CPI, Jobless Claims Brings Goldilocks Scenario

Thursday, July 11th, 2024

Pre-market futures leaped into the green immediately upon new data released this morning. The long-awaited Consumer Price Index (CPI) report for June is out, and results — from the perspective that they lead the Fed toward softening interest rates in the near future — could not have been better. Headline CPI month over month dipped to -0.1%, the first negative print going all the way back to May 2020. Normally we don’t like to see negative growth in the economy, but helping lead to a rate cut? Mwah!

Year-over-year headline CPI is also known as the Inflation Rate. As such, it is among the very most important economic reads we have. For June, the Inflation Rate came in at +3.0%, 10 basis points (bps) lower than expected and 30 bps lower month over month. This is also less than a third of what we saw two years ago: a +9.1% Inflation Rate in June of 2022. It’s also the slimmest Inflation Rate we’ve seen since March 2021 — back when inflation was going the opposite direction.

Core CPI strips out volatile food and energy costs. This morning’s print also came in lower than expected: +0.1% versus the +0.2% consensus and previous month, and the lightest number since June 2021, three years ago exactly. Core CPI year over year reached +3.3%, below the +3.4% expected and prior monthly figure. This is the lowest core inflation print since April of 2021. In short, all of this data illustrates that a high Fed funds rate for the past year has (so far) worked like a charm.

That said, those pre-market green shoots have turned to red. Perhaps market participants have applied the brakes because valuations have already priced in much of this good news. (And if you were one of those who correctly prognosticated Goldilocks CPI numbers this morning, feel free to give yourself a pat on the back.) At a glance, this looks to be a cash-out move, booking profits in light of very welcome economic news.

Initial Jobless Claims are also out this morning. These reverted back to levels we haven’t seen since May: 222K on headline for the week, down -17K from the previous week’s lightly upwardly revised 239K. Continuing Claims remained at high points of the year, but have drifted down slightly from 1.856 million in last week’s report to 1.85 million this week. We’re clearly seeing a softening labor market from historic levels over the past year or two; this is part of the Fed’s plan for loosening the economy enough to reduce rates, as well.

Delta Air Lines DAL unofficially kicks off Q2 earnings season this morning. The major airline carrier missed estimates by a penny on its bottom line, with earnings of $2.36 per share, and down from $2.68 a year ago. Revenues, on the other hand, improved over expectations: $16.66 billion versus $16.25 billion, for a positive top-line surprise of +2.5%. That said, lower booking rates have brought net income down -30%, leading to a sell-off of -8.6% in today’s pre-market. For more on DAL’s earnings, click here.

PepsiCo PEP also reported Q2 earnings head of today’s open. Earnings of $2.28 per share outpaced the Zacks consensus of $2.15 (and the year-ago figure of $2.09 per share). However, the soft drinks and snacks giant missed by a smidge of its top line, with revenues of $22.5 billion -0.25% shy of the $22.56 billion anticipated. Weakening demand in the U.S. is sending these shares lower on the news, as well: the stock is down -2.8%, adding to the -3.7% loss year to date. For more on PEP’s earnings, click here.

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