CNBC Daily Open: Inflation breakout is “over”

This report is from today's CNBC Daily Open, our newsletter for international markets. CNBC Daily Open informs investors what they need to know, no matter where they are. Like what you see? You can subscribe Here.

Wall Street on the rise
The S&P 500 closed higher for the fifth straight session, boosted by recent inflation data. The Dow Jones Industrial Average rose 242 points, while the Nasdaq Composite gained 0.03% after spending most of the session in negative territory. Meanwhile, the yield on the 10-year U.S. Treasury note fell while U.S. oil prices fell 1.6% after President Joe Biden said Iran may not attack Israel if a ceasefire deal is reached.

Job cuts at Cisco
Cisco shares rose more than 5% in extended trading after the networking equipment supplier said it would cut 7% of its global workforce. The company will take a $1 billion pretax charge to implement its restructuring program. It also reported better-than-expected quarterly results, despite its third consecutive quarterly decline. The rise was driven by subscription revenue from Cisco's $28 billion acquisition of Splunk. Before Wednesday's close, Cisco shares had fallen 10% this year, while the Nasdaq had gained about 14%.

M&A snack
Mars is acquiring snack giant Kellanova for $35.9 billion in cash, bringing iconic brands such as M&Ms, Pringles and Cheez-Its under one roof. The move expands Mars' snack portfolio and comes amid a consumer reluctance to buy and increasing competition from private labels. Kellanova, which was spun off from Kellogg last year, had net sales of over $13 billion in 2023. “We buy companies to grow companies, and we want to grow across generations,” Mars CEO Poul Weihrauch said on CNBC's “Money Movers.” Kellanova shares rose 7.8%

Cooling inflation
U.S. inflation rose 0.2% in July, as expected, driven by housing costs, bringing the annual rate to 2.9%. Core inflation, excluding food and energy, rose 0.2% monthly to an annual rate of 3.2%. As inflation approaches the Federal Reserve's 2% target, speculation is growing about a possible rate cut. The futures market is expecting a 25 basis point cut at the conclusion of the Fed's September meeting and that rates will be a full percentage point below the current range of 5.25% to 5.5% by the end of 2024. Fed officials, however, remain cautious about the timing and magnitude of future cuts. Here's the inflation breakdown for July 2024 – in one chart.

Data boosts Asian markets
Markets in Asia-Pacific rose, led by China's CSI 300 after better-than-expected retail sales. The index gained 1.1 percent, and Hong Kong's Hang Seng Index gained 0.3 percent. Japan's Nikkei 225 rose 0.9 percent after GDP beat expectations. Australia's S&P/ASX 200 rose 0.18 percent despite rising unemployment. Markets in South Korea and India were closed for holidays.

[PRO] AI supply chain
Twenty analysts covering this under-the-radar stock recently raised their price targets. This Taiwanese electronics manufacturer quietly supplies Nvidia's AI supply chain with data center liquid cooling.

Like a meteorologist watching one storm cell pass and another arrive, markets seem to be constantly walking around with umbrellas open, waiting for sunnier days. With recent inflation data providing some relief, attention is now turning to the size of the Fed's rate cut.

“The bottom line is that the inflation outbreak is over and the overall picture of core consumer price pressures is quite benign, in fact reminiscent of the spring and summer of 2019 before the pandemic struck,” said Christopher Rupkey, chief economist at FWDBONDS.

“The spike in inflation from earlier in the year is over,” Rupkey said, adding that while inflation has not completely disappeared, core pressures on consumer prices are low. Rupkey expects Fed Chairman Jerome Powell to agree to a rate cut at the upcoming Jackson Hole symposium.

“Any Fed official waiting for a few more data to make a decision on a rate cut got a lot of benefit from that this morning,” he said. “The risks to Fed officials right now are more a downside move for the economy and labor markets than an upside move for inflation.”

Ed Yardeni, president of Yardeni Research, expressed a similar view on inflation, saying the fight against inflation is “absolutely” over.

“I've been predicting since the summer of 2022 that we're going to get to 2 to 3 percent at the end of last year and the beginning of this year, and we're basically there,” Yardeni told CNBC's “Squawk on the Street.” “We think we're going to get to 2 percent by the end of the year.”

However, Yardeni noted that he was particularly concerned about geopolitical tensions, particularly between Russia, Ukraine and the Middle East, citing the recent rise in oil prices due to concerns about a possible Iranian attack on Israel.

“The situation between Russia and Ukraine and the tensions and conflicts in the Middle East pose a high geopolitical risk. Oil prices rose 3% on Monday because there were so many war rumors about an impending Iranian attack on Israel. And I think yesterday's surge was due in large part to the Iranians saying that if the Israelis and Hamas negotiate a ceasefire, they will not attack Israel.”

Yardeni remains optimistic about the economy and expects a strong employment report. He predicts a one-time, modest Fed rate cut of 0.25 percentage points this year, dismissing predictions of more aggressive rate cuts of 50 to 100 basis points.

As market observers debate the extent of the Fed's rate cuts, CNBC's Jeff Cox takes a closer look.

— CNBC's Samantha Subin, Alex Harring, Jeff Cox, Brian Evans, Jesse Pound, Tony Zhang, Ari Levy, Justine Fisher, Rohan Goswami, Leslie Josephs and Spencer Kimball contributed to this report.