Apple Event, Treasury Auction Fill Time Before PPI

Keith Lansford (0:05)

Welcome 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.

I'm Keith Lansford, and here is Schwab's early look at the markets for Wednesday, September 9th. Investors dig in today for another Treasury auction while awaiting key inflation data due tomorrow and Friday. Several earnings reports are also on tap tomorrow, including Oracle and Adobe after the close. Before that, Apple hosts an event at 10 a.m. Pacific time today that could include the introduction of a folding iPhone and a touchscreen Macbook, Bloomberg reported. Still, prime focus appears to be Thursday morning's August Producer Price Index, or PPI, and Friday's Consumer Price Index, or CPI. They're the last important data before next week's Federal Reserve Meeting and any sign that inflation inched up from recent benign readings might strengthen arguments for a rate hike next week. Last week's strong August jobs report eased one source of concern for the Fed, which likely wouldn't want to hike rates if the labor market struggled. Average monthly job growth of 71,000 over the last three months following recent government revisions looked decent, though down dramatically from a few years ago. For PPI, consensus is for monthly headline growth of 0.4 percent, but 0.2 percent for core PPI, excluding food and energy. They were flat and 0.2 percent respectively in July. Core annual PPI is seen at 4.6 percent up from 4.2 percent in July, and headline PPI is expected at 5.3 percent up from 4.7 percent. CPI is likely the most important reading in terms of the Fed's next move, but both reports feed into the Personal Consumption Expenditures, or PCE price report for August due later this month, that serves as the Fed's favorite inflation indicator. The labor market is relatively healthy, but inflation continues to run above targets, said Cooper Hauer, Director of Fixed Income Research and Strategy at the Schwab Center for Financial Research. Fed Chairman Kevin Warsh's Jackson Hole speech lowered the bar for a hike this year, and if inflation comes in above expectations this week, it wouldn't be surprising if the Fed steps over the proverbial bar this year and hikes. As of late Tuesday, odds of a rate hike at the Federal Reserve's meeting a week from today stood at 60 percent, according to the CME FedWatch tool. The September meeting could be a last chance for the Fed to raise rates before December since next month's meeting is directly before the US midterm election.

Treasury yields come under a microscope this week as larger liquidity buybacks recently announced by the Treasury kick in. The impact could be bullish for Treasuries, perhaps meaning lower yields. However, it's unclear if there is a long-term effect without the US making more concrete action to deal with rising federal debt. A three-year Treasury Note Auction Tuesday saw a solid demand briefing, Dotcom said, but yields rose about two basis points across the board in trading yesterday as oil climbed and investors anticipated rate hikes overseas. The 10-year yield finished above 4.81 percent near highs last reached in late 2023 There's a 10-year Note Auction today with results expected early this afternoon. Any sign of slower demand might be seen as bearish for Treasuries. Tomorrow, the European Central Bank is expected to hike rates again, according to a Reuters survey of analysts. Crude rose again Tuesday after tit-for-tat weekend strikes between the US and Iran and after Houthi attacks on Saudi Arabian oil facilities. Brent crude, the international benchmark price, hit $98 a barrel and US crude rose above $93, up 8% so far this month. Also overseas, the Japanese yen rose early this week on robust economic data and ideas the Bank of Japan could raise rates next week. Rising Japanese yields and currency can cause jitters in the US amid concerns investors might turn to Japanese assets and away from US assets like Treasuries and the dollar. Turning to corporate news, Adobe and Oracle report after tomorrow's close, putting fresh focus on AI spending and software. Generally, it's a light earnings period. In data yesterday, there was slight inflation relief when the New York Fed's August Consumer Survey showed three year inflation expectations down to 3.2% from July's 3.3%.

Major indexes sagged again Tuesday after a one-day holiday, though the S&P 500 index remains less than 2% below August's all-time high and above technical support near 7,600. Rising oil kept Wall Street in check. Health care woes sank the Dow Jones Industrial Average mainly thanks to a 10% plunge in Amgen following disappointing cardiovascular drug trial results from Novartis. Amgen is working on a similar treatment. Just three of 11 S&P 500 sectors closed higher Tuesday, led by energy as oil prices sizzled. Utilities and real estate also rose, but both are considered defensive sectors investors often turn to in troubled economic times. InfoTech fell just slightly, helped by chips. Health care took the biggest tumble down more than 2% as Novartis fell almost 14%.