Stock bulls are treading cautiously ahead of Apple and Amazon earnings on Thursday and the critical July Employment Report on Friday.

The earnings calendar today is again loaded with a wide cross-section of businesses, including Bunge, Clorox, CVS, DoorDash, Fortis, Humana, Johnson Controls, Kraft Heinz, MetLife, MGM Resorts, Novo Nordisk, Occidental Petroleum, Phillips 66, Qualcomm, PayPal, Shopify, Simon Property Group, Trane Technologies, Xylem, and Yum Brands.

There will be a big spotlight on Clorox and Kraft Heinz, in particular, with investors looking for insights into consumer demand as well as signs of further margin erosion in the consumer goods sector.

Real estate investors are anxious to see results from Simon Property Group, the largest shopping center owner in the US.

On the economic data front today, ADP's Employment Report is expected to show a gain of +185,000 jobs in July versus +497,000 in June. Keep in mind, ADP's number for June was actually way off from the Labor Department's official data, which reported payroll growth of just +209,000.

The Labor Department releases the July Employment Report on Friday with Wall Street economists expecting a gain of around +200,000. With the Federal Reserve focusing on the inflationary pressures created by the tight labor market, Friday's jobs report as well as the August report, due out on September 1, will be key to shaping expectations for the central bank's next moves. If job gains and wages start moving up again, it would obviously make a strong case for at least one more rate hike this year.

Bulls are confident the labor market slowdown will persist, in turn increasing the chances that the Fed ends its hiking campaign and perhaps begins cuts in 2024. The latest Job Openings and Labor Turnover Survey (JOLTS) does support some modest cooling. Job openings in June were slightly lower at 9.852 million versus 9.62 million in May, and lower than economists were forecasting. It was also the lowest number of openings since April of 2021. Maybe more importantly, the quits rate made a solid move down, declining to 2.4% from 2.6%, a sign that job seekers are having a tougher time finding new jobs and/or the pay bumps they were hoping for.

Layoffs were essentially unchanged from May, which implies that companies are retaining workers even though they may be pulling back on hiring. Interestingly, however, total US job openings continue to outnumber unemployed workers. In other words, the data showed there were still +3.6 million more job openings than unemployed workers in June. If you remember, it was back in March of 2022 that we reached a peak of 6.1 million more job openings than unemployed workers, so owe are going the right direction but still have more work to do.

The data right before Covid hit back in early 2020 was showing about 1.3 million more job openings than unemployed. Let's not forget, Fed Chair Powell has noted that he doesn't like there being a lot more job openings than unemployed people because that drives wage growth and ultimately fuels price inflation. In other words, if the Fed thinks that job openings are still too high compared to unemployed workers they could easily justify another rate hike. and certainly keep rates higher for longer. Stay tuned...

Foreign Purchases of U.S. Homes Slump to All-Time Low: Foreign buying of U.S. homes fell for a sixth straight year, sinking to the lowest level on record, though some signs of a turnaround are starting to emerge. International buyers purchased 84,600 U.S. homes in the year ended in March, which seems like a crazy amount to me, but it's actually down -14% from the prior year, according to a report released Tuesday by the National Association of Realtors. The dollar volume of residential real estate purchased by these buyers fell 9.6% to $53.3 billion, also a record low since NAR began collecting the data in 2011. Source WSJ

Economists Say China's Data is ‘Grim Reading’ for Commodities Demand: Another round of lackluster readings on Chinese economic activity Tuesday could ring negative alarm bells over demand for metals and other commodities, an economist warned after the country’s latest round of purchasing manager index readings. China’s PMIs suggest that commodities demand has come completely off the boil. For the recent rally in industrial metals prices to be sustained, China’s policy makers will have to deliver on promises of stimulus, said Kieran Tompkins, commodities economist at Capital Economics. The China Caixin manufacturing purchasing managers index PMI fell to 49.2 in July from 50.5 in June and marked the first reading below the 50 level, which separates expansion from contraction, in three months. Source Marketwatch

US Credit Rating Downgraded From AAA by Fitch: Fitch Ratings downgraded the United States’ long-term foreign currency issuer default rating to AA+ from AAA on Tuesday, pointing to “expected fiscal deterioration over the next three years,” an erosion of governance and a growing general debt burden. “The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” said Fitch. Back in May, the agency placed the nation’s AAA rating on negative watch, blaming the debt ceiling fight. While that battle was resolved, “In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” the ratings agency said. Fitch also highlighted the rising general government deficit, which it anticipates will rise to 6.3% of gross domestic product in 2023, from 3.7% in 2022. Standard & Poor’s cut the U.S.’s credit rating to AA+ from AAA in 2011 after Washington managed to avoid a default. At the time, the agency highlighted political risk as part of its reasoning. Source CNBC

OPEC Output Plunges by Most Since 2020 as Saudis Deepen Cuts: OPEC’s crude production tumbled by the most in three years as Saudi Arabia implemented a deeper cutback in a bid to shore up global markets. Output from the Organization of Petroleum Exporting Countries plunged by 900,000 barrels a day last month to an average of 27.79 million a day, according to a Bloomberg survey. It’s the biggest reduction since the group and its allies slashed supplies during the depths of the Covid pandemic in 2020. Riyadh delivered on the vast majority of the extra 1 million barrel-a-day cut it promised, in a bid to buoy prices against lackluster economic data in China and concerns about recession in the US. Traders expect the kingdom will announce an extension of the measure into September in the coming days, deepening signs of a supply shortfall in the market. The Saudis are also finally receiving some help in their effort to support the market from OPEC+ member Russia. Moscow had for many months flouted pledges to reduce supplies as it focused on maximizing revenues to fund its war against Ukraine, but tanker-tracking data shows it’s now paring exports. Shipments have slumped to a seven-month low at just under 3 million barrels a day. Saudi Arabia and Russia will chair an online review of market conditions by key OPEC+ nations on Aug. 4. Source Bloomberg

Office Loan Delinquencies Touch 5% as Rates and Tighter Lending Conditions Bite: Higher rates and tighter financial conditions took a bigger toll on the U.S. commercial mortgage market last month as more borrowers fell behind on debt payments. The delinquency rate of commercial property loans that Wall Street packaged into bond deals increased +51 basis points in July to 4.41% for loans at least 30 days past due, according to Trepp, which tracks commercial mortgage-backed securities market data. It ticked even higher to 5% for office loans as prices for half-empty buildings wobble and as trillions of dollars in debt matures in a regime of higher borrowing costs. The below chart shows the sharp uptick in office loans in commercial mortgage-backed securities deals since December. While Wall Street bond deals are backed by dozens of loans on a range of property types, retail loans still had the highest delinquency rate of 6.9% in July, followed by lodging at 5.9%, according to Trepp. Source Marketwatch

Billionaire Behind Walmart’s Warehouse Robots Gained More Than +$7 Billion In A Day: Warehouse automation firm Symbotic soared more than 50% as the firm reported earnings earlier this week, making its billionaire majority owner, Rick Cohen, worth an extra $7 billion. Forbes real-time wealth tracker puts the net worth of Cohen and his family at $27.8 billion, an astonishing gain that shows the strength of industrial robotics. On last year’s Forbes 400, Cohen ranked number 99, with a net worth of $7.6 billion. While Cohen, now 70, built his family’s grocery distribution business, C&S Wholesale Grocery, into the eighth largest private company, with $33 billion in revenue, it is the warehouse automation firm that is worth a real fortune. As its stock soared today, Symbotic’s market cap reached $35 billion. Cohen built Wilmington, Mass.-based Symbotic largely in stealth to help his own distribution issues with C&S, but by the time it went public in 2022, in a SPAC deal sponsored by venture-capital giant SoftBank, it had signed on Walmart as a customer. It has since added Albersons and Target, among others. Source Forbes

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