Fed Considers Full Percentage Point Rate Hike, CPI, PPI, Earnings Reports & More: 5 Things You Need To Know Tuesday

Here are five key things that could affect trading on Tuesday.

CRUSHING INFLATION SOLUTION?: The scorching hot July job report The risk of a full percentage point interest rate hike when the Federal Reserve meets in September is rising as lawmakers try to squash inflation and cool the labor market, according to economists at Citigroup.

Citigroup strategists, led by Andrew Hollenhorst, wrote in an analyst note Monday that the surprisingly strong jobs report, coupled with faster-than-expected wage growth, could “make a 75 basis point hike in September very likely.” and increase the potential for more big raises.”

A 100 basis point increase would be the first of its size since the Fed began announcing moves in the overnight fed funds rate in 1994 and would put the benchmark range between 3.25% and 3.50%.

US ECONOMY ADDS 528,000 JOBS IN JULY, SURPASSING EXPECTATIONS

Jerome Powell speaks in front of a podium with flags in the background

Jerome Powell, Chairman of the US Federal Reserve, speaks during a news conference following a meeting of the Federal Open Market Committee (FOMC) in Washington, DC on Wednesday, May 4, 2022. (Al Drago/Bloomberg via Getty Images/Getty Images)

“Our base case remains a 75 basis point increase in September, but we would not be too surprised by a 100 basis point increase if core inflation is stronger than expected,” he wrote.

US employers unexpectedly added 528,000 jobs in July, the Labor Department said on Friday, a surprisingly strong gain that defied fears of a slowdown in labor markets as they grapple with blistering inflation and rising interest rates. . Wage growth also accelerated, rising 0.5% in the one-month period since June.

But the exploding jobs report, coupled with higher-than-expected wage growth, could ultimately pave the way for a third straight interest rate hike of 75 basis points, triple the usual size, as policymakers Fed policies meet in September.

Traders are already pricing in a 70% chance of another big rally in the fall, according to CME Group’s FedWatch tool, which tracks trade.

Policymakers approved the second consecutive 75 basis point hike in July and hinted in their post-meeting statement that further hikes are likely in the coming months as they remain “strongly committed to bringing inflation back to its 2% target.

Chairman Jerome Powell said during his post-meeting news conference that another 75 basis point hike might be appropriate in the future, but that it ultimately depends on upcoming economic data. That includes the July jobs report and upcoming reports on inflation and consumer expectations regarding inflation.

ELLISON QUOTED IN TWITTER DEMAND: Twitter has subpoenaed Oracle co-founder Larry Ellison in the social media company’s lawsuit for trying to force Tesla CEO Elon Musk to proceed with its $44 billion purchase, Bloomberg News reports.

According to Twitter’s original lawsuit, Ellison was the largest outside investor in the deal, committing $1 billion toward the purchase.

Musk originally made the $44 billion offer to take private twitter in April, but tried to back out of the deal last month, claiming the platform misled its team about the number of “spam” accounts in its user base.

ELON MUSK’S REAL MEAT WITH TWITTER REVEALED

A photo illustration of Elon Musk facing falling cash

Elon Musk made a move to buy Twitter for $44 billion, then tried to back out of the deal. (Fox Business/Fox News)

Twitter sued Musk to force the deal through, calling Musk’s argument “a story, concocted in an effort to escape a merger deal that Musk no longer found appealing.”

Musk, the world’s richest man with a net worth of $266 billion, according to Forbes, publicly challenged Twitter CEO Parag Agrawal to “a public debate about the percentage of Twitter bots.”

“If Twitter simply provides their method of sampling 100 accounts and how they are confirmed to be real, the deal should continue on original terms,” ​​Musk tweeted on Saturday. “However, if it turns out that your SEC filings are materially false, then you shouldn’t.”

Twitter also cited an official from the Ellison-controlled trust that pledged the $1 billion to the deal, Bloomberg reports.

CPI, PPI REPORTS: Inflation is the great macro Focus this week with the release of the July CPI and PPI reports.

Expectations that inflation cooled last month helped stocks rise sharply in July, giving the main averages their best month since 2020.

However, after Friday’s unexpectedly strong July jobs report, any surprise to the upside could add to fears of an aggressive Fed tightening, and likely send bond yields higher and stocks lower.

On Wednesday at 8:30 am ET, the Bureau of Labor Statistics is expected to say that the consumer price index rose a slight 0.2% month over month in July. That is well below June’s peak of 1.3%. On a year-over-year basis, watch for prices soar 8.7% in July, retracing from the much larger-than-expected 9.1% rise in June, the highest rate of inflation in nearly 41 years (since November 1981 ).

Excluding volatile food and energy costs, the core consumer price index is forecast to rise 0.5%, retracing a one-year high of 0.7% in June. On an annual basis, the core CPI is forecast to rise 6.1% in July. That would be the highest since April and break a 3-month streak of slowing growth after March’s 6.5% rise, the highest in almost 40 years (since August 1982).

A cashier at a Publix grocery store marks a customer's grocery items

A cashier at a Miami Publix grocery store, Surfside, Florida, records grocery sales. (False images)

On Thursday, the BLS will report wholesale inflation data for July. The Producer Price Index is expected to rise 0.2% month-on-month according to Refinitiv forecasts, well below June’s 1.1% peak and a record 1.6% increase in March (the series dates back to December 2009).

Year-over-year, prices paid by wholesalers are forecast to rise 10.4% in July, trailing June’s stronger-than-expected 11.3% increase, which was the second-highest on record after a 11.6% in March (the final demand index goes up to November 2010).

Excluding food and energy costs, core producer prices are forecast to rise 0.4% month-on-month in July, matching the increase in June. Year-over-year, the core PPI is expected to rise 7.6% in July, the fourth month of slowing growth after a record 9.6% increase in March (data goes back to April 2011).

EARNINGS SEASON CONTINUES: Food distributor Sysco Corp. will kick off a busy day to second quarter earnings when he reports on Tuesday morning.

Also keep an eye out for numbers from electrical equipment maker Emerson Electric, music and entertainment opus Warner Music Group, fashion favorites Ralph Lauren and Capri Holdings and a trio of travel-related names: Hyatt Hotels, Hilton Grand Vacations and Norwegian Cruise Line.

In the afternoon we will hear two more plays: Spirit Airlines and Wynn Resorts.

Heart Security Latest Change Change %
REASON SYSCO CORP. 86.74 +0.49 +0.57%
EMR EMERSON ELECTRIC CO. 90.03 -0.36 -0.40%
WMG WARNER MUSIC GROUP CORP. 32.03 +0.53 +1.68%
RL RALPH LAUREN CORPORATE. 101.16 +0.94 +0.94%
CPRI CAPRI HOLDINGS LTD. 50.99 +1.39 +2.80%
H HYATT HOTELS CORPORATION. 85.19 +0.42 +0.50%
HLT HILTON WORLDWIDE HOLDINGS INC. 130.72 +0.40 +0.31%
NCLH NORWEGIAN CRUISE LINE HOLDINGS LTD. 13.53 +0.32 +2.42%
SAVE MONEY SPIRIT AIRLINES INC. 24.65 +0.15 +0.61%
WYNN WYNN RESORTS LTD. 65.89 -0.82 -1.23%
IAC IAC/INTERACTIVE CORP. 78.18 +0.84 +1.09%
HRB H&R BLOCK INC. 40.21 +0.26 +0.65%
CURRENCY COINBASE GLOBAL INC. 98.02 +4.97 +5.34%
MY BROTHER AKAMAI TECHNOLOGIES INC. 96.38 +0.10 +0.10%
RBLX ROBLOX CORPORATION. 48.90 -0.34 -0.69%

Also keep an eye on results from Internet and media company IAC/InterActive, tax preparation powerhouse H&R Block, cryptocurrency exchange Coinbase, computer company Akamai Technology, and video game maker Roblox, among others.

Nearly 90% of S&P 500 companies have reported results from April to June, with earnings and revenue numbers way ahead of low expectations.

PRODUCTIVITY, LABOR REPORTS: At 8:30 am ET on Tuesday, we will get preliminary Q2 productivity and labor costs.

Economists surveyed by Refinitiv anticipate worker productivity falling for the second consecutive quarter, at a seasonally adjusted annual rate of -4.7%. That compares with a 7.3% drop in the first quarter, the steepest drop since 1947.

Weak worker productivity makes it difficult for the Federal Reserve to control inflation without sending the economy into recession.

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Meanwhile, unit labor costs are expected to rise 9.5% in the second quarter. That would be significantly lower than the 12.6% in the first quarter, the highest annualized growth rate in eight years (since the first quarter of 2014).

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