CPI Looms After Soft Start to Week as Oil Climbs

0:05Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead.

0:17I'm Keith Lansford, and here is Schwab's early look at the markets for Wednesday, August 12th. This week's pivotal data arrives at 8.30 a.m. Eastern Time when the government unveils July's Consumer Price Index, or CPI. Analysts expect a relatively cool report, so the market might not react well if CPI shows inflation exceeding estimates. Expectations are for a move lower relative to the prior month, but risk is to the upside and could change rate hike expectations, said Lizanne Saunders, chief investment strategist at the Schwab Center for Financial Research. Consensus is for a 0.1 percent headline rise in July, with core CPI up 0.2 percent month over month.

1:02Core extracts food and energy. On an annual basis, analysts expect 3.4 % headline inflation and 2.5 % core, down from 3.5 % and 2.6 % a month earlier. The core number is arguably more important since it strips out volatile energy prices. There's concern, however, that expensive gas could be filtering into other elements tracked by the report, hurting consumers just as jobs growth appears to be lagging. Headline CPI fell 0.4 percent in June, but that reflected sliding gas prices at the time. In June's report, food, furniture, and recreation prices rose monthly, while car insurance, apparel, and medical care costs declined, the U.S.

1:47Bureau of Labor Statistics said. Approaching CPI, chances of a 25-basis-point hike next month were exactly 50 percent after falling to around 40 percent late Friday, according to the CME FedWatch tool. Last week's soft jobs report and downward revisions to previous jobs growth could make the Fed somewhat wary about raising rates, though a hotter-than-expected CPI could put more pressure on policymakers to make a move in September, especially with midterm elections approaching in November and any further moves before then possibly caught up in political season. CPI precedes Thursday morning's Producer Price Index, or PPI, and parts of both reports filter into the Personal Consumption Expenditures, or PCE, Price Index, the Fed's favored inflation meter due later this month.

2:38PPI measures wholesale prices, and it rose steeply earlier this year. This raises worries that some of those higher prices might be getting passed along to consumers, something CPI might shed light on. Consensus is for a 0.1 % monthly rise in headline PPI and a 0.3 % increase in core, according to Briefing.com. The June numbers were negative 0.3 % and positive 0.2 % respectively, with total PPI up 5.5 % year-over-year, suggesting wholesalers continue to grapple with high prices and might have passed them along to consumers. A three-year Treasury note auction on Tuesday generated strong demand, Briefing.com noted, but yields stayed at pre-auction levels to finish the day, down about one to two basis points across the curve in quiet action ahead of CPI.

3:33Today brings a 10-year Treasury note auction, followed tomorrow by an offering of 30-year bonds. Slower demand might raise concerns about higher borrowing costs, with yields already scraping long-term peaks. The recent move by Japan to protect the yen raises concerns that Tokyo might sell treasuries to cover yen purchases. The yen has fallen again after rising slightly early last week when the U.S. helped Japan buy yen in a rare move. Intervention by the U.S. to support the yen has elevated concerns about the unwinding of carry trades, but also broader concerns about other central banks' holdings of treasuries putting more upward pressure on yields, Saunders said.

4:17The carry trade refers to Japanese purchases of U.S. assets, including stocks and treasuries. A feared unwinding of that two years ago put U.S. stocks in a short tailspin.

4:32On the earnings front, CoreWeave and SuperMicroComputer reported late Tuesday, providing new perspective on the AI infrastructure market. Shares of CoreWeave initially jumped in post-market action on strong revenue growth. SuperMicroComputer also gained a quick 8 % after the close, as earnings per share topped estimates and the company raised guidance. Lumentum, an optics and laser maker, also offered a strong earnings print, but the stock barely moved initially Later today, features results from Cisco, with AI trends likely under a microscope Consensus is for earnings of$1.17 per share On Tuesday, Wall Street backed into the CPI report to mark the fourth weaker close in the last five days for the S &P 500 index Gold prices inched up, but silver fell.

5:25The dollar finished flat. No progress came on the Iran front Tuesday, and headlines said the U.S. targeted a Panama-flagged vessel that tried to push through the naval blockade. U.S. crude edged 1.6 percent higher to above$83 a barrel after falling toward$75 last week. There were bright spots Tuesday, including industrials and financials both ending higher. Private equity firms led a rally in financials, a sector that's risen 10 weeks in a row. An 11th would be a record, CNBC noted. Shares of KKR, Blue Owl Capital, and Apollo Global Management rose. Small cap stocks bucked the downward trend Tuesday as the Russell 2000 posted 0.4 % gains, A slight easing of Treasury yields likely helped.

6:18All this comes with volatility muted, as the SIBO-VIX fear index remained below 16 Tuesday, even with stocks trending lower. This could imply disconnect, as participants don't appear eager to pay for protection. Just four of 11 S &P 500 sectors finished green Tuesday, led by defensive utilities and by oil-driven energy. Volume remains below normal but was relatively strong on the rally last week, a positive technical sign. This week's struggles came on lower-than-average volume, possibly a sign that there's not so much conviction heading lower. The Schwab Trading Activity Index, or STACs, edged up to 59.80 in July from 59.12 in June, the highest reading since early 2022.

7:09Clients remained net buyers, with dip buying still a feature. Stocks on the move Tuesday included Alphabet falling 3.6 percent, despite lack of any major news. Shares have been volatile lately, and last week's sharp rally got sold as a key AI executive left the company. The communications services sector fell 2 percent Tuesday, mainly dragged by Alphabet. him's and hers health lost two percent after the telehealth platform reported much wider than expected quarterly losses however it does expect third quarter revenue well above wall street's thinking apple oven fell nearly six percent after bank of america downgraded shares to neutral from by citing risks to long-term revenue growth on holding plunged 20 percent after the sportswear firm missed analysts' estimates for quarterly revenue and cut guidance.

8:04Weakness dragged competitor Nike, which fell almost 2 percent. Dick's Sporting Goods shed 4 percent. Though industrials showed muscle thanks to strong performance from military contractors and Caterpillar, shares of Honeywell International pulled back 5 percent, as guidance shared at an industrial conference appeared to disappoint some investors. And Under Armour dove 9 percent after Barclays downgraded shares to underweight from equal weight, citing the company's delayed brand recovery in a competitive athletic sector.

8:42The Dow Jones Industrial Average lost 184.13 points, or 0.34 % Tuesday to 53 ,791.85. The S &P 500 index shed 24.91 points or 0.32 % to 7 ,728.20 and the Nasdaq Composite fell 159.91 points or 0.60 % to 26 ,445.45. This has been the Schwab Market Update Podcast. To stay informed, visit www.schwab.com slash market update or follow us for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show. Join us for another update tomorrow.

9:43For important disclosures, see the show notes and schwab.com slash market update podcast.