ASML reported a blowout quarter Wednesday, the same morning the June wholesale inflation report came in softer than expected. The combination lands well for equity bulls. The case for a sustained move, though, requires both readings to mean something durable, and that case is not yet made.
Two signals in the same morning
ASML's blowout result is the more specific of the two. The Dutch semiconductor equipment company makes the lithography machines that chipmakers need to build advanced processors, and its order book reads as a forward indicator for where chip production capacity is heading. A beat at this stage carries more weight than it would mid-cycle, because the market has been watching demand signals from equipment makers for confirmation that investment in semiconductor capacity is holding up.
The June wholesale inflation report is the macro half of Wednesday's story. The producer price index tracks costs at the wholesale level, before they reach consumers, and a softer reading on that measure reduces the case that price pressures are reaccelerating. Consumer prices tend to follow wholesale costs with a lag, which is why a softer June reading draws attention before the consumer price data arrives.
The counterargument
The strongest pushback on both signals is the same: sample size. ASML operates at the top of a very specific supply chain, and its results reflect capital spending by a narrow set of large chipmakers. One quarter from one company cannot confirm that the broader technology investment cycle has turned.
The wholesale number faces the same problem. One softer monthly print is consistent with a trend and equally consistent with noise. A sequence of readings is what moves the argument. Wednesday supplied one.
On balance
Both readings go in the right direction. The market will price that in the short term, and fairly. The line to watch is whether subsequent data from the chip equipment sector and on producer prices backs up what this morning offered. That case has not been made yet.