Host: Today's capital markets segment is brought to you by our pocket Wall Street opening mix at the end of a very long and volatile week investors are confronting a severe pipeline inflation shock after producer prices surged 1.3%, the fastest monthly acceleration in over four years, and not surprisingly, people driven by a near 11% jump in wholesale energy as well as banking freight costs. Now the spotlight is currently on tech balance sheets. $10 billion routing cloud provider for has pushed its high yield debt into distressed territory and this morning for opening lower as it heads for a 20% loss for the week so far it's worst performance since last November. This has investors fleeing due to concerns about how it will navigate high borrowing costs. Well joining us on this Friday morning here at the New York Stock Exchange is Eric Chris who is market strategist at the NYSC. Happy Friday. Thank you so much for joining us.
Eric Chris: You too.
Host: Well, it's been quite the week and all of us were anticipating consumer prices and producer prices, so we got that read on inflation and not surprisingly, we're seeing energy prices affecting inflation and overnight we heard from Kevin Warsh, but we didn't get any indication in terms of the policy outlook, which is not surprising, but we're keeping an eye on Fed fund futures. So what do you expect to see as we head into your end?
Eric Chris: Yeah, it was a really interesting week like you said for the inflation prince. It came in hot, especially PPI, not terribly surprising, but still definitely hot, definitely above Fed target rate. You saw Treasury yields rip higher, then they came back down and they kept coming down and they kept coming down to the point where they were below. About 1015 basis points, especially on the long end for the week, kind of surprising because normally if you have a hot print, high inflation print, Treasury yields go higher, but that wasn't the case. It was the exact opposite. There's a lot of things going on there, one of which being just concern about global growth because of the AI trade which came under pressure. Especially with some news from Anthropic, their growth slowed down from 150% quarter over quarter to 45%. Amazing numbers, but still, you know, if that whole AI narrative slows down, you start to see growth slow down across the economy because it's in so many areas, you know, construction and data centers and energy prices, everything. So if that kind of slows down, growth will slow down overall. That kind of pushed the bid into Treasuries. Investors went out of tech. Tech sold off hard, went into tech, sorry, went into Treasuries. That has brought the yield down. A couple of other things going on as well, but that was a really interesting. Dynamic. The rest of the market held up well though. The S&P equal weight is up on the week, so it kind of was able to counteract the move lower in all those big tech names. Looking forward, yes, Worsch didn't say anything, not terribly surprising, probably on hold for October based on what other Fed officials have said as well. Certainly not a home run there. Probably on hold in October, most likely a hike in December. That's kind of what everyone's looking at right now.
Host: And as you mentioned there are a lot of moving parts because if we're looking at the major US stock averages even this morning we're looking at the Dow Jones Industrial Average higher and we have been seeing this price action in terms of the Dow higher and the Nasdaq where the tech sector lower so you mentioned what's happening with the trade the build out and of course we've been paying attention to the neo cloud so if you. On vacation or hiding under a rock. What is actually happening here?
Eric Chris: Yes, so you know the neo clouds are kind of broadly speaking, they're everybody else except for the hyperscales, except for the Googles and the Amazons and the Metas that kind of build their own giant data centers for AI, but for just cloud computing in general, right? So you have companies like Coreweave and Nevius and a bunch of others too, some. Bitcoin miners that have stopped mining Bitcoin have now turned that compute capacity over to just running AI cloud infrastructure. Those were darlings, you know, going into all this build out. Everyone loved them. Core Weeb saw an enormous valuation bump from the IPO, etc. But now everyone's kind of concerned about several things, one of which being the cost. Of building out substantially more capacity that they say that they need to keep up with everyone else. Core's debt is now trading at it's kind of trading at distressed levels where investors are really worried about the ability for the company to fund. Itself to bridge the gap before these substantial revenues that they think are going to come through finally kick in. So you saw their bonds really trade off and when the bonds are under pressure, that means that the equities are going to be under pressure as well. That's exactly what you saw why was down so much.
Host: Yes, and as we continue to monitor core we've headed into the close, we have to also keep in mind that geopolitics as well as politics are front and center, especially as we count down to the midterm elections. So given the fact that we're all concerned about higher for longer rates. As well as oil prices and when we're talking about the energy complex, it's not just crude oil WTI or brand it's also about diesel. So how concerned should the American consumer be right now?
Eric Chris: Yes, I said we've spoken about this several times where it's Really hard just for average consumers to see those prices at the pump and continue paying it because it just bleeds into everything else or every $1 or $2 that they have to pay at the pump is $1 or $2 that they can't use on something else in their life. So you know it's not just the past 36, 12 months that's been happening. It's been happening since basically COVID ended and the shutdown or the lockdowns reopened everything. So there's been this steady incessant buildup of pricing pressures on consumers. We'll see if they take that to the polls in a couple of weeks. It's coming up very soon, but it's definitely something where a lot of people are focused on. The consumer hasn't cracked yet. We saw retail sales relatively strong, although it did pull back a little bit, so maybe we'll start to see some kind of cooling off in that sector. But the financial companies all reported this week they said the consumer is healthy. They said that their credit scores, their credit performance, their loans still being repaid on time, not really putting up more money for loans that go bad. So these big banks are saying everything is OK right now. So as of now things are holding up. We'll see if that continues
Host: and I'm glad you brought up earnings and of course that retail sales because it was overshadowed by the inflation figures that all of us were digesting but given the hotter than expected. producer prices that is going to eventually trickle down to the American consumer and that is something to watch out for. But finally I do want to get your take on what we've been seeing in the bond market in particularly yields. I know you mentioned it off the top of the show, but what do you expect to see as we head into the rest of this year?
Eric Chris: Yeah, I mean bonds have had a big selloff throughout the year, 2 years, 10 years, 30 years. All the yields have just shot higher to multi-year highs. They might be at a point where investors who don't want to have the risk in tech right now or just want to de-risk in general look at those yields and say, you know what, locking in 5-6% on the 10 and 30 year, that might be a good option right now. So if they put money into those bonds now, that kind of caps where the yields can go because as demand for bonds increases, the prices. Increase which brings the yield down. So if investors are bidding up the bonds, yields will at least stay stable, if not come down. That could actually help other areas of the economy like housing. Your mortgage rate can come down and that could kind of stimulate demand for housing as well. So we'll see.
Host: Well Eric, a lot of moving parts. I appreciate you joining us on this Friday morning. Have a great weekend. Thank you.
Eric Chris: Thank you.
