Wall Street Breakfast Catalyst Watch: CPI, DIS, UPS Preview

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Julie Morgan: This week, the big news, of course, outside of earnings was the downgrading of the U.S.’s long-term credit rating. Wall Street really did not like that.

Kim Khan: No, they didn't. Although if you look at the people trying to come up with explanations on why Wall Street didn't like it, that's a little tougher question. We've got people saying, it's a big deal. People saying, it's no big deal. But the market thought it was a big deal. Anyway, this got people saying, it was a stupid idea.

People like Jamie Dimon, Warren Buffett has said today, don't worry about it. It's got nothing to do with the market really. And so, just a lot of people trying to come to grips with it. I will say that this looked more like the market sold-off, not because of the downgrade, because S&P did it in 2011. Fitch has finally come around to doing it based on their metrics. And it didn't seem like it was that big a deal immediately when we got the news from it. So it's more like there was a trigger and the market was looking to sell off for some high valuation stocks that it's always looking for. And so it comes with an excuse.

Another argument that I've read is that it came in tandem with the U.S. Treasury issuing its funding requirements for August and saying the treasury auctions are going to be higher than the market was expecting, adding $19 billion in new cash and that those fundings would be increasing in the future. So it's saying so that U.S. was going to actually have a little more trouble with its debt. That's what Fitch was pointing at. So maybe both of those together led for this big sell off, but we're at pretty high levels anyway.

One thing I read from Société Générale’s FX Strategist, Kit Juckes, that was pretty good done, I thought on target. He says, far wiser people than he is have said it's bizarre and surprising. But he said, if you look at the metrics Fitch uses and given the debt ceiling, and flight and the jump in U.S. debt levels, it looks simply overdue. And he points out that, now the only G7 economy Fitch rates as AAA is Germany. And it's got a debt level half that of the U.S. And if you look at the U.S. debt-to-GDP level, it's almost identical with that of Italy, which is rated BBB. So, yeah, maybe it was overdue.

JM: That's interesting. So, let's now talk about earnings. For earnings next week, we're talking about Alibaba, Disney, Palantir and UPS. Of course, I spoke to the editors about what will be key for these companies.

And first up, we're talking about Alibaba, the focus continues to be on the company's split into six-publicly traded companies. Any updates that the company will give on that front will be scrutinized by shareholders. Additionally, updates on the company's Tmall business, as well as its cloud computing arm will absolutely be key.

As far as Disney is concerned, attention as always will be on performance in its Parks segment. Jason also told me to look out for other key questions in certain areas. For example, CEO Bob Iger, he recently extended his contract by another two years resetting up the question of his eventual succession. They're also talking about evaluating whether linear TV networks are still core to the business and also considering a part, or all a spinoff of ESPN.

Now, let's talk about Palantir. Investors will scrutinize its commercial revenue and any updates on government contracts.

And for UPS, the one big thing that Clark told me that we need to look out for, is the new deal with the Teamsters. It's probably the biggest focus he said. Now, of course earnings next week, but there's something else that's happening. CPI, tell me about that, Kim.

KK: Yeah, I mean, I actually looked at the calendar and I thought we might get a week off and no, of course, we've got the big inflation number that's coming out Thursday and followed by a PPI as well. So plenty of things for the data heads. July CPI and Core CPI are expected to be up 0.2%. That's the current consensus right now. That would see core CPI staying below 5% on year-over-year basis. And headline CPI actually might tick-up a bit to 3.2% according to the consensus. But we do know that this is just one of two CPI reports that the Fed will have before they have to make their next decision. There's no meeting on August, although we will get the commentary and usual attention to Jackson Hole. So they can take these numbers a little more in stride and soak in the market. And so it might be a good a time to have the people to step back a little, not immediately trade, the number comes out and kind of look into what kind of economy the U.S. is morphing into now that it looks like maybe the Fed has done untightening.

JM: I was wondering about that. You mention something that's important is the fact that they'll look at two CPI numbers. So this one, would you say it's not as big of a deal?

KK: It's not as big of a deal unless it comes in really like high or low. If it goes one way or another away from consensus, that will start a lot of chatter and they'll probably have to tamp that down in Jackson Hole. But I think they want to see both together, just like they want to see, the payrolls or two payrolls reports that they're going to get. We get one of those tomorrow. We're recording on a Thursday. And that will give them a better idea because really, you keep getting these weekly data points and it's not really pointing exactly where the economy is going. The labor market is looking strong. If you look at jobless claims, if you look at labor costs, they're a little lower, which is encouraging for the Fed. The labor market still looks tight except that everybody keeps saying that they're going to be laying-off people. You get all these layoff wordings. So where's that going? It's hard to say. The same thing with inflation, it's coming down, but which part of it is going to remain sticky. I mean, the Fed is going to be waiting for the shelter component to be coming down more. But if the other prices that haven't had like, the low hanging fruit, prices coming down, then they could say, oh, well, there's a case for higher for longer. So I think the market and the Fed will both take this in next week's CPI and stride for a bit. But then things will just ramp up when we come closer to the September meeting.

JM: That definitely makes sense. Kim, is there anything else you'd like to add?

KK: No, I’d just say, watch out for Disney's streaming numbers next week. That's going to be always an interesting one and something I pay attention to. As a viewer and as a writer of markets it seems like a lot of places the streaming business is evening out a little bit. People there have a lot of concerns that it was going to be a big hamper on some of these companies, but it looked okay for Warner Brothers Discovery that was out today. So we'll see how Disney fares on that front.

JM: So much more to watch. Alrighty Kim, until next week.

KK: Thanks very much.

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