Morgan Stanley, ASML Ahead as PPI Data, Warsh Loom

**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, July 15th. Following a Tuesday that might have been the busiest day of the quarter, there's little chance for investors to catch their breath. Earnings from Morgan Stanley and chip infrastructure company, ASML, loom, along with wholesale prices data and another day of Capitol Hill testimony from Federal Reserve Chairman Kevin Warsh. Warsh sounded both hawkish and enthusiastic in his remarks to the House yesterday, notably saying the Fed has no tolerance for persistently elevated inflation. Still, he pointed to business spending strength and overall economic resilience despite the war, which reignited this week and remains an undercurrent as President Trump re-initiated a blockade of Iran's oil and both sides continued exchanging fire. Economic activity is expanding at a solid pace, Warsh said, adding that household consumption growth is moderate and manufacturing output has moved up steadily. The most striking feature of the economy right now is business investment. The surge in oil, which rose 2% Tuesday to near $80 per barrel and is up 16% from recent lows, put yesterday's CPI report in an unusual light. It showed a significant June inflation decline related to what then were lower oil prices. CPI came in better than expected at negative 0.4% monthly, while core CPI, excluding food and energy, was flat. On an annual basis, headline inflation of 3.5% descended sharply from May's 4.2% and was below Wall Street's expectation of 3.8%. The core rate fell to 2.6% annually, below the 2.9% expectation. Odds of a July Fed rate hike dove late Tuesday to just 16.6% from 42% a day earlier, likely reflecting the light CPI data. Odds of at least one hike by September still stand near 55%, but that's down from 75% on Monday. One month does not make a trend, but it was good news on CPI, said Cooper Howard, Director of Fixed Income Research and Strategy at The Schwab Center for Financial Research. The easing in headline was largely expected due to energy prices, but the decline in core from May was welcomed. It likely means the Fed won't be in a rush to hike rates. Items besides energy that got cheaper last month included car insurance, apparel, medical care and used cars and trucks, the Bureau of Labor Statistics said. Warsh told Congress that the weaker than expected CPI was just one month of data, not mission accomplished.
Today, at 8:30 a.m. Eastern Time, market participants braced for the June Producer Price Index, or PPI. Consensus is 0.1% for headline and 0.4% for core PPI, compared with 1.1% and 0.4% in May respectively, briefing.com said. Full-sale prices represent what businesses pay for goods. If PPI keeps rising, it could eventually translate into higher prices at the store. Some elements of PPI also factor into the Personal Consumption Expenditures, or PCE price index, the Fed's favored reading on inflation due later this month. Earnings season unofficially began yesterday with a gaggle of the largest US banks, most impressed, especially in markets and underwriting, but shares went different directions. Some of the best quarters didn't get rewarded, possibly because banks rallied into the reports. Morgan Stanley, due before the open, wraps up the big banks. The wealth management business is an important tracker. Capital markets activity will likely be of focus as well, after competitor Goldman Sachs reported a strong quarter. BlackRock is another financial firm to watch today. Earnings today from ASML and tomorrow from Taiwan Semiconductor Manufacturing put the chip business into primary focus. Both serve as helpful demand barometers ahead of results from hyperscalers in coming weeks. Earlier this week, TSM reported a 36% year-over-year revenue increase in the second quarter with revenue accelerating in June. Other key earnings include United Airlines later today and Netflix tomorrow afternoon.
Major US indexes rebounded Tuesday from Monday's rough start, lifted by the chip sector in hopes that inflation might be peaking, though there was no sign of the war calming. On the other hand, President Trump backed off from a threat to impose 20% fees on cargo transiting the Strait of Hormuz, which might have cooled some of oil's simmer. Treasure yields eased moderately Tuesday, with the biggest drops for yields of short-term notes most exposed to Fed policy. Additional yield upside seems limited, Howard said. Seven of 11 S&P 500 sectors climbed Tuesday, led by Infotech and Communication Services. Financials also rose despite the mixed reaction to bank earnings. Health care finished last, down nearly 2 percent, after HCA reduced its 2026 earnings guidance, citing an unfavorable payer mix shift, briefing.com reported. Despite a rise in the S&P 500 index, more stocks were down than up by late in the session. The percentage of S&P 500 stocks trading above their 50-day moving averages is 63 percent, roughly where it's been most of this month and a healthy market breadth figure historically.