S&P retreats, yen surges, Tesla sinks

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

Tech retreat
The S&P 500 and Nasdaq Composite retreated from record highs as investors pivoted away from Big Tech, like Nvidia and Meta Platforms. The declines follow the lowest consumer price index in over three years. The Dow Jones Industrial Average saw a modest gain of 32 points, while the small-cap Russell 2000 Index rose 3.6%. The yield on the 10-year Treasury fell, while U.S. oil prices rose on hopes of a rate cut. You can read more from CNBC’s Jesse Pound on why Thursday was a historically strange day in the stock market. 

Cooling inflation
June inflation fell for the first time in over four years, providing more support for an interest rate cut. The consumer price index, a broad measure of costs, dipped 0.1% from May, putting the 12-month rate at 3%, the lowest in more than three years. The Fed is “one step closer to a September rate cut,” said Chris Larkin, managing director of trading and investing at E-Trade. “A lot can happen between now and September 18, but unless most of the numbers pivot back into ‘hot’ territory, the Fed’s reasoning for not cutting rates may no longer be justified.” 

Japanese yen surges
The Japanese yen surged 2% against the U.S. dollar on Thursday, marking its biggest daily gain since late 2022. The move appeared to be triggered by cooler-than-expected U.S. inflation data. Kit Juckes, global head of foreign exchange strategy at Societe Generale, told CNBC via email that the “driver of the yen rally is big shorts and a surprise in CPI.” This comes as traders closely watch for potential intervention by Japanese authorities, who have been trying to support their weakening currency.

Delta sinks
Delta Air Lines‘ shares dropped 4% after forecasting lower-than-expected third-quarter revenue, despite record summer travel demand. The carrier expects sales to rise no more than 4%, falling short of analyst estimates of 5.8% growth. This comes as airlines grapple with increased costs and expanded capacity putting pressure on fares, even as passenger numbers surge. Delta also expects to take a $100 million hit from the Paris Olympics. 

‘Robotaxi delay’
Tesla‘s share price dropped more than 8% after Bloomberg reported the automaker would push back unveiling its robotaxi from August to October. The delay, attributed to additional time needed for prototype development, reverses Tesla’s 11-day stock rally. CEO Elon Musk has been promising a robotaxi for years but has yet to deliver on his earlier predictions of fully autonomous driving.

[PRO] What Wall Street expects
JPMorgan is set to release its earnings report before the market opens on Friday. Investors will be closely watching the bank’s performance, especially after CEO Jamie Dimon’s recent warnings about inflation, geopolitical risks and the Federal Reserve’s policies. JPMorgan’s shares have climbed 22% this year, outperforming the broader market.

Delta Air Lines kicked off earnings season on a disappointing note.

Despite over 3 million passengers passing through U.S. airport security on July 7, the summer travel boom hasn’t boosted airline earnings. Excess capacity has weakened pricing power, with major airlines increasing domestic seats by 6% this month. Consequently, average round-trip ticket prices for U.S. domestic flights dropped to $543 in May, down 3% from a year ago.

Thursday’s CPI report highlighted the industry’s struggles, as fares fell 5% in June following a 3.6% decrease in May. Delta CEO Ed Bastian told CNBC that the industry’s capacity issues should be resolved toward the end of the summer. However, Delta expects a $100 million hit as travelers avoid Paris due to the Olympics. Other airlines are also likely to face challenges, with United Airlines next to report earnings on Wednesday.

While consumers benefit from lower airfares, all three major companies reporting earnings Thursday morning — PepsiCo, Conagra, and Delta Air Lines — missed Wall Street’s revenue expectations. PepsiCo warned that consumers have cut back on snacking, “specifically” in the U.S.

This is hardly the start to the earnings season investors were hoping for, but the latest inflation report should provide some comfort for consumers and investors alike. While investors rotated out of megacap tech stocks, the question remains: when will the Fed start cutting rates?

Ronald Temple, chief markets strategist at Lazard, told CNBC, “I think July should be a consideration but let’s be honest it’s not going to happen. If you look at markets they’re pricing in a 95% chance of a September rate cut, up from 70% yesterday. 

“The bigger call is do they cut it at each meeting until year end? And I think they do. The market is saying 60 basis points of rate cuts by year-end, I think we get 75.” 

“If I’m right that this is because of disinflation and a softening of strong growth, and not weak growth, then the case may be that the Fed would cut rates to 3.5%-4% over the easing cycle. But that’s it. I don’t think people in the market should be pinning their hats on a 2.5% Fed funds rate. If I’m right, the 10-year Treasury yield should not go down from here; in fact, it should be a bit higher.”

— CNBC’s Brian Evans, Lisa Kailai Han, Jesse Pound, Jeff Cox, Spencer Kimball, Katie Bartlett, Amelia Lucas, Leslie Josephs, Robert Hum and Matt Clinch contributed to this report.