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Equities remain in rally mode again this morning as Dow, S&P, and Nasdaq futures are all firmly positive.  Treasury yields are also firmly lower across the curve.  The 2-year yield which was over 5% a week ago is now down to 4.67% while the 10-year yield which was over 4% is now down to 3.83%.  Much of this really has been the result of benign economic data specifically related to inflation, but for it to continue we’ll need to see companies pick up the baton as they start to report earnings.

This morning’s earnings reports have been generally positive.  The two biggest companies to report – Pepsi (PEP) and Delta (DAL) both handily beat EPS and sales forecasts, and PEP even raised guidance to complete the Triple Play.  Conagra (CAG) also managed to top EPS forecasts but missed on the top line, while Fastenal (FAST) reported slight misses on both the top and bottom line. As one might expect given the results, both PEP and DAL are up over 2% in the pre-market while the other two are down roughly 2%.

Besides the earnings results this morning, it’s a busy day for economic data with June PPI and jobless claims coming out at 8:30.  Initial Claims came in lower than expected at 237K versus forecasts for 250K while continuing claims were slightly higher than expected (1.729 mln vs 1.720 mln). The big report of the morning though was PPI and that came in at 0.1% at both the headline and core levels, which was lower than the 0.2% forecast.

Regarding PPI, as we’ve highlighted in recent months, the spread between consumer and producer prices has widened to historically wide levels.  Last month, the spread between the y/y readings of CPI versus PPI widened to 2.9 percentage points which is the highest since at least 2011 when the current incarnation of PPI begins.  Following this morning’s release, the spread remained at that record level of 2.9 suggesting that corporate profit margins remain healthy.

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