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PPI Data, Fed Rate, Merger Deal And More


Following yesterday’s Consumer Price Index (CPI) read for May which came in-line with analyst estimates, this morning’s Producer Price Index (PPI), the other side of the supply/demand equation, was higher than expected: +0.5% for May, up from the 0.3% expected and the CPI’s 0.2%. Stripping out volatile food & energy costs, this figure reaches +0.3%.

What we’re seeing here is unmistakeable growth. Compare the May PPI with the headline reads from April, for instance: those were +0.1% and +0.2%, respectively. Year over year, PPI is up 3.1%, hotter than the expected 2.8% and the 2.8% year-over-year CPI total. Ex-food & energy (aka “core”) reached 2.4% year over year on PPI. As with the CPI, the Energy sector led the way with more than 4% growth in pricing, otherwise known as inflation.

How Will the Fed React?

We all know by now that the Fed funds rate will increase another 25 basis points to a still-historically-low range of 1.75%-2.00%. This news is expected around 1pm Central Time today. It will be the first time interest rates will have touched 2% since prior to the Great Recession, nearly a decade ago.

That said, analysts still expect another quarter-point rate hike in the Fed’s September meeting, which will have been the third raise in calendar 2018. But what of a fourth rate hike in December? Perhaps inflationary reads like we’re seeing from today’s PPI numbers may cause the Fed to be more proactive in raising rates, which would have the dual purpose of sopping up encroaching inflation and keeping rates high enough that pulling them back meaningfully during the next economic downturn would keep us from getting stuck in the mud.

There is almost no discussion whether the Fed might instead consider a raise of 50 basis points (0.5%) instead of the 25 bps hikes we’ve seen since climbing out of the economic abyss. But perhaps the language in the Fed’s statement may take a somewhat hawkish turn, foreshadowing more aggressive policy considerations down the road. And if you don’t know where to look for such analysis, don’t worry — there is a veritable cottage industry of parsing through Fed statements with tweezers and a fine-toothed comb, including here at Zacks.

AT&T/Time Warner Deal Goes Through — What’s Next?

Following yesterday’s announcement that the proposed merger between telecom giant AT&T T and content major Time Warner TWX — which originally made headlines back when Barack Obama was still president — has been approved by a federal district court judge, we now expect an offer from cable behemoth Comcast CMCSA for assets of 21st Century Fox FOXA content, according to sources reporting to CNBC’s David Faber this morning.

Complicating matters is the competing interest of The Walt Disney Company DIS to purchase Fox assets, meaning we might be looking for a bidding war between Comcast and Disney, depending on what today’s initial offer is. Disney would have five days to come back and match Comcast’s proposal.

As a result, both DIS and CMCSA shares are down in today’s pre-market, while FOXA is up more than 7%. And beyond the near-term realities of a mega-merger scenario between service and content providers — don’t forget that Net Neutrality is now officially a thing of the past — is that our trading landscape may have been changed forever with yesterday’s decision.

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