Tuesday, September 10th, 2024

Pre-market futures look to be picking up where yesterday’s bounce-back session left off. With only an early report on small-business confidence (see below) this morning, market participants will likely remain somewhat hesitant ahead of tomorrow’s significant Consumer Price Index (CPI) report, which is expected to be one of the final measures of influence over the Fed’s decision on interest rate policy.

The Dow is currently +32 points, with the S&P 500 +13. The Nasdaq leads the way at +48 points. As for bond yields, we remain un-inverted with the 10-year rate at +3.706% at this hour and the 2-year at +3.658%. Well off the 5% levels we saw as recently as October of last year, we clearly see the bond market pricing in (an) interest rate cut(s).

NFIB Small-Business Index Sours

The Optimism Index from the National Federation of Small Business for August came out early this morning, with results showing the strain of high interest rates harming the outlook of small-business owners. The 91.2 reported on the headline removes what had been an incremental gain of optimism in July. This makes 32 straight months below the 50-year average of 98.

The Uncertainty Index, at 92, is the highest we’ve seen since October of 2020. Positive Profit Trends are down a seasonally adjusted net -37%, -7% lower than the previous month. What would help these small-business owners have a sunnier outlook? A lower Fed funds rate.

CPI for August Expected Flat-to-Cooler

Tomorrow morning’s CPI includes the headline year over year metric, aka the Inflation Rate. This is where analysts expect to see the biggest drop month over month — 30 basis points (bps), to +2.6% from +2.9%. Both month over month estimates, headline and core (minus volatile food and energy prices) are expected to remain flat at +0.2%.

To get back to +2.6% in the Inflation Rate, this would be the lowest monthly print since March of 2021. Considering that in June of 2022 we were seeing an Inflation Rate at +9.1%, it would be very hard to argue that inflation has not been curbed. Hence the 100% probability that a rate cut is coming a week from tomorrow.

Beyond CPI: Nuances for the Fed to Consider?

Lest we forget, the sister report of CPI — the Personal Price Index (PPI) — comes out Thursday morning. Here we expect a slight tick-up month over month to +0.2% but down to +0.2% on core month over month. Core year over year PPI was +2.25% in July; in March ’22 we saw +11.66% on this same metric.

Friday morning, we get Import Prices from August, expected to dip to -0.3% from +0.1% reported a month ago — the same level when we subtracted fuel costs in July. All Imports for July reached +1.6%; for Exports, these came in at +1.4%. These are far removed from the double-digit levels we saw a couple years ago.

Retail Sales for August come out the day the next Federal Open Market Committee (FOMC) meeting commences, Tuesday of next week. This will be the final major economic report released ahead of the Fed’s decision to either cut 25 bps or 50 bps. July saw the highest month since January ’23, at +1.0%, after -0.2% the previous month.

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