Hotter PPI, Tech's Rough Stretch, Biden: China a "Ticking Time Bomb" 8/11/23

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Jim Cramer (0:31)

It's Jim Cramer here. You're listening to the opening bell of CNBC's Squawk on the Street. Don't miss a minute of the action.

Carl Quintanilla (0:38)

Good Friday morning. Welcome to Squawk on the Street. I'm Carl Quintanilla with Sara Eisen, Mike Santoli, a post-night of the New York Stock Exchange. Jim and David have the morning off. Pre-market's not thrilled with that macro data today. UK GDP runs hot, then our own July producer prices run warm. Highest annual headline since May, bonds under pressure yet again. ROBAP's going to begin with a slightly hotter than expected July PPI. And what it could mean for markets in the Fed.

Sara Eisen (1:01)

Also ahead, the tech sector in the midst of its worst stretch since December. Will the pullback be short-lived?

And President Biden speaking out about China's economic challenges, calling the country a quote, ticking time bomb.

Carl Quintanilla (1:15)

Let's begin with the markets though on this final trading day of the week as investors digest today's PPI number. Interesting, Sara, I mean, 1 10th is not that dramatic. We had a negative revision, but coming off of the stellar reception to CPI yesterday, maybe it looks a little bit worse.

Sara Eisen (1:31)

Yeah, after a 0% in June, you don't want to see it back tick up to 0.3% in July, which is what we got. And we know producer prices are wholesale prices that feed in. So maybe a little de-emphasized because we already got the CPI read, but you just don't want to say.

Traders, investors are on guard for inflation to hook back up, right? Like we hope, you know, people are hoping that the inflation data, which has shown moderate inflation and has been celebrated as good news, will take us down to the 2% target and the Fed's work is done.

But there's a chance that, look, it could be sticky. We still see a really tight labor market where wages are rising. We see oil prices rising to year to date highs. That's gonna matter to the headline number. And we see signs, including in this number, Mike, of the PPI where services are still problematic. I mean, services inflation jumped 0.5% month over month in this PPI data. That's a 2.5% year over year increase. It's driven by trade and transportation and warehousing. So the disinflation, the good news is all in goods, which it has been, and services are still remaining a little sticky and that's making it a big debate about whether the Fed is actually done or how long they'll have to keep rates as high.

Mike Santoli (2:45)

Exactly, and this is one of those instances where when the markets react to PPI, which in most circumstances is a secondary indicator, it shows you where the sensitivity is, it shows you the market has a raw nerve in this regard and the stock market's outsourcing its response to the bond market right now. So all those things, exactly. So all those things you mentioned have built in toward, into further upside momentum and yields the 10 year at 414 or so, the chart has been kind of stubborn, it's hanging around these highs.

And by the way, I don't think the levels are any particularly, have any magic to them. If you went back to last year, we'd be having the same conversation we're having right now about 4% 10 years, about 3% 10 years. Because every time it shot above three, the market panicked, right? It happened in May, it happened twice over the summer. So the point is it's not necessarily the level, it's the surrounding context of it. Is it gonna restrain growth from here? Does it reflect the fact that the Fed is gonna be still higher and stay there for longer? So all those things building it. And by the way, in the context, and to your point also, Sara, we took a ton of credit into July for the soft landing is in hand, right? People migrated to that view that it was happening, and it just sort of took more evidence of things getting better and better to improve stock prices from there.

So that's why I feel like when you're in this in-between zone, the market could not hold a rally yesterday on the good CPI number.

The market has not been able to really feed off of better than expected second quarter earnings. That tells you fully valued, people fully exposed for now. We're chopping around to the downside, the huge mega caps correcting, all this stuff feeds it.