Coffee With Greta: Sticky Inflation Pushes Down Stocks


DJIA Futures: -147 (-0.4%)

SPX Futures: -23 (-0.6%)

NASDAQ Futures: -75 (-0.6%)

Good morning friends!

Futures are sliding following the release of hotter-than-expected wholesale inflation data.

Let’s get right to it!

Wholesale Inflation Runs Hot

Wholesale prices rose more than expected in November, dampening the market’s hope for falling inflation. 

The Bureau of Labor Statistics’ producer price index rose 0.3% monthly and 7.4% year over year. 

That was higher than economists’ expectations for a 0.2% monthly gain and the third straight month that headline PPI has risen 0.3%. 

But the annual gain was a cooldown from 8.1% in October.

Energy costs fell 3.3% but that was offset by a 3.3% jump in food costs.

The trade index rose 0.7% while transportation and warehousing fell 0.9%.

The core PPI, which excludes food and energy, also rose 0.3% monthly vs 0.2% expected.

On an annual basis, the core PPI did cool to 4.9% from 5.4% in October.

That was the lowest year over year gain since April 2021.

Treasury Yields Pop After Hot Inflation Data

Treasury yields have turned higher as stocks drop following that hotter-than-expected inflation number. 

The 2-year yield is up 4 basis points to 4.33% while the 10-year yield is up 2 basis points to 3.51%.

CME Group’s FedWatch Tool still shows 74.7% of traders expecting the Fed to pivot to a smaller 50bps rate hike next week.

Costco Earnings Disappoint

Costco (COST) shares are falling 1.1% ahead of the open after missing fiscal Q1 expectations. 

Here’s how the big box retailer’s results compared to analysts’ estimates:

  • EPS: $3.07 vs $3.12 expected
  • Revenue: $54.44 billion vs $58.36 billion
  • Same-store sales: +6.6% vs +6.4% expected

Online sales declined 3.7% in the quarter. 

Costco already reported slowing November sales last week, in a bad sign for the key holiday shopping season.

Lululemon Inventories Soar

Lululemon (LULU) shares are dropping 6.8% in premarket trade following mixed Q3 results.

Here’s how the athleisure retailer’s results compared to analysts’ expectations:

  • Adjusted EPS: $1.62 vs $1.97 expected
  • Revenue: $1.9 billion vs $1.81 billion expected
  • Same-store sales: +22% vs +19.1% expected

Inventories soared in the quarter, up 85% year over year.

That prompted concerns among analysts that Lululemon will have to slash prices to clear the excess inventory.

But the CEO said during the earnings call that core styles made up around 45% of that inventory and it carried “limited seasonal markdown risk”.

He said, “As we discussed, our inventory levels were too lean last year, and we made the strategic decision to build inventories this year, which enabled the strong top-line growth we have delivered.”

Lululemon forecast Q4 adjusted EPS between $4.20 and $4.30 on revenue between $2.605 billion and $2.655 billion.

The company sees full-year EPS between $9.87 and $9.97 on $7.944 billion to $7.994 billion in revenue.

Analysts were estimating full-year EPS of $9.92 on $7.935 in revenue.

Consumer Sentiment Coming Up

The University of Michigan releases its early December consumer sentiment index at 10:00 a.m. ET. 

That index is expected to slip to 56.5 from 56.8 at the end of November. 

But the market is focused on the consumer inflation expectations included in the index.

The Fed has previously raised concerns about rising consumer inflation expectations.

In November, Americans hiked their 5-year forecast for inflation to 3%. 

In Case You Missed It

  • The FTC filed an antitrust case against Microsoft (MSFT) Thursday, attempting to block the company’s acquisition of Activision Blizzard (ATVI). Microsoft announced the $68.7 billion acquisition in January with the goal of closing the deal by June 2023. Microsoft has vowed to defend the deal with the vice chair and president saying, “We continue to believe that this deal will expand competition and create more opportunities for gamers and game developers.”

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