>> welcome to "bloomberg markets ." let's get straight to the market action. we have a relief rally on our hands with the s&p and nasdaq at session highs. 10 of the groups in the session index are in the green with big tech leading the gains. it's led by shorter maturities thanks to evidence that inflation is cooling, reinforcing expectations that the federal reserve can move forward with a rate cut in september. the yield comes down to 3.9 5%.

the u.s. dollar resuming a decline, down for a third day in four. mid-day movers, usually the mag seven tops the leaderboard of the most actively traded stocks by value, but today you have two restaurant companies the top 10. starbucks up 20%, the most ever, by the way, announcing brian nichol as their new leader. their shares falling as much as 14%, comparing the decline to just under 9%, recovering a little bit. we are following hawaiian holdings as the deadline approaches for the doj to challenge the merger with alaska air. they were down as much a 6% today, trimming losses here. it was this morning's inflation report that set the tone for markets. here is the interpretation from deutsche bank. >> in -- inflation is above

target with risks dissipating in the fed should be comfortable cutting rates. they go by 50 basis points. the market has been priced 5050 for that at this point in time but the data will determine it. if we get confirmation that the latest weakness was real, it could be the fed cuts by 50 basis points and if you see a reversal, that's my baseline expectation. if you have the consumer continuing to come in resilient, the fed could have a path of going 25 basis points. scarlet: joining us with more now is our chief u.s. economist, anna wong. i was looking at the numbers here, headline ppi came in cooler. when you strip out food, energy, trade, that's an expanded version, it rose more than expected. on the whole, reinforcing the cooling inflation narrative. are you concerned about this excluded energy trade number? anna: the relevant numbers to

look at in ppi are even narrower . airfares, hospitals, its financial. i think all three of those came in line with our expectations, which means that the core pce deflator, the preferred measure of the fed, would likely come in around 0.2% in a month, beating the year-over-year inflation for the fed perspective, though the measure that they care about would be ticking up from 2.6% to 2.7% in the month. scarlet: one thing that the report featured was a decline in service costs this year. that sounds kind of significant. is it actually meaningful, or are there one offs in their we should be mindful of? anna: ppi is a measure of the mostly covered goods sector, so i would not be looking to ppi to give me a signal on services

inflation. on the other hand, tomorrow's ppi would be a key. what happens to services categories like lodging and vehicle insurance and repairs? we will be looking at that, it would have huge implications on core pce deflator is with substantially higher weight in service to cpi ppi. scarlet: feeding into auto insurance, which you mentioned earlier. putting it all together, how does this set for tomorrow's ppi release, which tends to get lots of scrutiny from investors and the federal reserve? anna: we are expecting a soft rating with .2% on monthly increase in we expect 0.14, rounding to 0.1 on the bloomberg terminal. i think that the markets will like it, because as mama said he

says, it creates a path for the fed to lower rates in september, if not 50 basis, maybe 25. of course, all that matters, as you mentioned, is services inflation. it has a lot more weight in the core pce and we are on the lookout for what the services category was showing. scarlet: big picture, is inflation moderating because demand is softening or because supply chain disruption is no longer a factor? anna: i think it is the former. supply chain effects have largely dissipated over the past year. really, what changed this year is core services excluding housing, as well as housing, so tomorrow the big story is that discretionary consumption such as hotels and airfares are driving disinflation, reflecting the fact that many people are pulling back on travel this summer, in large part because

people are getting stretched in their finances. scarlet: we are expecting inflation to reinforce the idea that the fed will go ahead and the next fed decision is not till september. there is the jackson hole speech before that. do you think that powell has already written his comments? anna: i think he would have written his comments or his advisers and staff would have written the speech for him after the cpi. he is really looking to see a pencil in that sentence, the speech saying that they've gained more confidence, sufficient confidence to begin dialing back monetary tightening. he is thinking to himself -- can i write that phrase? is there enough evidence for sufficient confidence?

the cpi report and that -- scarlet: and that cpi report should do that? anna: depending on how good it is. it is true that tomorrow, if we see a 0.1% cpi reading, greater than consensus, it will lose confidence. scarlet: good stuff, more confidence or sufficient confidence. anna, really appreciated there on the cpi report due out tomorrow. home depot rent -- filling the holes left by consumer demand. that's the stock of the hour, next. this is bloomberg. ♪ how am i going to find a doctor when i'm hallucinating? what about zocdoc? so many options.

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markets." time for the stock of the hour. we are watching shares of home depot, which reported a same-store sales lagging behind estimates. they are cutting their full-year revenue outlook as a result. however you look at it, the stock is moving higher in the session. in the studio to offer her perspective, laura from loop capitol. she has a hold rating on the stock. in your report you had said that this required interpretation. what do you think the headline numbers failed to illustrate on their own? laura: they guided down on same-store sales, true, but the results will be obscured by the srs acquisition that they made and one interesting point is they will start to include that in the back half of next year, which is unconventional and should back them up nicely. scarlet: something to look ahead

to, something for you and other analysts to start penciling in. there was one key line from the cfo who said that consumers with the means to spend have a deferral mindset. lower interest rates is obviously the thing that would shape the willingness of people to spend money, but that is out of their control, right? how -- are you hearing anything from management about strategies they are employing to get consumers to spend, promotions or anything else? laura: today they made it clear on the call they wanted to focus on everyday value, for them that means more private label and owned label products. they will always have good opening price points, they are almost always very competitive with their competition. because of their size they want to be careful about not dragging the market down to lower prices. they also called out inflation in labor costs and they are still absorbing transportation costs that have been slow to adjust. they need to be careful on pricing. scarlet: it goes back to that

consumer being weaker idea and the cyclical downturn. what does management really need to do until things turn around? is it a matter of coming up with a better strategy or just executing on their existing strategy? laura: they gave us a shiny object to focus on with the srs acquisition. not much they can do to move remodeling. they are finally talking about some of the real issues, which is homeowners with a 3% mortgage, even if the rates go to 6%, that's not attractive money. it will be tough to see turnover spike without a dramatic retrenchment of interest rates. scarlet: let's talk about the pro-market for a moment. what is the total adjustable market for professional customers versus diy consumer homeowners who just want to spruce up a little bit? 4 the pope -- laura: the pro-market is much smaller, one

third as large, but still home depot considers itself as having only 70% market share in its addressable market. so, they think there is plenty of room to grow and the deal gave -- gives them capabilities they didn't have and a set of muscles they didn't know how to flex. one thing they commented on was their trade credit for big complex companies like home depot acquiring a much smaller company to get that functionality. it shows you how tough it is to be eight nonspecialist going after the pro-. scarlet: absolutely. where do the pros go right now? i get that they go to srs, but is it fragmented? laura: extremely. srs has a good chunk but the strategy has been to grow through acquisition. contractors, pool guys, roofing guys, the usually have a guy. they call him and it is a kind of entrenched business. that's why you have to buy it. scarlet: does this put pressure

on lowe's to do something similar given that they would face similar headwinds? laura: we suspect that mohs bid against home depot, and that home depot had deeper pockets, but that is our suspicion, they haven't said that. the parting line is that they have gone for the midsized pro. they are just many years behind where home depot is on this market and still have a lot of room to grow. scarlet: anything on the technology side that home depot can leverage to get to the point where interest rates are lower and home and homeowners come back laura: there is little -- come back? laura: there's little they can do to drive it higher. the only way to really grow would be locations. as you know, those are huge boxes. that is a mountain that is too big to move. scarlet: got it.

what are you looking for when they report in one week? laura: i've got to say, it's not rate. diy numbers have to come down, comps have to move lower, we all have to focus on when it turns. is it the back half of next year? many of us were expecting back half of this year. the bearish question some are asking is is next year or even a growth year and i think the jury is still out on that. scarlet: how long does it take for the fed to cut rates and then home depot to see the benefit. laura: normally six months but we haven't seen a move this high from such a low base, so it's not clear to me that it will be that quick of a bounce back this time. scarlet: given the environment we are currently in. laura, great to speak with you, with that hold rating on home depot. of the other companies we're looking at today, there is a starbucks and aaa, they are naming a new ceo, brian nickel.

the move boosted the coffee chain shares today in a big way. elliott investment management is an activist investor [indiscernible] full potential [no audio]

come out publicly and called for that. scarlet: what will you be looking for from brian nickel when he takes the reins? >> this isn't a sort of classic activist playbook. there are no break offs where it lists the share price. this is about doing a lot of little things better. things like, you know, dealing with the qeues, making stores more pleasant, engaging staff, better value for money, reconnecting with customers. all of these things that are not rocket science but starbucks really needs to do them. scarlet: executing existing strategy better on the details.

what does this departure mean for aaa, from where you sit? they have an interim ceo from within the ranks and i know that niccol deserves a lot of credit for tvg slant. can the current team build on that? >> they have really, really outperformed. they have had customers trading down over the last few weeks. you were just talking about the consumer environment weakening a little bit, especially lower to middle customers, but there are worries about the top end. chipotle shouldn't -- should still be able to capitalize on what they built with consumer sentiment from there. scarlet: i'm curious to get your take on what the aaa rivals are thinking and considering right now, given that there is a change not of their choosing at

the top. how might they want to take advantage of this unexpected news? >> they are probably rubbing their hands together. it's been an amazing performer. they are going to look at ways to attack a customer base. scarlet: no doubt. thank you so much, andrea, joining us from london, appreciate you staying late to give us more context on this ongoing story. one big slip of the fortunes of two of the biggest food companies in america. these are all of course household names we are all familiar with. speaking of, coming up alphabet is set to unveil new hardware today. will the new chip -- new tech change sentiment? we will break it all down next with ed ludlow. ♪

scarlet: this isscarlet: "bloomberg markets." in a few moments alphabet is expected to begin a highly anticipated hardware event with the new product unveil likely to focus on ai and investors are hoping it might slow down the selloff that has erased 360 billion in market value from the company in the past month. here with more on what to expect is ed ludlow. we are talking about the google pixel phones that some people have but most people don't necessarily have. these are not big revenue drivers for google and alphabet. they feel like a rounding error in terms of contribution to bottom line. ed: absolutely. looking at the last four quarters, it doesn't even really register in the roadmap of revenue. the ai story is very simple. consumers around the world are trying to work out how to use ai

and manifest itself in the real world. what we are expecting is new generations of hardware, but also for google to tell us how gemini, the large language model that focuses on text and a voice will be used. like basic stuff on the handset. it's been well told by chip companies and academics, the human interaction with the tool is likely to take place on our smart phone because that is what is in our hand for most of the day. scarlet: does this mean that the new pixel phone will be available to consumers before the iphone 16, which is supposed to also be ai capable and enabled? ed: it's a great question. the face of the stock is so closely tied to demonstrative examples of ai working. b.i. is focused on the idea that apple and ios are competing and

will have a staggered rollout with apple intelligence. but what we are talking about is google shifting may be million units per year of the android-based or google-based smartphone. how many more iphones than that ship around the world? so many. it's a competitive element in the market and they will focus on what you can actually do with a google ai tool orlauage modele device in that simple question is definitely tvc. ed: a lot is -- scarlet: a lot is definitely tvc. there were a lot of ads for gemini during the olympics and a lot of people were not clear about what the product was and what he could do for her -- them. is that software available on the android os and on other phones?

ed: i'm a google household but i use it through the applications on my iphone. it is the functionality of the apple software itself, some of it, the risk events that the stock has seen that apple has talked about in the last couple of years, it's places where gemini has been shown to make mistakes and has had integration with software offerings with platforms listed as working quite well like the gmail predictive analysis. scarlet: quickly, is this something that analysts are talking about? does it have any buzz? laura: -- ed: no, just a topline growth suit -- growth through software sales, that's the story right now. scarlet: that was ed ludlow with the latest google hardware event coming up in just minutes.

i'm scarlet fu, that does it for "bloomberg markets." we will have more coverage a balance of power in the elections, politics, with the s&p 500 at session highs of 1.5%. this is bloomberg. ♪

>> from the world of politics to the world of business, this is "balance of power."

live from washington, d.c. >> is this the eve of a new war or a cease-fire? welcome to the fastest show in politics as israel waits for a retaliatory strike from iran as the u.s. works for a cease-fire between iran, israel, and hamas. i'm joe mathieu alongside kailey leinz in washington. kaylee, it has been two weeks since the former leader of hamas was killed in tehran and we still don't know the next leg of the story. kailey: we know that the u.s. and israel are braced for retaliation, but we have been braced since it's happened and heading to the middle east there are still efforts underway to reach a cease-fire deal, as you mentioned, and it's not clear how both can happen at the same time.