Fed considers full-percentage point rate hike, CPI, PPI, earnings reports and more: Tuesday's 5 things to know

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Here are five key things that could impact Tuesday's trading.

CRUSHING INFLATION SOLUTION?: The scorching-hot July jobs report raises the risk of a full-percentage point interest rate increase when the Federal Reserve meets in September as policymakers try to crush inflation and cool the labor market, according to Citigroup economists.

Citigroup strategists, led by Andrew Hollenhorst, wrote in a Monday analyst note that the surprisingly strong jobs report, coupled with faster-than-expected wage growth, could "make a 75 basis-point hike in September very likely and raise the potential for further super-sized increases." 

A 100 basis-point increase would be the first of its size since the Fed started announcing moves in the overnight federal funds rate in 1994 and would put the benchmark range between 3.25% and 3.50%. 

US ECONOMY ADDS 528,000 JOBS IN JULY, BLOWING PAST EXPECTATIONS

Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, D.C., on Wednesday, May 4, 2022. (Al Drago/Bloomberg via Getty Images / Getty Images)

"Our base case remains for a 75 basis-point hike in September, but we would not be too surprised by a 100 basis-point hike if core inflation comes in stronger than expected," he wrote.

U.S. employers unexpectedly added 528,000 jobs in July, the Labor Department said Friday, a surprisingly strong gain that defied fears of a slowdown in labor markets as they confront scorching-hot inflation and rising interest rates. Wage growth also accelerated, surging by 0.5% in the one-month period from June.

But the blowout jobs report, coupled with higher-than-expected wage growth, could ultimately pave the way to a third consecutive interest rate hike of 75 basis points – triple the usual size – when Fed policymakers meet in September.

Traders are already pricing in a 70% chance of another super-sized increase in the fall, according to the CME Group's FedWatch tool, which tracks trading. 

Policymakers approved the second straight 75 basis-point hike in July and hinted in their post-meeting statement that additional increases are likely in the coming months as they remain "strongly committed to returning inflation to its 2% objective." 

Chairman Jerome Powell said during his post-meeting press conference that another 75 basis-point hike could be appropriate in the future, but that it ultimately hinges on upcoming economic data. That includes the July jobs report and forthcoming reports on inflation and consumer expectations regarding inflation. 

ELLISON SUBPOENAED IN TWITTER LAWSUIT: Twitter has subpoenaed Oracle co-founder Larry Ellison in the social media company's lawsuit to try to force Tesla CEO Elon Musk to follow through with his $44 billion purchase, Bloomberg News reports.

According to Twitter's original lawsuit, Ellison was the largest outside investor in the deal, committing $1 billion to the purchase.

Musk originally made the $44 billion offer to take Twitter private in April but tried to pull out of the deal last month, claiming that the platform misled his team about the number of "spam" accounts in its user base.

ELON MUSK'S REAL BEEF WITH TWITTER REVEALED

Elon Musk made a move to purchase Twitter for $44 billion, then later tried to back out of the deal. (Fox Business / Fox News)

Twitter sued Musk to force the deal to go through, calling Musk’s argument "a story, imagined in an effort to escape a merger agreement that Musk no longer found attractive."

Musk, the richest man in the world with a net worth of $266 billion, according to Forbes, publicly challenged Twitter CEO Parag Agrawal to "a public debate about the Twitter bot percentage."

"If Twitter simply provides their method of sampling 100 accounts and how they’re confirmed to be real, the deal should proceed on original terms," Musk tweeted on Saturday. "However, if it turns out that their SEC filings are materially false, then it should not."

Twitter has also subpoenaed an official at the trust controlled by Ellison that committed the $1 billion to the deal, Bloomberg reports.

CPI, PPI REPORTS: Inflation is the big macro focus this week with the release of the July CPI and PPI reports. 

Expectations that inflation cooled last month helped send stocks sharply higher in July, handing the major averages their best month since 2020. 

However, after Friday’s unexpectedly strong July jobs report, any upside surprises could aggravate fears about aggressive Fed tightening, and likely send bond yields higher and stocks lower.

On Wednesday at 8:30 a.m. ET, the Bureau of Labor Statistics is expected to say the consumer price index rose a slight 0.2% month-over-month in July. That’s down sharply from June’s 1.3% spike. On a year-over-year basis watch for prices to soar 8.7% in July, easing back from June’s much hotter-than-expected 9.1% surge, the highest inflation rate in almost 41 years (since November 1981). 

If you factor out volatile food and energy costs, the core consumer price index is anticipated to rise 0.5%, backing off a one-year high of 0.7% in June. Annually, core CPI is forecast to spike 6.1% in July. That would be the highest since April and snap a 3-month streak of slowing growth after March’s 6.5% spike, the highest in almost 40 years (since August 1982). 

A Miami, Surfside, Florida, Publix grocery store cashier rings up sales of groceries.  (Getty Images)

On Thursday, BLS will report wholesale inflation data for July. The producer price index is expected to inch up 0.2% month-over-month according to Refinitiv forecasts, well below June’s 1.1% spike and a record 1.6% surge in March (series goes back to December 2009). 

Year-over-year, prices paid by wholesalers are anticipated to jump 10.4% in July, trailing June’s hotter-than-expected 11.3% surge which was the second-highest on record after an 11.6% spike in March (the final demand index goes back to November 2010). 

If you exclude food and energy costs, core producer prices are anticipated to rise 0.4% monthly in July, matching June’s increase. Year-over-year look for core PPI to jump 7.6% in July, the fourth month of slowing growth after a record 9.6% surge in March (data go back to April 2011).

EARNINGS SEASON CONTINUES: Food distributor Sysco Corp. will kick off a busy day for second-quarter earnings when it reports Tuesday morning. 

Also watch for numbers from electrical equipment maker Emerson Electric, music and entertainment play Warner Music Group, fashion favorites Ralph Lauren and Capri Holdings and a trio of travel-related names: Hyatt Hotels, Hilton Grand Vacations and Norwegian Cruise Line.

 In the afternoon we’ll hear from two more travel plays: Spirit Airlines and Wynn Resorts. 

Also watch for results from media and internet firm IAC/InterActive, tax preparation powerhouse H&R Block, cryptocurrency exchange Coinbase, computing company Akamai Technology and video game maker Roblox among others. 

Nearly 90% of the companies in the S&P 500 have reported April-through-June results, with earnings and revenue numbers coming in far ahead of lowered expectations.

PRODUCTIVITY, LABOR REPORTS: At 8:30 a.m. ET Tuesday, we’ll get preliminary second quarter productivity and labor costs. 

Economists surveyed by Refinitiv anticipate that worker productivity fell for a second straight quarter, to a seasonally adjusted annual rate of -4.7%. That compares with a plunge of 7.3% in the first quarter, the steepest dive since 1947. 

Weak worker productivity makes it harder for the Fed to tame inflation without tipping the economy into a recession. 

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Meantime, unit labor costs are seen jumping 9.5% in the second quarter. That would be down significantly from 12.6% in the first quarter, the highest annualized growth rate in eight years (since 1Q 2014).

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