Wall Street Lunch: CPI Surprise?

Listen below or on the go on Apple Podcasts and Spotify

This is an abridged transcript of the podcast.

Our top story so far

The consumer price index came in a little hotter than expected for September, which may bolster the case for a Fed rate hike before the year is out.

The CPI rose 0.4% last month, keeping the annual rate steady at 3.7%. Economists had predicted a monthly rise of 0.3%, bringing year-on-year down a touch to 3.6%.

Excluding food and energy, the core CPI was up 0.3%, falling to 4.1% annually. Both were in line with forecasts.

Yale’s Martha Gimbel noted that shelter was the biggest contributor to the rise in the core rate, “but that does reflect a large jump in hotel prices.”

Owners’ equivalent rent reaccelerated, with the 3-month annualized gain rising to +5.8%, Schwab strategist Liz Ann Sonders highlighted.

Fed fund futures are still pricing in a little chance of a Fed move at the start of November, with the two main data points—jobs and CPI—in the bag. But the chance of a quarter-point hike in December moved back up to 40%.

Allianz adviser Mohamed El-Erian says, “Analytically, it is a reminder of the challenges of the ‘final mile’ of battling inflation, especially when core service inflation still remains an issue and there is concern about the spillover into core CPI from higher energy prices.”

The markets had a knee-jerk reaction to the report, with bond yields rising and stocks losing ground.

The major indexes are mixed, with the Nasdaq (COMP.IND) leading the S&P (SP500).

The 10-year Treasury yield (US10Y) is up to around 4.65%.

Along with CPI, weekly initial jobless claims came in steady at 209,000. They continue to show resilience in the labor market to tighter financial conditions.

Among active stocks

Delta Air Lines (DAL) saw Q3 revenue increase 10.8% year-over-year to $15.49 billion, and EPS came in at $2.03 vs. $1.95 consensus and $1.51 a year ago. Non-fuel cost per available seat mile was 1.3% higher during the quarter. An adjusted fuel price of $2.78 per gallon in Q3 was down 21% from a year ago and included a refinery benefit of $0.11 per gallon.

Domino’s Pizza (DPZ) reported a slight miss with its Q3 revenue tally. Global retail sales grew 4.9% in Q3 after stripping out the positive impact of foreign currency. They were up 5.1% after adjusting for the closure of the Russian market. U.S. same-store sales declined 0.6%, and international same-store sales grew 3.3%.

Walgreens Boots Alliance (WBA) reported an earnings outlook that fell short of street forecasts. Days after the appointment of Walgreens’ new CEO, Tim Wentworth, the company said it sees FY24 adjusted earnings per share to reach $3.20–$3.50 compared to $3.71 consensus.

In other news of note

Microsoft-backed (MSFT) OpenAI intends to unveil major updates for developers next month. The plan is to make it cheaper and faster to develop software applications based on its AI models. Reuters first reported the story, citing sources.

The move is aimed at getting more companies to use its technology. The new features are anticipated to be introduced at OpenAI’s first-ever developer conference in San Francisco on Nov. 6.

The updates from the ChatGPT maker include adding memory storage to its developer tools for using AI models. This could, in theory, cut costs for application makers by up to 20 times.

The company also intends to introduce new tools such as vision capabilities, which will allow developers to make applications with the ability to analyze images and describe them. Potential use cases are in entertainment and medicine.

And in the Wall Street Research Corner

Goldman Sachs is highlighting the increase in short positioning across the equity market, with the ratio of long equity positions to short positions at its lowest level in five years.

Michael Nocerino, VP of multi-asset platform sales, says: “After heavy selling in August that was driven almost entirely by hedge funds pressing shorts, the aggregate US equity long/short ratio… ranks in the 2nd percentile.”

“Last Friday, cumulative short flow reached a YTD high, and we only started to see covers mainly via macro products,” he added.

In anticipation of earnings season, Goldman traders and specialists listed the most crowded long and short trades.

Among the stocks with big buying interest are Nvidia (NVDA), McDonald’s (MCD), Boston Scientific (BSX), FedEx (FDX), Exxon Mobil (XOM), Progressive (PGR), NextEra Energy (NEE), and Public Storage (PSA).

The stocks seeing lots of short positions are S.L. Green (SLG), Bank of America (BAC), Valero (VLO), 3M (MMM), Walgreens (WBA), Nike (NKE), and Verizon (VZ).