Thursday's Top Takeaways: PPI Confirms Inflation Uptrend, Energy Drives Retail Sales

Marley Kayden (0:00)

Welcome back to Market On Close. I'm Marley Kayden here in Chicago, alongside Sam Vadas at the New York Stock Exchange. Here's some final thoughts on this session today. We got the PPI today, and producer prices surged 1.3% in September. That far exceeded economist expectations for a half a percent increase, and marked the biggest monthly jump we've seen since March of 2022 Wholesale inflation now up 6.3% year over year, with energy prices leading the way, as gas prices jumped more than 20% in September. But the price pressures are also broadening. We saw services prices climbing about 8.5%.

Core producer prices rising a half a percent, raising concerns that inflation could prove more persistent and complicated, and complicate the Federal Reserve's next move. Now the data comes alongside retail sales that rose 8.5% last month, although much of that gain was driven higher by gasoline spending, raising questions about the strength of underlying consumer demand. And we talked a lot about neoclouds over the last two days, but memory stocks also taking a major hit this week. We've seen SK Hynex down double digits over the past five days. Samsung has plunged more than 20%.

Micron has lost roughly 11%.

That sell-off sparked by concerns that China's leading memory chipmaker, CXMT, is advancing a new chip architecture that could intensify competition and threaten the market leader's pricing power. Investors also worrying about a potential memory glut by 2029, even as demand for high bandwidth memory does remain strong thanks to AI data center expansion. That pullback does raise a key question for investors though. Is this a temporary sentiment driven sell-off or an early warning that competition and future supply could undermine the AI memory boom? A question I do not have the answer to Sam, but what many people are asking themselves right now. We'll cut your eye during the session.

Sam Vadas (1:54)

Yeah, more on the macro as well. We got those retail sales which beat expectations last month growing 0.8 percent, but the headline number really masks the weakness when you look under the hood. On the surface, this rise was largely driven by higher gas prices rather than stronger demand. Gas prices jumped 7 percent in September according to data, which drove inflation during that month. But if you take the control group, which is a better proxy for what is happening at the core and feeds into GDP, that actually came in weaker than expected, which showed spending outside of filling up your car with gas actually came in softer.

Taken with those wholesale prices this morning that Marley just mentioned, that really presents an awkward mix of higher prices and softer demand which could be a dilemma for the Fed. I spoke to a number of strategists today and they say this really highlights the affordability challenges in this country and the pressures that are creeping up from the low income consumers out to middle income households as well. So certainly a trend to watch and no doubt a headache for the Fed, but heading into tomorrow, Marley, what are you going to be looking out for?

Marley Kayden (3:00)

We'll hear from some of the regional banks in the morning, including M&T, Truist, Regions and Citizens. The set up coming into earnings for the regionals is tougher than it is for the big banks because the regionals are expected to post an average year over a year EPS growth of a little more than 7%.

But sector sentiment remains mixed amid macroeconomic pressures. Wall Street closely looking for any signs of credit stress as elevated rates or testing borrow were resilient. But as KG highlighted, the earnings that we got from the regionals so far, he called them lackluster. So it will be interesting to see what we get tomorrow morning as we hear from four more names. But what will you be looking for?

Sam Vadas (3:36)

Yeah. Well, Kevin Walsh is actually going to be speaking tonight in Thailand. So this is going to be taking place at around 1130 PM. So I will not be awake. I will be punching out the Z's, Marley. But obviously, he's going to be attending the IMF World Bank Annual Meetings over in Bangkok. We know that he doesn't like to give forward guidance. So we're not really expecting a lot from him. But it will just be interesting to see what he has to say on the global stage at some of these meetings, given we've just got these inflation prints that came in hotter than expected. And certainly ahead of that FOMC meeting later in the month.

Marley Kayden (4:11)

Yes, and a lot of debate about what's going to happen there. But that is going to do it for us on Market Unclosed today.