Cool CPI, Sharp Warsh, Booming Banks
Let’s check on inflation, what Fed Chief Warsh told lawmakers, the banks and my latest take on the chart.
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One day into the three-day deluge of macroeconomic data, quarterly earnings and public appearances made by central bankers that made up the core of this week has passed and passed with flying colors at that. Despite the tail-kicking suffered by IBM (IBM) shares on Monday that took that stock’s dividend yield up to 3.2% from 2.2%, markets had a successful day on Tuesday. Yes, I’m the guy who bought IBM on Tuesday instead of running with the crowd. That piece was published here at TheStreet PRO and is available on the site.
The largest U.S. banks kicked off earnings season and went to the tape with their numbers on Tuesday. Bank of America (BAC) and JPMorgan Chase (JPM) impressed. Investment bank Goldman Sachs (GS) really impressed. Wells Fargo (WFC) and Citigroup (C), not so much.
The war between the U.S. and Iran intensified, putting a bid under front month oil futures’ prices. Pres. Donald Trump changed his direction on charging a 20% reimbursement fee for passage through the Strait of Hormuz just one day after announcing it. The idea would be to replace it with trade or investment deals or both while declaring that the waterway is now open to all traffic not headed to or coming from Iran. Stock and bond markets did like that.
All of the above were important, but not the main driver for what was a positive day across financial markets on Tuesday. Tuesday’s positivity was mainly driven by the June consumer price index and Fed Chair Kevin Warsh.
Cool June CPI
Wow. Many on Wall Street had been whispering that expectations for June consumer-level inflation were too high. Were they ever? Nobody expected the sharp annual deceleration and even monthly deflation experienced across the U.S. economy in June. Perhaps that’s because prices are still high in relative terms to where they were a rough half a year ago. That said, June was a good start.
Headline June consumer price index crossed the tape at -0.4% on a month-over-month basis and at 3.5% year over year, down from 4.2% a month ago and well below the consensus that was for growth of 3.8%. Of course, the main driver for this outright deflation was the steep drop in prices for gasoline and fuel oil. That said, prices dropped in June from May for non-energy commodities, used vehicles, apparel, medical care commodities, medical care services and transportation services.
This widespread cooling of inflation permitted the core version of the consumer price index to print flat in June from May and up just 2.6% from June 2025. That was down from 2.9% in May and well below expectations for growth of 2.8%. All good? As I said, a nice start.
Ahead of this release and Kevin Warsh’s testimony on Tuesday, futures markets trading in Chicago had reached levels where the likelihood for a short-term rate hike on July 29 was running at roughly 50/50. This morning, that probability is now down to 14%, while the yield paid by the U.S. Two-Year Note is down to 4.21% from a rough 4.3%. Hard to argue with a shift like that.
Kevin Warsh Speaks
On Tuesday, Fed Chair Kevin Warsh testified before the House Financial Service Committee and later this morning will testify before the Senate Banking Committee. Warsh said some positive things on Tuesday….
On Inflation: “It has been a tax on the American people and businesses. We plan on getting rid of that tax. That means we need a regime change in policy, and we need new consideration of practices, some of which have been working, some of which haven’t.”
“Today we are at a hinge point in history. It’s up to all of us to meet this moment. The Fed’s number one objective is to get monetary policy right — or as near to it as we possibly can. That is our clear and constant aim, the star we steer by. And if we get policy right — and we will — the inflation surge of the last five years will be a thing of the past.”
On Supply Side: “That brings me to the supply side, where productivity growth has been strong, predating gains from AI adoption.”
On Productivity and the Rise of AI: “Like previous positive technology shocks, the US will be richer, will be more productive, there’ll be more labor, there’ll be more wage compensation.”
Warsh may just be the smartest Fed Chair in a very, very long time. From past appearances, he does seem to understand that the purest way to balance the “risks” posed by making a policy choice between low inflation and maximum employment is through deregulation and tax cuts. He also, while acknowledging the threats of increasing inflation, seems to understand that lower short-term rates accelerate gains in productivity.
It’s simple, in my humble opinion, to make policy choices that incentivize output to accommodate demand. Am I a supply-side economist? Well, I come from an “Austrian-style” background where I believe in a commodity-backed currency? That is not this argument though. Yes, I think I am. Is Warsh? I think so. We can only hope. Just don’t be another candy-coated Keynesian, dude.
Tuesday’s Child
There was a lot to like on Tuesday. Capital flowed back into tech despite what happened to IBM. Growth and cyclical sectors outpaced defensive sectors of the market. Breadth was positive, but not wildly so, on increased trading volume.
Not that Tuesday presents as an “inside day.” Not a “pause day.” The increased trading volume from Monday not only prevents Tuesday from being a “pause” but also probably wipes out the day one bearish reversal of trend. The “inside day,” which reflects a range that fits within the prior day’s range, signaling decreased volatility for the short-term. The fact that this was a “true” inside day (reflects not only a narrower range, but also an open and close that fits inside the prior day’s open and close) reinforces that signal.
Economics (All Times Eastern)
07:00 – MBA 30 Year Mortgage Rate (Weekly): Last 6.58%.
07:00 – MBA Mortgage Applications (Weekly): Last -2.2% w/w.
08:30 – Empire State Manufacturing Index (July): Expecting 8.7, Last 5.7.
08:30 – PPI (June): Expecting 0.1% m/m, Last 1.1% m/m.
08:30 – Core PPI (June): Expecting 0.3% m/m, Last 0.4% m/m.
08:30 – PPI (June): Expecting 6.3% y/y, Last 6.5% y/y.
08:30 – Core PPI (June): Expecting 4.8% y/y, Last 4.9% y/y.
10:30 – Oil Inventories (Weekly): Last +2.998M.
10:30 – Gasoline Stocks (Weekly): Last -1.904M.
The Fed (All Times Eastern)
08:45 – Speaker: New York Fed Pres. John Williams.
10:00 – Speaker: Federal Reserve Chair Kevin Warsh.
1:00 – Speaker: Reserve Board Gov. Lisa Cook.
2:00 – Beige Book.
6:30 p.m. – Speaker: St. Louis Fed Pres. Alberto Musalem.
Today’s Earnings Highlights (Consensus EPS Expectations)
Before the Open: ASML (6.88), BLK (12.62), JNJ (2.86), MS (2.92), PNC (4.55)
After the Close: JBHT (1.73), UAL (1.84)
At the time of publication, Guilfoyle was long IBM, JPM, BAC equity.
