech company have nearly doubled just this week. And it's only Wednesday. We'll talk to the co-CEOs of Summit Therapeutics to get the latest on their lung cancer drug trials. Plus, a read on the consumer from Affirm CEO, Max Levchin, what he's saying from the fintech space and what it could mean for the payment stock.

0:34I'm Melissa Lee. Coming to you live from Studio B at the NASDAQ on the desk tonight, Tim Seymour, Karen Feinerman, Julie Beal in the house, and Guy Adami. And we start off with a major market reversal on Wall Street today. The Dow clawing into the green by the close after falling nearly 750 points at the lows. The S &P up a percent in the big winter. The tech-heavy NASDAQ gaining more than 2 % today, led by some monster gains in NVIDIA. We'll dig into that later on in the show. But all this action coming after this morning's August inflation report. Consumer prices rising 2.5 % from a year ago.

1:04Its smallest increase since February 2021, but several key parts of CPI remain persistently elevated. Rent was up 5 % from a year ago. Daycare and preschool up 6.2%. And auto insurance more than 16 % above year-ago levels. All expenses that are hard, if not impossible, to cut from budgets. For more on the inflation breakdown, let's bring in CNBC senior economics reporter Steve Leisman. It's really no wonder why the consumer doesn't feel so great, even though the economy is largely good. I think that's right. The inflation offsets a lot of the other stuff that's going on. Melissa, this is somewhat hotter than expected CPI, giving markets a choice of whether to fade the number or, of course, to run in fear.

1:45Most have decided to fade it with the understanding that most of the gains came from that stubborn and expectable continued high levels of housing inflation. Take a look here. Shelter rising at 5.2 percent, the broader shelter index on an annual basis. That compares with two and a half overall and three, two for the core, which is pushed up in part by housing and maybe residual seasonality for airline fares. But private sector data from Zillow suggests actual shelter costs rising at a much slower rate. Dana Peterson from the conference board tells me it could take more than a year and a half of which we're sort of into that process a bit already for the private sector data to be picked up in the CPI.

2:22and economists in cities saying, quote, given the slowing in rents and house prices and lack of response of mortgage purchase applications to the drop in mortgage rates, we think the pickup represents volatility around a cooling trend rather than a shift back to faster housing inflation. Markets, to an extent, have embraced this idea of fading it, but they did see today's CPI as a greater indication for 25 rather than a 50 for the Fed to start. They continue to price in very aggressive rate cuts over time, 100 basis points by the end of the year. And now the market's priced for 250 basis points over a full year, bringing the Fed quickly down and even now pricing below neutral, Melissa.

3:03So on the back of the number this morning, Steve, the 50 basis point cut was basically dead according to the probabilities, right? It went down almost zero. So did that shift sort of to within this year but later? Well, just to quote Monty Python, not quite dead yet. We've got a 15 percent probability. But you're right. I just couldn't resist the quote. Sorry, 13 percent probability down from 30 percent. You're right that that what happens is they shift it. Now they're they're debating whether or not the November number is 50. But ultimately, they have that 100 basis points, 4.25 % to 4.5 % by the December meeting is a 100 % probability priced right in right now.

3:48So that's where the market is priced. I think the Fed comes in steps, 25, 50, 25 is the pricing right now. And they've been very consistent about the market pricing anyway. But the Fed has not been. But that 100 basis points this year, what's really interesting to me, I don't know if they have that September 2025 Fed funds contract in the back there. But that's really been aggressive now. It used to be 310, 315. Now it's down to 288, which is a full 250 basis points over a 12-month period. Steve, a couple of these components are sort of intertwined. So rent, we know, is very sticky. But then you lump insurance on top of that.

4:26Landlords need to pay the insurance. They pass it on to their renters. That doesn't seem like it sort of rectifies itself anytime soon. So the stickiness there, it seems like it's going to stay that way for quite some time. I don't think the Fed can combat that. But thoughts on that sort of silo? Yeah, it's a bit of a cycle. You're absolutely right. One thing you can notice, though, Melissa read the 16 percent. Remember, it was 22 percent. So sequentially, it's coming down. The auto insurance thing is reflective of the rise in auto costs. And then that sort of has stepped down a little bit over time here as they play catch up.

5:06The problem is that these insurance contracts, they only renew, what is it, one twelfth of them every month. So you've got to keep renewing it. And, of course, as the price of the auto rises, the price of the repair goes up. So they keep raising it. Eventually, the thinking is you catch up to it, you catch up to the prices. We have seen some attenuation of car inflation. But you're right about the home insurance side of things, which, by the way, is a disaster in several of these disaster areas. That is a completely different topic when it comes to things like home insurance in Iowa or Florida.

5:40Yeah. Steve, it's Karen. Thanks for being on. So do you think that that forward looking that we'll get 100 basis points this year will be is if this comes in the same every month for the next three months? Is that still what you think the market will price in for that? Yeah, I think the first hundred is an easy hundred. I think that the Fed wants to give the economy credit or, put another way, bring the rate down to a place that's more commensurate with the current rate of inflation. And if you think about it, the 538 was set back when inflation was quite a bit higher and to address an issue that is no longer out there, which is that we weren't close to the target.

6:26We're close to the target now. So you can get 100. That next 150 and getting back to neutral, I don't know. I think what you're saying is if you stay in this two and a half to three percent range. By the way, you all know this. If you don't, I just want to make sure you do that. The CPI runs a half a point or more hotter than the PCE, which is what the Fed bases inflation on. So we're darn close to the target here. You don't need such a restrictive policy. Whether you need a somewhat restrictive policy is exactly the answer that you just gave us, Karen, which is going to depend upon whether or not we start trending back down to the target range.

7:05Steve, great to see you. Thanks so much. Pleasure. Steve Leisman, the reaction to the markets fascinating today because immediately it was like, this is terrible. Right. We sold off. And then a huge reversal to finish at the highs. Especially in the leadership parts of the market that at least those that are tracking the market itself wanted to see. You saw semiconductors from 10.36 a.m. go up 6.2 percent to the close. I mean, what was that? Some of it is, I think, dip buying and dynamics, where if you look at some of the biggest stocks in the market, NVIDIA was not surprising, therefore up over 8 percent.

7:38You know, you have a case where I think there was some people, there were people out there with shopping lists. I also just think that yesterday was a day where we had this dynamic where there was kind of this credit overhang coming from the Sparkleys conference, the J.P. Morgan comments, the ally financial delinquencies that suddenly look awful after only a few weeks ago weren't so bad. And I think that played into today. And you get a hotter CPI, at least on its core. And I think that's kind of what took the market. It's also interesting that commodity prices in that core CPI were lower for the fifth time in six months.

8:11And I'll repeat, I think bonds, so treasuries and commodities tell us we have a hard landing coming, whereas credit and equities tell us game on. And I think, too, it's important to keep in mind that there is a big difference between the CPI and the PCE, particularly on the shelter metric. Like the way that they collect shelter is through owner equivalent rent, which is literally calling people up and being like, hey, you own your house. What if you rented it? How much do you think it would be? Why don't they just ask me if I love my kids? It's like it's a really silly question to be asking people.

8:41And it's a strange metric. And it's kind of an anachronism. The Zillow data is much clearer that for sure we see a lot of softness and shelter. And so I think a lot of investors have digested that. I think if we had seen CPI increasing on other metrics like food, that would have been more concerning. But I'd seen 150 point, 150 handle reversal from high to low. I'd make a big deal of it. So I have to make a big deal of it today. It's a huge move. I mean, it's extraordinary, actually, but we should bring up, I mean, look at what dollar yen did today. Tim was talking about it as well. Traded down to 140.70, which is the lowest we've seen in quite some time.

9:19Much lower in terms of the dollar than we saw on August 5th, only to see it reverse hard. So I think some of the reversal today in the equity market might have been on the back of that. The point being, this dollar yen trade, this unwind of the carry trade is not over. So more volatility ahead, I think. I sort of thought that a lot of what happened early in the market was this sort of knee-jerk response to the idea of Harris doing better and the idea of a Democratic presidency being less favorable for the market. I felt like that was a pretty big driver. I don't know why that would have been the same at 10 a.m.

9:59as it would be at 3 a.m., but I think that was just sort of the knee-jerk reaction. I'm not sure. I was in the 50 basis point camp. I had left 25 basis point camp. To be in the 50 camp, this was just a little too hot for that. And I think the—so— So you drove back to 25. Yeah. How does it feel over there? Yeah. I liked it. Not that different. Not wildly. Halfway there. Yeah, not wildly. You might go back, though. You might. Yeah. Who knows? All right. For more on CPI and that housing number, let's bring in Intercontinental Exchange's Andy Walden. He's the VP of Research and Analysis. Andy, great to have you with us.

10:33So a lot of the—you know, going into this number, there's so much expectation. expectation that the shelter component would come down based on the private sector surveys that we had seen. If it was so well known that it takes a year for that to read and go into the data, why wasn't it expected that they would not come down? It's a good question. I mean, you're right. If you look at any of these other numbers out there, you look at the true rent numbers, you look at the latest ICE home price index, it says home prices have been cooling for the last five months, and we saw our coolest reading in the last 12 months.

11:02And so there, as you've mentioned already, There's some walkiness in that number in the way that it's calculated. Certainly a lagging indicator in terms of what's truly going on out there in the market. Andy, if I look at housing overall and I hear some of the comments from what we've heard on the credit side from the consumer over the last couple of days, we're talking about auto loans, we're talking about student loan delinquencies. Can you just give me some sense how this is playing? And we've heard certainly from the builders themselves. We know where supply dynamics are for the market, so we know there should be a bid to the housing market.

11:30But we have not really gotten to the side of the strength of the consumer and the housing balance sheet. Yeah. When you look at delinquency rates, they're still historically very low. They're a full percentage point below where they were in the early 2000s. They're a full percentage point below where they were kind of leading up to the COVID pandemic. In recent months, we've hit a nearly 20-year low in terms of seriously delinquent mortgages and foreclosure activity is through the floor right now. And so really, when you look across the board, you're not seeing a whole lot of concern. Now, the one area that we do have our eyes on are more recently originated loans, where we know that folks were stretched from an affordability standpoint, debt to income ratios were higher.

12:08We're also seeing a modest rise among some of those FHA and VA type mortgages that are more entry level buyers. We're certainly seeing some gradual rise in delinquency rates there that we expect to be kind of the early indicator for the market this time around. But broadly speaking, you're still seeing very low delinquency rates in that mortgage space. How do you think through the drop that we've seen in mortgage rates? I mean, mortgage rates now are at their lowest, I think, since February of 2023, given the strange sort of, you know, supply demand dynamic that we have here. A lower mortgage rate doesn't necessarily mean it.

12:39I mean, how do you how do you sort of factor that into housing prices? Yeah, you're absolutely right. And if you look at the mortgage rate yesterday, it was six point two percent compared to according to our in-house ICE data there. That's down a half a percent from where we were at the end of July, down a full percent from where we peaked out in May. So it's certainly moving the needle from an affordability standpoint. And anytime we've seen rates fall like that, you've seen a corresponding return in demand. And so I think that's the big question, Mark, from a home price perspective. We've been in a cooling cycle this year.

13:09The question is, does that speed things back up? And when you look at purchase loan applications, when you look at purchase rate locks, we've seen four of our strongest weeks of this year here over the last few weeks. But it hasn't been as strong of a reaction as we saw even early this year when rates fell to a higher level or more specifically in early 2023 when rates fell below where they are right now. We're not seeing as strong of a response. And so we may see some firming of prices. I'll have my eyes on inventory data when it comes in for September to see if it starts to buy down inventory levels.

13:40But I wouldn't expect as strong of a reaction as we saw in 2023 when rates fell and the housing market significantly sped back up. But again, that's to be seen here over the next few weeks and next few months out there in the market. And despite the fact the unemployment rate's gotten up to 4.2 percent, it's still pretty much at historic lows. What is the rate where the housing market starts to take notice? I think you'll gradually see that impact, both mortgage performance, mortgage delinquencies, as well as demand out there in the market. I don't think there's a true trigger point in terms of seeing a cliff there.

14:11But obviously, one of the key components to being able to afford to buy a new home or afford the mortgage on your existing home is having a job, right? So there's this corresponding impact. As unemployment rises, you're going to see both of those metrics impacted. But I don't think there's a cliff point where we get to a certain point and you see a massive incremental impact. Andy, great to see you. Thanks. You bet. Thank you. All right. So the way Andy described the consumer doesn't sound too, too bad in terms of delinquencies not being as high as past peaks. Yeah, I mean, well, I think it was a much more conservative underwriting than we've seen, right, in certainly a couple of cycles.

14:48So there's that, and then there's the really low mortgage, and so the affordability from that vintage, right? But I'm really curious as to when all that locked-up existing home inventory has to hit the market. We know, obviously, much lower rates would make it hit the market because then this cheap mortgage you have, you could get another one to buy another house. But when people need to either age out or have to move or I don't know how long that's going to be. But those loans are probably, what, three or three years old now. They're really cheap ones. I don't know. At least. I mean, right. It has to be three.

15:24Yeah. I don't know when we'll start to see that. It's like all the governments that were out there issuing 50 year paper, you know, 1 percent in emerging markets. I mean, it's pretty crazy to think about how you were able to. But it's also crazy to think about how the Fed has only been issuing short term and not really issuing on the long end to kind of massage what is a really difficult refunding dynamic, by the way. You know, pretty good 10 year auction out there. I just you know, I think it's it's a case where the the consumer I would choose to focus on the credit side of things and I would focus.

15:55I understand, again, back to the home builders. We know that they're in very good shape other than Lenar, who apparently is discounting heavily to clear through inventories. We kind of understand where they've been able to actually hold margins even at higher rates, even while financing some of the underlying purchase. But it's just, you know, if the household balance sheet takes the kind of a turn that we're getting these metrics on, I think that's the issue for the housing market. And, you know, it's not right now. And do not miss CNBC's first ever interview with billionaire investor John Paulson, who famously bet against the U.S.

16:27housing market during the financial crisis. That's Friday, 1115 a.m. Eastern Time, right here on CNBC. Coming up, shares of NVIDIA bouncing back from the recent slump, what CEO Jensen Huang said about spending and chip delays next. Plus, some heavy-hitting new data for Novo Nordisk, the new data on its weight loss pill, and where it puts Novo in the obesity drug wars. Don't go anywhere. Fast Money is back in two. This is Fast Money with Melissa Lee, right here on CNBC.

17:04NVIDIA stock soaring 8 % today for its best day in a month. CEO Jensen Huang speaking at Goldman Sachs' Communicopia conference this morning. He spoke about when the company's new Blackwell chip platform will be rolled out and how AI is helping reduce costs. Seema Modi's got more on what Huang had to say in conversation with Goldman Sachs CEO David Solomon. Seema. Well, Melissa, NVIDIA CEO Jensen Huang said the cost benefits of artificial intelligence will incentivize big tech to continue to spend, adding that hyperscalers can generate$5 in rental revenue for every$1 spent on NVIDIA's infrastructure.

17:37He also reiterated that Blackwell ships out in the fourth quarter and that the market needs to think about Gen.AI not just as a tool, but a skill that expands beyond data centers. So think digital chauffeurs, digital assembly workers. When Solomon asked Wong about Taiwan, though, and the geopolitical risk, the NVIDIA CEO made the point that the company is dependent on Taiwan's semiconductor and credits the Asian manufacturer for its surge in revenue, though said if something were to happen, performance may be impacted.

18:10Maybe we won't be able to get the same level of performance or cost, but we will be able to provide the supply. And so I think in the event anything were to happen, we should be able to pick up and fab it somewhere else. Unclear where else NVIDIA would fab its chips. Taiwan Semi is still behind on getting its Arizona plant up and running in Intel, while developing five plants here in the U.S. is dealing with its own set of issues, Melissa. That's right. Seema, thank you. Seema Modi. Huang also mentioned the competition for the chips out there and how he's got more, quote unquote, emotional customers than before because they're all fighting over these chips, so desperate to get their hands on them.

18:54Julie? I mean, it's like they're so emotional. It's like I love that description. Crying. But it is, right? And I think that's a real reflection. The other thing that I thought was so fascinating that he talked about was, you know, their ability to continue on Moore's Law. We've kind of found the end of Moore's Law. And it's an important fact because so much of what is important about AI is can we get the cost down? And what's unusual about AI, unlike other technologies, is that in order for the models to get better, you actually have to spend more money. And so we're not getting that deflationary tech that we typically get in most tech trends And so that's kind of a critical question that I'm still waiting to understand.

19:33The five to one payout, in other words, for every dollar spending at five back, I mean, that still has to be proven. Yeah. I don't think we're there yet at all, but it's fine that you can say it. But unambiguously, the reversal today on what was very big volume day is a very good thing. You know, we traded back through a moving average, which is encouraging. I mean, it gives you reason to think technically maybe this thing has some further upside over the next week or so. I was just, you know, we were talking about the Oracle call two days ago, which I thought I was surprised NVIDIA had such a muted response to that yesterday because I thought it was wildly bullish.

20:08And I would think this should have been the response. So I do feel like the there's still a big question about the productivity, the return. Right. But I don't think there is a demand question. And I don't think Blackwell being delayed. It's delayed, not denied for that sale. So I think it will happen. So and then just to get into the performance of the group overall today. And if you if you look at the market, the S &P was certainly struggling to hold above that 100 day and was challenging it for the first time, really outside of that August 5th downdraft going all the way back a year. And with the Nasdaq, you were testing actually the 200 day.

20:45Well, in the case of semiconductors, they were essentially looking to bounce and getting a bit of a bounce this morning. Obviously, they did ultimately get the bounce. But the performance of the group is critical. And if you look at where semis have been relative to the market, I mean, they've been making lower lows against the S &P going all the way back to that CPI in July, July 16th, July 17th. What I thought was, again, it was it was a very big moment for the the rates market and what the Fed was going to be doing. It's ironic that that market triggered a downdraft in the high multiple, high tech, high growth trade.

21:17There's a lot more fast money to come. Here's what's coming up next. An easy pill to swallow. Novo Nordisk gaining on its latest weight loss drug data. How it stacks up against the competition and what it means for the obesity drug wars. Next, and sticking in the drug space, one biotech stock surging this week as new lung cancer data beats out a key competitor. The co-CEOs lay out the details and what it means for the company's future. You're watching Fast Money, live from the Nasdaq market side in Times Square. We're back right after this.

21:58Welcome back to Fast Money. Shares of Novo Nord is gaining more than 4 % today on early trial results from its GLP-1 pill. The company presenting phase one trial data at a conference in Madrid saying that patients taking the pill version of amicretin lost up to 13 % of their body weight over 12 weeks. Patients taking the injectable with Govi lost around 6 % over the same period. Side effects are reported to be similar to the injectable versions. The pill has not yet been directly compared to drugs in a lab, and the phase one trial has not yet been peer reviewed. But so far, the indications look promising.

22:30Also, the fact that there is no plateauing towards the end of week 12 indicates that there could be more weight loss even beyond week 12, which would make it even more effective than the current blockbuster they've got in the market. Well, it provides at least some support and reassurance for the competitive nature of this product relative to the peer group. It's interesting. I don't know where Lilly closed, but it was certainly not suffering from the back of this news either. So it really, again, you know, I think it becomes more about the addressable market story. That's where we go with the story.

22:58That's where the analyst community has the ability to slap almost any number they want to. And I think for the next couple of years, those earnings are intact. I think there's going to be plenty of competition. And you would think with this positive data that the competitors or the upstarts, they would trade lower, but they did not trade lower. We had Viking trade higher, and I thought immediately that Viking would be down on the news. No, I think it's just a case of the more that this market can expand and become accessible, and part of that is having it in a pill format makes it much easier for people who are squeamish about having to do auto injectors or going into an office.