What to Watch in the July PPI Report and Our First Take on Home Depot Earnings

* The market expects to see further inflation progress in today’s July PPI report.

* July PMI pricing data from ISM suggest that progress may not be what we get.

* Home Depot’s comp sales cut reaffirms the move we made yesterday.

Equity futures are mixed this morning and have softened following Home Depot’s HD July earnings report that raised another flag on consumer spending prospects for the second half of 2024. However, things could change based on what we see in the July Producer Price Index (PPI) out at 8:30 a.m. ET.

Expections are for core PPI to fall to 2.7% from June’s 3.0% print. On a sequential basis, July core PPI is forecasted to slow to 0.2% from 0.4% the month before. Such figures would be more of that “good data” the Fed is looking to see, especially following the upward trend in the year-over-year data since March’s 2.1% print.

There is room for some disappointment in these July core PPI figures, though, because ISM’s July Service PMI pricing sub-index rose to 57 from June’s 56.3 reading, while its corresponding report for July Manufacturing put its pricing sub-index at 52.9, up from June’s 52.1 figure.

To the extent the July PPI data is warmer than expected, it could raise an eyebrow about the 100 basis points of rate cuts the market expects across the Fed’s remaining three policy meetings. Greater pushback would happen if tomorrow’s July core CPI data come in greater than the market anticipates. If that’s what we get, we should expect more market volatility to come with it.

Home Depot’s Earnings and Comp Sales Cut

We kick off this week’s round of retailer earnings with quarterly results from Home Depot. The big box retailer topped consensus expectations for its July quarter despite declines in the number of customer transactions and average ticket size. However, the company’s updated outlook calls for weaker-than-expected EPS growth and for its full-year comp sales to fall 3%-4% year over year vs. 3.25% during the first half of the year. Previously it expected comparable sales to decline about 1%.

The July quarter included six weeks of recently acquired SRS Distribution and how that factors into management’s guidance for the balance of the year will be fodder for this morning’s earnings call. Odds are it means the base Home Depot business is a wee bit softer than the comp sales guidance implies.

We’ll have more once we’ve digested the company’s earnings call, but that comp sales cut and what it says about consumer spending prospects only adds support for yesterday’s move we made with Coty COTY.

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At the time of publication, TheStreet Pro Portfolio was long COTY.