The September rate cut thesis takes a hit.
Investors have scrambled this month to factor in a rate cut at the Federal Reserve’s September meeting. A tame Consumer Price Index reading earlier this week only fed the narrative. But today's Producer Price Index reading has poked a hole in the view.
The headline PPI Index rose 0.9% in July, well above the 0.2% consensus estimate. Prices were unchanged in June.
Investors would be wise to include tariff-driven inflation as a risk to markets. Goldman Sachs and JPMorgan economists have begun to sound the alarm bells on a potential wave of inflation, which could push out the prospect of rate cuts.
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
“Regardless of precisely how much tariffs move this year, the overall conclusion is that they are increasing materially relative to 2024. In isolation, that should create at least a short-run drag on GDP and boost to inflation, as well as having other economic effects,” JPMorgan chief US economist Michael Feroli said.
When Amazon (AMZN) goes big on something, usually the stock prices of its competitors get beaten up.
The latest example came on Wednesday.
Amazon announced plans to make adding groceries to same-day orders available in 2,300 cities by year-end, up from 1,000 cities. Albertson's (ACI) and Kroger (KR) — aka traditional grocers — saw their share prices nailed. Instacart was hammered too. Albertson's and Kroger's shares are slightly up this morning.
The reaction reminds me of when Amazon bought Whole Foods for $13.7 billion in 2017.
“Every single retail executive alive should be scared to death,” I wrote as then-executive editor of TheStreet.
The impact of Amazon's move won't be felt overnight, but just like the company's impact on department stores, the aftershocks will be felt over time.
Here's how Wall Street is chiming in:
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“Walmart generates 60% of sales from the grocery category and has done a great job building a delivery/pickup business. The grocery mix at large general merchandisers such as Walmart, Target, and Costco, has made the category of critical importance to Amazon. Businesses such as Instacart were created to deliver on behalf of existing grocers. DoorDash, Uber, and others have also entered the category. Along comes Amazon with an existing nationwide network of fulfillment centers and delivery trucks that seems to have finally figured out how to store and fulfill perishables in a way to support same-day efforts.” — Wedbush
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“While Amazon’s actions increase competitive intensity, we see the change as incremental in what remains a relatively rational competitive backdrop. Consumers should win as we believe traditional grocers (and some mass players) will likely respond by reducing or eliminating their own delivery fees over time.” — Evercore ISI
