5 Things to Know Before the Market Opens Friday

Good morning, and welcome to your Morning Squawk.

In the realm of artificial intelligence, the debate intensifies as startling warnings from researchers about the technology’s risks have captured the attention of prominent figures, including President Donald Trump. His recent commentary on the subject adds another layer to an ongoing discourse with significant implications for both society and the economy.

Meanwhile, U.S. stock futures are showing a positive trend in pre-market trading, signaling a potential rebound after all three major averages closed Thursday’s session in the red. Investors are keenly focused on a confluence of critical economic indicators and geopolitical developments as they navigate the trading day.

Here are five key developments that investors need to monitor:

### 1. Inflationary Pressures Persist, Fed on Alert

Investors are heading into the final trading day of the week with a keen eye on inflation data, volatile oil prices, and the Federal Reserve’s anticipated monetary policy decisions. The latest consumer price index (CPI) report, a crucial inflation gauge for the Fed ahead of its rate decision next week, revealed that prices continued their upward trajectory in August.

Key takeaways from the CPI report include:

* **August CPI:** The CPI rose 0.4% for the month and 3.4% year-over-year, figures that largely met analysts’ expectations. Core CPI, which strips out volatile food and energy components, increased by 0.3% monthly, slightly exceeding forecasts.
* **PPI Precedent:** This morning’s CPI data follows Thursday’s producer price index (PPI) report, which showed a 0.4% monthly increase, aligning with expectations. However, the annual PPI rate climbed to 5.4%, hotter than anticipated, with energy prices, particularly a surge in diesel prices by 24.1%, being a significant contributor.
* **Oil’s Impact:** Elevated oil prices are undeniably exacerbating inflationary pressures. U.S. crude oil prices jumped approximately 4% on Thursday, once again crossing the $100 per barrel threshold. Concurrently, U.S. diesel prices reached a record high of $6 per gallon overnight, underscoring the broad impact on energy costs.
* **Fed Rate Hike Odds:** In response to the hotter-than-expected PPI report and the surge in oil prices, traders have increased the probability of a quarter-point Federal Reserve interest rate hike next week to over 70%.
* **Market Reaction:** Stock futures are trading higher in pre-market activity as investors digest the latest inflation figures. The market appears poised to break a four-day losing streak for the major averages.

### 2. Oracle’s Cloud Surge Fuels Revenue Growth, But At a Cost

Oracle shares are experiencing a significant surge in pre-market trading, climbing 7% after the enterprise software giant surpassed earnings expectations and reported a more than doubling of its cloud infrastructure revenue. The company’s overall revenue saw a robust growth of nearly 30%, reaching $19.35 billion, with cloud revenue specifically jumping an impressive 62% to $11.61 billion.

While this revenue expansion is a clear positive, it comes with substantial investment. As analysts note, Oracle’s capital expenditures last quarter ballooned to $28.5 billion, more than tripling year-over-year, as the company aggressively builds out its data center capacity to meet the escalating demand for cloud services. This aggressive expansion resulted in negative free cash flow of $5.4 billion and a substantial increase in the company’s debt load to $125 billion.

Despite the significant capital outlay and debt, demand for Oracle’s services shows no signs of abating. The company ended the quarter with $664 billion in remaining performance obligations, a key metric for contracted future revenue, and reported signing over $30 billion in additional artificial intelligence contracts during the period. This indicates a strong pipeline and continued market confidence in Oracle’s AI and cloud strategies.

### 3. Campaign Promises Face Scrutiny Over Cost and Legality

President Trump’s recent pronouncements regarding direct financial relief for American citizens are encountering significant questions regarding their fiscal feasibility, practical efficacy, and in one instance, their legal standing.

On Wednesday, Trump announced that every adult U.S. citizen would receive a $5,000 “dividend” should Republicans maintain control of both houses of Congress in the upcoming November elections. This proposal, estimated to cost over $1.2 trillion, swiftly drew criticism from both Democrats and some conservative circles, not least due to the explicit linkage of these payments to an election outcome, raising legal concerns.

Following this, the White House announced on Thursday that approximately one million individuals would receive $500 “Obamacare refunds” starting in October. However, health policy experts have pointed out that these refunds would represent only a fraction of the substantial out-of-pocket expenses many households face after the expiration of enhanced Affordable Care Act subsidies.

### 4. OpenAI’s AI for Finance: Empowering or Disrupting Junior Bankers?

OpenAI is extending its artificial intelligence capabilities into the financial services sector, aiming to automate some of the foundational tasks traditionally performed by junior investment bankers. The company unveiled “ChatGPT for Financial Services,” an enterprise-grade product developed in collaboration with financial institutions like Morgan Stanley and Evercore. This specialized version of their AI is designed to assist with tasks such as company research, financial data analysis, and presentation building.

OpenAI asserts that this technology will enhance the productivity of bankers rather than replace them. However, the rollout raises a more profound question for an industry historically reliant on an apprenticeship model: if AI takes over much of the research and pitchbook creation that serves as a training ground for young bankers, how will Wall Street cultivate its next generation of seasoned dealmakers? The long-term impact on talent development and the structure of entry-level finance roles remains a significant point of discussion.

### 5. Evolving Security Landscape: Remembering 9/11 in a New Era of Threats

Twenty-five years after the September 11, 2001, attacks fundamentally reshaped air travel protocols, several security restrictions that became commonplace for American flyers are beginning to ease. Travelers at standard security checkpoints can now retain their shoes, a reversal of a rule implemented following the attempted “shoe bomber” incident in 2001. Furthermore, the Transportation Security Administration (TSA) has introduced “Gateside” at 13 airports, allowing eligible travelers to proceed to post-security areas even when not flying, thereby reinstating the possibility of meeting loved ones at their departure gates.

As security officials navigate the evolving threat landscape, the focus is shifting towards new challenges. While some familiar post-9/11 security measures are being relaxed, authorities are increasingly confronting a new generation of threats, including sophisticated drone technology, pervasive cyberattacks, and the burgeoning capabilities of artificial intelligence. The ongoing balancing act between facilitating travel and ensuring robust security in this dynamic environment continues to be a critical priority.

### The Daily Dividend

Here are a few stories to revisit over the weekend:

* In a significant development for the semiconductor industry, a major chip manufacturer announced plans for a substantial expansion of its manufacturing capacity in Asia, a move that could reshape global supply chains and intensify competition.
* Economic analysts are closely watching upcoming consumer sentiment data, which could provide further clarity on household spending intentions amidst persistent inflation and rising interest rates.
* The energy sector is abuzz with discussions surrounding the accelerating adoption of renewable energy sources, with a recent report highlighting significant investment flows into solar and wind power projects.