Last Trading Day of August, Fed Inflation Watch, Salesforce's AI Boost 8/31/23

SPEAKER_1 (0:00)

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Carl Quintanilla (0:31)

Market Moving Insight and Analysis join Jim Cramer, David Faber and me, Carl Quintanilla on the opening bell hour of CNBC's Squawk on the Street.

Good Thursday morning. Welcome to Squawk on the Street. I'm Carl Quintanilla with Sara Eisen at Post 9 of the New York Stock Exchange. Cramer and Faber have the morning off.

We close out the month of August today with what could be a five-day win streak. Best week for the S&P since June as July Core PCE prints in line. Spending solid as well, 10-year, pretty subdued right around 410 Our row this morning begins with the Fed's preferred inflation gauge, what Core PCE results might mean for interest rate policy.

Sara Eisen (1:06)

Also this morning, shares of Salesforce jumping after quarterly results and guidance exceed forecasts as the company rides the AI wave. On the flip side, add Dollar General to the list of stocks hit by this month's retail route, tumbling on a quarterly miss and lowered outlook.

Carl Quintanilla (1:23)

Let's get to the markets in that batch of inflation data. We've been waiting all week for Core PCE.

3.3 in line, a little bit hotter than the prior month. Add to that consumer spending 8 tenths, second best number of the year going back to January. Pretty nice mix here.

Sara Eisen (1:37)

We knew spending was gonna be good because we knew we saw an acceleration in spending in July for retail sales.

The question is, is it temporary? Is it just the Barbenheimer effect, right? We know that people have been spending at the movie theater more than we've seen on Barbie and Oppenheimer. We know they've been spending on tickets like Taylor Swift. By the way, I'm four minutes in line on AMC theaters.

Carl Quintanilla (1:56)

We're gonna get to that.

Sara Eisen (1:58)

Right now with this movie coming out in October.

But that's the question. And as far as inflation, pretty much in line, adds to the evidence I would say this week, and we got the revised 2Q GDP, which included the PCE deflator, which showed a step down yesterday, and some weaker economic data overall. All of that paints a picture, Carl, of a federal reserve that is likely to pause in September. And market feels good about that right now. You've seen a bid for bonds and a bid for stocks.

As a result, we're off those highs of what? Four, three on the 10-year yield, and that's important psychologically. It shows the data may be changing. Look, inflation data is more important than economic data, but if we see both continue to moderate, bond market seems to like it. Yeah. So the stocks.

Carl Quintanilla (2:41)

JP Morgan's note this morning suggesting that given the data flow and some positioning within treasuries, you might be looking at a picture where rates declined a little bit further from here. There's the 10 year, as Sara points out, actually got to 49098 earlier this morning. And of course the Fed speak continues today. We'll get Collins or actually we're getting Collins on the tape, but remember what Harker told Steve last week about waiting for these hikes to work their way into the economy, the lags pretty significant. And now you got Bostic sort of echoing that. Take a listen.

Raphael Bostic (3:13)

I feel policy is appropriately restrictive.

I think we should be cautious and patient and let the restrictive policy continue to influence the economy, lest we risk tightening too much and inflicting unnecessary pain. That does not mean that I am for easing policy anytime soon.

Carl Quintanilla (3:34)

He goes on to say, underlying inflation may well be close to our target already.

Sara Eisen (3:38)

That's about as dovish as it gets though. And he's a non-voter. So just take it with a grain of salt. But yes, he has been known to come out, be out front and sway some of the opinions on the Federal Reserve. I think the close call is now going to be on November. Do they feel they need to hike again in November or are they feeling like Bostic is feeling? Let's see what the lags look like. We're starting to really see some economic weakness, nothing pronounced in terms of recession or anything, but we know the lags can be long and variable. And that's what the Federal Reserve has been banking on. And that's what history shows us about more than 500 basis points of tightening. The bigger question is why hasn't it worked so far? I think the jobs report tomorrow will be sort of an interesting test because we are expecting a weaker number, cooling of job gains, but still healthy job growth. We saw that evidence in the job openings data, which showed a decline into the 8 million, but there's still more job openings than there are unemployed people.