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North American Morning Briefing: Post-CPI Mood Still Bright Despite Fed Officials' Caution


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Producer Price Index for July; Weekly Jobless Claims

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Stock futures rose on Thursday, potentally pushing the major indexes to their highest in three months, as hopes that inflation may have peaked continued to power the risk asset rally.

Hopes that the pace of price rises has hit a peak encouraged investors to believe the Federal Reserve can be less aggressive in hiking borrowing costs and that consumer confidence can improve.

"The softer than expected inflation reading pushed the market odds narrowly back in favor of a +50 basis point Fed hike in September...and delivered a significant boost to long-duration assets," said Ian Williams, economics and strategy research analyst at Peel Hunt.

Alex Pelle, U.S. economist at Mizuho, said in a note to clients: "We do have some very preliminary evidence that inflation may be taking a step down from an underlying pace around 8% to the something closer to the 5% level. This is a level that will still keep the Fed hiking, but the July round of data--taken as given--gives the bulls an early win."

Fed officials, however, were quick to note that inflation remains "unacceptably high." Chicago Fed President Charles Evans said he expects the central bank "will be increasing rates the rest of this year and into next year to make sure inflation gets back to our 2% objective."

Jeffrey Roach, chief economist at LPL Financial said the Fed "still has a lot of work to in tightening financial conditions," and that inflation "is clearly still the primary concern for policy makers."

But Roach said that as inflation slows the Fed could revert to raising rates by 0.5 a percentage point at its next meeting in September. Ahead of the inflation print on Wednesday, Fed watchers were forecasting the central bank would raise rates for the third straight time by 0.75 a percentage point.

"Traders are growing confident that if the next inflation report on Sep. 13 confirms this softening pricing pressure trend, the Fed may seriously consider a smaller pace of tightening," said Edward Moya, senior market analyst at Oanda.

"It is too early to say that the Fed will only raise rates by a half-point in September, but if inflation keeps on cooling sharply the Fed's dovish tendencies will return."


The dollar continued to lose ground in Europe after it slumped on Wednesday, with the ICE Dollar Index down by the most since June and earlier in the day had traded at its lowest levels since March 2020.

Evidence that price pressures might have peaked could convince the Fed to deliver smaller interest-rate rises, said Ebury.

"At the time of writing, markets are now pricing in not much more than a one-in-three chance of a 75 basis point rate increase at the Fed's September meeting, down from almost 70% prior the inflation number."


Bond yields barely moved in Europe, after they fell on Wednesday as investors increased their bets on a less hawkish Fed next month, reducing the inverted spread to its lowest point in five days.

But some pundits warned it is too early to call victory over inflation. Amherst Pierpont said that CPI analysis by the Cleveland and the Atlanta Fed show inflation's underlying trend well above target. PPI due later Thursday is forecast to slow down, and jobless claims are expected to be slightly higher.

Asset manager Louis Navellier said that concerns for an even more hawkish Fed are easing, which is "best reflected by the shift in expectations for the next Fed increase in September from 75bps to 50bps, with 50bps now considered a 2/3 likelihood from 1/3 before the CPI numbers."


Oil prices turned higher after the IEA said that demand would be stronger than expected due to increased power generation.

The agency said heatwaves were driving more demand for electricity to power fans and air conditioning units. With natural gas prices so high and supplies scarce, power plants--particularly in Europe--were switching to oil as an alternative fuel source.

The IEA raised its demand forecasts for 2022 by 500,000 barrels a day.

Read: European Heatwaves Boost Demand for Oil, IEA Says

Read: European Natural Gas Prices Rise as Rhine River Levels Pose Fresh Bottleneck


Base metals were higher in Europe while gold dipped, with investors more confident about the global economy following the latest U.S. inflation data.

"Investors are gaining confidence that the Fed finally has inflation under control," Peak Trading Research said, adding that risk assets like commodities were now more appealing.




Sonos Loses Its CFO as the Speaker Maker Faces Economic Headwinds

Sonos Inc. is losing its chief financial officer as the company faces economic challenges and has cut its outlook for the fiscal year.

The Santa Barbara, Calif.-based maker of smart speakers said Wednesday that Brittany Bagley will resign effective Sept. 1 after more than three years as CFO. Chief Legal Officer Eddie Lazarus will serve as interim finance chief.


Disney Barely Hedges Its Streaming Bet

Disney sure isn't playing it safe with streaming.

The entertainment giant's fiscal third-quarter results late Wednesday were largely a hit. Revenue and operating income surpassed Wall Street's expectations, thanks mostly to strength in its domestic theme parks, where operating profits are now exceeding prepandemic levels. The company's cable TV and broadcast business held steady, and it managed to add 14.4 million net new subscribers to its Disney+ streaming service-well over the 10 million additions expected by analysts and the best growth the service has seen in six quarters. Disney's share price jumped nearly 7% following the results.


Walgreens Helped Fuel San Francisco Opioid Epidemic, Judge Rules

A federal judge found Walgreen Co. helped exacerbate the opioid epidemic in San Francisco, the latest decision in opioid-related lawsuits aimed at pharmacy chains around the U.S.

Walgreens, the largest retail pharmacy in San Francisco, for more than a decade failed to adequately halt suspicious orders of opioids that could be used illegally, U.S. District Judge Charles R. Breyer said in an opinion issued Wednesday. He found the company liable "for substantially contributing to the public nuisance," the opioid epidemic, in San Francisco, he wrote.


Bumble Sales Rise On Higher User Spending

Bumble Inc. sales climbed in the latest quarter, driven by higher spending by users on its dating apps as prepandemic conditions have largely returned.

But the online dating company trimmed its 2022 revenue range to $920 million to $930 million, down from its prior forecast of $934 million to $944 million, largely due to a higher impact from foreign currency movements. Its outlook for sales in the current quarter also fell short of Wall Street expectations.


Ex-JPMorgan Traders Convicted in Federal Fraud Trial

A federal jury in Chicago convicted two former traders of JPMorgan Chase & Co.'s precious metals desk who had been charged with manipulating gold prices, finding they used misleading orders to rig prices.

The convictions are the capstone of a seven-year Justice Department campaign to punish a style of deceptive trading in futures markets known as spoofing. The rapid-fire strategy was prevalent at some Wall Street banks before Congress outlawed spoofing in 2010, and persisted even after its prohibition, according to prosecutors. JPMorgan paid $920 million in 2020 to settle regulatory and criminal charges against the bank over the traders' conduct.


Siemens Swung to Loss in 3Q on Impairment Charge; Cut EPS Target for FY 2022

Siemens AG cut the outlook for earnings per share for the full fiscal year after it swung to a loss in its third quarter due to an impairment on its investment in Siemens Energy AG.

The German industrial conglomerate said Thursday that its net loss was 1.66 billion euros ($1.71 billion) for the period ended June 30, compared with a profit of EUR1.35 billion a year earlier. Analysts had forecast a loss of EUR532 million, according to consensus estimates provided by Siemens.


Daimler Truck 2Q Profit, Revenue Rose

Daimler Truck Holding AG on Thursday posted an increase in sales and net profit in the second quarter and confirmed its previously given full-year revenue guidance.

The German commercial-vehicles maker said quarterly net profit was 922 million euros ($949.6 million), compared with EUR601 million a year earlier.


European Heat Waves Boost Demand for Oil, IEA Says

Summer heat waves in Europe and scarce supplies of pricey natural gas are boosting demand for oil as power stations look for alternative fuels to meet the surging demand for electricity, the International Energy Agency said.

Unprecedented temperatures across the continent have put an unexpected strain on the region's power grids, lifting demand for electricity to power fans and air-conditioning units in what is typically a quiet period for energy demand.


Fed Likely to Want Further Evidence of Inflation Slowdown

A slowdown in inflation last month, following recent indications of a robust labor market, complicates the Federal Reserve's decision on how much to raise interest rates next month.

Data on inflation and economic activity are likely to guide whether central bank officials lift their benchmark federal-funds rate by a half-percentage point or three-quarters of a point at their Sept. 20-21 policy meeting. They have said they want to see evidence that price pressures and economic growth are cooling before they moderate their pace of rate increases.


Federal Trade Commission Expected to Launch Effort to Expand Online Privacy Protection

WASHINGTON-The Federal Trade Commission is expected to begin writing federal rules to expand online privacy protections as soon as Thursday, according to people familiar with the matter.

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August 11, 2022 05:32 ET (09:32 GMT)

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