Stock investors wondering if structural inflation remains a problem? Many inside the trade are arguing that it will be many years if ever in our lifetime that we get back to the Fed's 2% inflationary target rate. This has many nervous about the fact rates could stay higher for much longer than many have been anticipating, especially if the Fed pauses and allows inflation to creep back higher.

The Consumer Price Index yesterday showed July headline inflation running at an annual rate of +3.2%, a slight acceleration from June's +3.0% and less than Wall Street economists expected. Stripping out food and energy, the "core" rate slowed to +4.7% year-over-year from +4.8% in June.

Wall Street economists had widely expected energy prices would drive up headline inflation for July but they only accelerated +0.1% and are now down -12.5% year-over-year. The pressure on headline prices actually came from the "shelter" category, which gained +0.4% for the month and is now up +7.7% over last year.

Overall, "shelter" costs accounted for 90% of July's inflation gains. Currently, there is a very long lag in shelter inflation data, which in real-time has slowed significantly but is taking much longer than expected to register in official inflation gauges. San Francisco Fed researchers forecast shelter inflation could slow by as much as -9% over the next 18 months but when that deceleration will begin seems to be a mystery. So the Fed is obviously aware of this disconnect and bulls believe central bank officials will have the lagging effects of monetary policy in mind as they decide whether or not more rate hikes are in order.

Bulls also point out that the +0.2% monthly gain in "core" prices for both June and July were the slowest back-to-back increases since early 2021. Bears argue that the return of higher energy prices as well as wage gains coming from new labor union deals stand to offset the impending "disinflation" from the shelter sector. As such, many bears think Fed officials will choose to hike at least one more time in 2023 to ensure that inflation doesn't reignite and highly doubt that rate cuts will be in the cards for 2024.

The Fed typically only cuts rates when they are doing more harm than good, and that tipping point tends to come amid sharp economic pullbacks. Meaning if/when the Fed does reverse course, the economy will likely have bigger problems than high interest rates.

Today, the Producer Price Index for July is expected to accelerate slightly but still come in well below +1%, while the "core" rate is seen slowing to +2.3% versus +2.4% in June.

The next critical inflation updates will be the PCE Prices Index for July on August 31, August CPI on September 13, and August PPI on September 14. The last two will be particularly important as those will be the most recent data and come just ahead of the Federal Reserve's highly anticipated policy meeting on September 19-20.

Investors today will also be digesting preliminary results for the University of Michigan's August Consumer Sentiment Survey with economists expecting only a minor pullback to 71.3 from 71.6 last month.

Turning to next week, housing and retail will be the dominant themes. The NAHB Housing Market Index is out on Tuesday, followed by Housing Starts and Permits on Wednesday.

On the retail front, Retail Sales for July is due out on Tuesday and will be accompanied by a string of major retailer earnings over the following days. Some of the big names include Home Depot on Tuesday, Target and TJX on Wednesday, and Ross Stores and Walmart on Thursday. Other earnings of note next week include Suncor Energy on Monday; Cardinal Health, H&R Block, and On Holding on Tuesday; Cisco on Wednesday; Applied Materials and Nice on Thursday; and Deere & Co., Estee Lauder, and Palo Alto Networks on Friday.

One-In-Five New Vehicles Sold Were EV or Hybrid: Electric vehicle sales were 8.2% of the auto financing pie for new vehicles, up from only a 1.7% share two years porior, according to TransUnion. Tesla is still the dominant player but new offerings from other manufacturers, including Ford Mustang Mach-E, have also attracted consumers. There are starting to be more EV models available and they are capturing more market share. Vehicles with internal combustion engines were still the lion’s share of new auto sales in the second quarter, but one in five sales were EV or hybrid models. To be sure, federal tax credits and recent pledges by manufacturers to create more fast EV charging stations have helped boost the allure of elective vehicles. Source Market Watch

$2 Trillion Corporate Debt Wall Could Spark More Job Losses: Goldman Sachs said in a note this week that higher interest expenses tied to the refinancing of corporate debt will lead to a reduction in capital expenditures and a shedding of about 5,000 jobs per month in 2024. That could double to a loss of 10,000 jobs per month in 2025, assuming interest rates remain elevated at their current level. If interest rates remain high, companies will need to devote a greater share of their revenue to cover higher interest expenses as they refinance their debt at higher rates, Goldman Sachs' Jan Hatzius said. Adding, we find that for each additional dollar of interest expense, firms lower their capital expenditures by 10 cents and labor costs by 20 cents. US companies benefited immensely from the period of low-interest rates before 2022. According to Bank of America, the debt composition of S&P 500 companies includes a whopping 76% in long-term fixed debt, much of which was secured at low single-digit rates. But as interest rates stay elevated, and potentially go higher as the Federal Reserve continues to combat inflation, refinancing risks will grow more pronounced, especially over the next two years. Goldman Sachs estimates that corporate debt maturities will be $230 billion for the rest of 2023, $790 billion in 2024, and $1.07 trillion in 2025, representing a combined 16% of all corporate debt. There's another $4+ trillion in corporate debt set to mature from 2026 through 2030, according to Goldman. Of course, the companies that will be hit hardest by refinancing debt at higher interest rates are unprofitable companies, as they have a tendency to lean more heavily on firings to balance costs. Source Marketinsider

Record Hot Ocean Temps Could Supercharge Hurricane Season: Scientists at the National Oceanic and Atmospheric Administration on Thursday forecast this year has a 60% chance of above-average hurricane activity, up from their previous estimate of a 30% chance. The forecast revision decreased the likelihood of near-normal activity to 25% from 40% chance announced in May. The revised outlook covers the remainder of the six-month hurricane season, which begins on June 1 and ends on Nov. 30, and forecasts a season total of 14 to 21 named storms with winds of 39 mph or greater. Of those, six to 11 could become hurricanes with winds of 74 mph or greater, and between two and five could become major hurricanes with winds of 111 mph or greater. The revised estimates published Thursday include the five named storms and one hurricane that have already happened, according to NOAA. The peak part of the hurricane season is just getting started. It runs from August through October and historically encompasses 90% of all tropical storm activity, which is why NOAA releases a mid-season forecast revision each year. The two primary and driving factors that will determine the strength of the hurricane season are the El Niño weather pattern and record-warm sea surface temperatures in the Atlantic. Source CNBC

OPEC Data Suggests 2 Million-Barrels-a-Day Oil Supply Deficit: Global oil markets are on track for a sharp supply deficit of more than 2 million barrels a day this quarter as Saudi Arabia slashes production, OPEC data indicate. Output from the Organization of Petroleum Exporting Countries tumbled last month as the kingdom implemented a unilateral cutback to shore up markets, according to a report from the group on Thursday. The Saudis will maintain the cut this month and next as planned, meaning OPEC’s production could average the current rate about 27.3 million barrels a day for the whole quarter. That’s about -2.26 million a day less than consumers require, potentially resulting in the steepest inventory decline in two years, OPEC data suggest. Major consuming nations have criticized the Saudis and their allies for constricting output, warning that a renewed inflationary spike could inflict more pain on consumers. Nonetheless, Riyadh has said it could prolong and even deepen the supply curbs if necessary. Still, it’s possible that stockpiles don’t fall as dramatically as OPEC’s projections imply. Demand in China, the world’s biggest importer, is clouded by lackluster economic indicators. Concerns also persist over the health of the US economy. But for the time being, the oil market is clearly tightening. Source Bloomberg

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China Lifts Ban on Group Tours to U.S. and Other Countries: China lifted restrictions on group tours to the U.S., Australia, South Korea and Japan on Thursday, a move that is set to boost global tourism after three years of pandemic restrictions. With Thursday’s announcement, Chinese tourists can now travel in groups to almost 140 countries around the world. A few dozen nations remain excluded, including Canada, Ukraine, as well as some countries in South America and Africa. China didn’t restrict individuals from traveling abroad during the pandemic, but getting the proper paperwork was difficult and Covid-prevention measures made the return to China onerous. Tour groups make overseas travel more accessible for many in mainland China, especially those who don’t speak foreign languages. It is possible that Chinese traveler numbers won’t return to pre-Covid levels for some time, if ever. Many households in China have seen their household finances strained amid concerns about the economy. Airlines have yet to resume their full slate of flights, while visa and passport backlogs remain a problem. Source Reuters

Upcoming Retirees Have "Use It or Lose It" Approach to Social Security: Only 10% of non-retired Americans say they will hold off until age 70 to receive their monthly Social Security check, according to a new survey from asset management company Schroders, the age when they receive the most in benefits. Four in 10 (40%) workers won’t even wait until their full retirement age and plan to tap their Social Security benefits between age 62 and 65, taking the smallest amount available to them. The number one reason workers said they will take benefits before 70 is because they’re concerned Social Security may stop cutting checks before they reach that age, according to the survey of 2,000 US investors between 27 and 79, with 44% citing that reason. More than a third (36%) of those surveyed by Schroders expect they will need the money to meet living expenses and won’t be able to afford to hold back. Roughly the same share (34%) said that it’s their money and they want to get it as soon as possible. Finally, 13% said they were advised to take it earlier than 70. Source Yahoo finance

Taylor Swifts Eras Tour Will be First to Top $1 Billion: Taylor Swift wrapped up the first U.S. leg of her record-shattering Eras Tour this week, part one of the world-spanning concert series that is projected to become the first tour to gross $1 billion in ticket sales. According to some calculations, ticket revenue will far surpass that 10-figure mark, hitting $1.5 billion. But even that impressive figure may be undercutting the final totals: Additional tour dates go on sale on Ticketmaster Thursday for recently announced North American shows and it’s possible Swift could add even more shows, as she has done multiple times already. If—or more likely, when—she crosses $1 billion, she’ll take the crown of highest-grossing tour of all time from Elton John, who became the record-holder this year when his Farewell Yellow Brick Road Tour grossed over $900 million after wrapping up in June. It’s quite the feat for someone who started out as a teenager singing country songs about breakups and best friends. Over the past 17 years, Swift has become one of the richest self-made women on the planet, with Forbes estimating her net worth at $740 million in June of this year. That’s only growing the longer she’s on tour. Source Fortune

Americans Like Big Houses With Plenty of Space Between Them: A majority of Americans (57%) say they would prefer to live in a community where “houses are larger and farther apart, but schools, stores and restaurants are several miles away,” according to a new Pew Research Center survey. About four-in-ten (42%) would prefer a community where “houses are smaller and closer to each other, but schools, stores and restaurants are within walking distance.” The share of the public that prefers more spread-out communities is roughly similar to two years ago, when six-in-ten Americans said this. Public preferences were more evenly divided on this question in fall 2019, a few months before the coronavirus outbreak. While a majority of adults ages 30 and older would prefer communities with larger homes over those with more walkability, adults under 30 are somewhat more likely to express the opposite preference. This reflects a modest shift from 2021, when 55% of 18- to 29-year-olds preferred communities with larger homes. That share has dropped 10 percentage points over the last two years. Source Pew Reserach

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