Stocks closed higher yesterday to start the new week.

After Friday's weaker-than-expected Employment Situation report, the market has shifted its focus to this week's inflation reports.

On Wednesday, we'll get the Consumer Price Index (CPI) retail inflation report. The headline number is expected to show a 0.2% m/m increase, the same as last month. On a y/y basis, it's expected to come in at 2.6%, down from last month's 2.9%. The core rate (ex-food & energy) is expected to be up 0.2% m/m as well, in line with last month. The y/y rate is expected to come in at 3.2%, also in line with last month.

The core annual CPI has come a long way from its 2022 high of 6.6%.

On Thursday we'll get the Producer Price Index (PPI) wholesale inflation report. Last month's annual core rate was at 2.4%. Also down substantially from their 2022 high of 8.2%.

The Fed has acknowledged that inflation risks have receded while labor risks have increased. But that doesn't mean inflation numbers aren't important. Although, it's hard to imagine a number that would preclude the Fed from lowering rates next week. But this week's inflation reports could help influence what happens afterwards in November and December.

While it's a near certainty that the Fed will lower rates on 9/18. The real debate seems to be around how much. The likelihood still favors 25 basis points vs. 50 by a probability of 71% to 29%. The bigger debate, however, may be over what happens next. Do they lower again in November and December? And what is the terminal rate target the Fed is looking for?

U.S. economist at BofA Global, Aditya Bhave believes 4% is the neutral rate and that the Fed will cut by 25 basis points at each of the next 5 meetings to get to this level by March 2025. (That means a 25 bps cut in Sep., Nov., Dec., Jan., and Mar.)

Interestingly, Fed Governor Christopher Waller last Friday said that he is "open-minded about the size and pace of cuts," and that "if the data suggests the need for larger cuts, then I will support that." So that could mean a shorter timeline to 4% (or lower).

In other news, yesterday's Wholesale Inventories report was up 0.2% m/m vs. last month's downwardly revised 0.0% (from 0.2%), and views for 0.3%.

We also got earnings from Oracle after the close. They reported a 5.30% positive EPS surprise, and a 0.68% positive sales surprise. That translated to a quarterly EPS growth rate of 16.8% vs. this time last year, and a sales growth of 6.91%. They were off 1.35% during the regular session before earnings, but they were up more than 9% in after-hours trade following earnings.

Today we'll get earnings from GameStop, Dave & Buster's and Petco Health and Wellness to name a few. All in all we'll hear from 54 companies.

On the economic news front, we'll get the NFIB Small Business Optimism Index.

And we'll hear from Michael Barr, Vice Chair for Supervision at the Fed.

And, of course, we'll see if the market can build on yesterday's gains.

See you tomorrow,