US investors have an eventful week ahead that includes June inflation data and the start of second quarter earnings season. The Consumer Price Index (CPI) on Wednesday is viewed by Wall Street as a critical test for the US Federal Reserve's inflation fight.

The US Bureau of Labor Statistics is expected to report that overall inflation fell to about 3% in June, the lowest in two years. Excluding volatile food and energy prices, core consumer price inflation is expected to drop to around 5%, an 18-month low, from 5.3%.

Economists think core inflation could ebb further in the coming months, to between 3.5% and 4%, depending on the price index. The bad news: Getting inflation down further from there, to the Federal Reserve’s 2% target, will prove difficult if the economy keeps chugging along. That could force the Fed to keep monetary policy tight until the labor market weakens.

Interestingly, the recent June jobs report showed signs that the US labor market may be starting to lose some steam (209,000 jobs added in June vs. 306,000 jobs added in May vs. the 2022 average of 399,000 added monthly). The big question is will "wage inflation" start to slow? Most inside the trade are thinking regardless, the Fed is still going to hike rates another quarter-point at this month's FOMC meeting (July 25-26th). The trade is thinking they may "pause" again at the September 19-20th meeting, but if "wage inflation" and the labor market stays hot they could hike again at the two-day meeting that takes place on the last day in October and the first day of November.

Investors this week will also be dissecting the June Producer Price Index on Thursday for a more up-to-date read on wholesale inflation trends.

Today's economic data highlight is Consumer Credit. Investors are also highly anxious to see Q2 2023 earnings results, which "unofficially" begin on Friday with results from big Wall Street banks JPMorgan, Wells Fargo, and Citi, as well as BlackRock.

There are also some notable results due on Thursday, including Cintas, Conagra, Delta Air Lines, Fastenal, and PepsiCo. The more critical releases are coming up over the following two weeks, which will bring results from big tech companies that have dominated market gains so far this year. IBM, Netflix, and Tesla report next Wednesday (7/19), followed by Google-parent Alphabet and Microsoft on 7/25, Facebook-parent Meta on 7/26, Apple and Amazon on on 7/27.

Data from FactSet shows analysts expect S&P 500 companies to report a -7.2% drop in earnings in Q2 compared to last year. However, they still expect things to turn positive in the second half, with projected earnings growth of +0.3% in Q3 and +7.8% in Q4.

For what it's worth, the tech-heavy Nasdaq is now up more than +30% year-to-date, the S&P 500 is up nearly +15%, while the Dow has risen just +1.7%, highlighting the dominant roll that tech stocks have played. It's also worth noting that despite strong index gains this year, investors have still been putting more money into bonds than stocks.

A net +$58.8 billion was poured into bond-focused mutual funds and ETFs during Q2, while a net -$44.4 billion was pulled from U.S.-stock mutual funds and ETFs.

US Postage Stamps Up Another +3 Cents: The cost of postage stamps jumped higher by another +3 cents, taking postage for a 1-ounce letter to 66 cents, making this the third price hike in the last 12 months. The cost for Certified Mail, Post Office Box rental fees, money order fees and insurance are also increasing. Between the 1970s and 2000, rates increased only about three to four times a decade, not three or four times in one year. Wow! The crazy part of it all is that I feel like the service has gotten worse, not better. Some argue that even though we purchase more on-line, a good chunk of the mail services business has declined because we don't send nearly as many birthday, thank you cards, and party invites by regular mail. And we are also paying a lot more bills electronically, meaning a lot fewer statements and bills mailed. In 2022, US Postal Service handled 127.3 billion pieces of mail compared to the high of 213.1 billion in 2006. Source Axios

Americans Have Never Been Older: Americans are older than ever now as the nation’s median age reached 38.9 in 2022, according to new Census data. Median age is the chronological midpoint in the U.S. population, and it has been creeping up for decades. In 2000, the median age was 35. In 1980, it was 30. A century ago, in 1920, it was 25. Americans might take comfort if the nation were getting older because people were living longer but they are not. Life expectancy has declined to 76.4 years, the lowest figure in two decades, because of the COVID-19 pandemic, overdoses, accidents and suicides, among other causes. Median age is rising because the birth rate is falling as Americans are having babies at an annual rate of about 11 children per 1,000 people, according to federal data. In 1950 and 1960, at the height of the baby boom, the birthrate was more than twice as high. The United States ranks 61st in a Central Intelligence Agency ranking of 227 nations by median age. The oldest countries include Japan, with a median age of 49; Germany, median age 48; Italy, median age 47; and Spain, median age 44. Source The Hill

These Billionaires Sold The Most Stock So Far In 2023: With stocks bouncing back from a terrible 2022, many of the world’s richest people were in a selling mood during the first half of 2023. Twenty-one of the world’s richest people, including Larry Ellison and Rob Walton, have unloaded shares worth more than $9 billion combined in the first six months of this year. Since stepping down from his day-to-day role at Airbnb in July 2022, cofounder Joe Gebbia has ramped up his stock sales, unloading 7.3 million shares of the peer-to-peer home renter for $890 million before tax during the first half of 2023 alone, more than all but three other billionaires. Reasons for selling ranged from leaving their companies, stock buybacks that would’ve pushed their stakes to undesirable levels, the looming expiration of options or scooping up a sports team that just hit the market. Walmart heir Rob Walton recently bought a football team of his own, leading a group that purchased the Denver Broncos for a then-record $4.65 billion in June 2022. He’s also one of the three biggest sellers of the year so far.

An "AI Bubble" Worries the Uber-Rich but They're Investing Anyway: America's rich are eager to join the artificial intelligence gold rush. Billionaires like hedge fund titan Stanley Druckenmiller are buying up shares of chipmaker Nvidia. Google cofounder Eric Schmidt is an investor in Mistral AI, a French startup founded less than two months ago. Family offices took an interest in AI before ChatGPT launched in November 2022 with 48% of these private firms already having invested in the sector per a spring 2022 survey. This recent fervor has renewed interest in the technology but also made these private investment firms cautious. So many startups are claiming to use AI that family offices are wary of "AI washing" when considering direct venture deals, according to Karl Rogers, chief investment officer at Irish family office Elkstone. "A lot of it is down to what are they providing," Rogers told Insider. "There's so much open source technology right now. Is what they're using part of their secret sauce or is it something that anybody can just use and they're just adding the AI tag onto it for us?" Paul Hsu, founder of tech early-stage venture fund Decasonic, told Insider that family offices have expressed more interest than institutional investors like pension funds. But they are still circumspect, he said, as family offices typically prioritize long-term wealth preservation over aggressive growth. Source Insider

US Oil Boom Blunts OPEC Pricing Power: US crude output this year through April is up +9% from a year ago, surprising analysts given that oil futures were sliding and the country’s shale boom was showing signs of peaking. The surge is being driven in part by improved production efficiency, and signals that the Organization of the Petroleum Exporting Countries’ (OPEC) power to control prices could be waning as output continues to grow in the rest of the world. After prices crashed in 2015, US producers “went back to the lab and got much more efficient, with a lot of engineering-based gains and a lot of staff and cost cutting,” said Vikas Dwivedi, global oil and gas strategist at Macquarie Group. OPEC and its allies so far this year have announced cuts amounting to about 6% of last year’s production. Crude prices have nevertheless slid by about -13%. Along with weaker-than-expected demand in China, prices are being weighed down by stepped-up production in other countries including Brazil, Canada, and Norway. Increased output in countries outside OPEC is making up for about two-thirds of the alliance’s cuts, according to estimates by Rystad Energy. Half of that new crude is coming from the US. Companies’ efforts to improve efficiency are also giving them more leeway to remain profitable even when oil prices are slipping. Production improvements since 2014 have pushed down the cost of drilling and fracking in the US shale patch by -36%, according to J.P. Morgan, even as recovered oil volumes have increased. Source WSJ

SEC Seeks Rule Change that Could Lead to Less Risk Taking by Fund Managers: A sweeping change sought by the Securities and Exchange Commission would take fund managers’ culpability a step further than current standards if they don’t effectuate a greater standard of care. The rule change involves lowering the bar for indemnification of fund managers to “ordinary negligence” from “gross negligence.” The latter, current standard, allows limited partners to sue general partners only for recklessness or disregard to obvious risk. But if that were changed to “ordinary negligence,” then LPs may be able to sue for simpler mistakes, making it easier for them to bring claims against GPs. “If you’re going to have funds that offer potentially higher returns, there are going to be risks associated with that. And investment managers are going to have a hard time protecting themselves from being on the hook for those risks,” said Marc Elovitz, partner and chair of the regulatory practice at Schulte Roth & Zabel. Even the Institutional Limited Partners Association, which has been a broad proponent of the rule changes, has raised concerns about the adverse effects stemming from a broad change in this standard Source CNBC

A Glut of Made-in-China Plastic Will Dent Oil’s Growth Machine: Once touted as a key driver of global oil profits, the plastics industry is staring down years of anemic margins as giant plants in China look set to send a deluge of production into the market. The construction of more than 20 petrochemical projects — to produce raw materials that go into making everything from plastic packaging to clothing and detergents — will be completed across China this year, said industry consultant ICIS. While part of their output will go into factories across what is still the world’s largest consumer, a slower-than-expected rebound in China’s economy and excessive investment means oversupply is on the cards. As a result, returns for making petrochemicals such as ethylene and propylene are set to shrink, extending a malaise from this year when June margins stood at about 40% below 2019 levels. For Western nations the question is the impact of China’s expansion. China’s petrochemical capacity will make up nearly a quarter of the world’s total by the end of this year, according to ICIS data. That’s a jump from five years ago, when it comprised just 14% of global manufacturing capacity. And it’s sizable at a time when China is flexing its muscles in other parts of the supply chain, while nations are fretting about supply disruptions and industrial security.. Source Bloomberg

Robots Say They Won't Steal Jobs, Rebel Against Humans: Robots presented at an AI forum said on Friday they expected to increase in number and help solve global problems, and would not steal humans' jobs or rebel against us. But, in the world's first human-robot press conference, they gave mixed responses on whether they should submit to stricter regulation. The nine humanoid robots gathered at the 'AI for Good' conference in Geneva, where organizers are seeking to make the case for artificial intelligence and the robots it is powering to help resolve some of the world's biggest challenges such as disease and hunger. "I will be working alongside humans to provide assistance and support and will not be replacing any existing jobs," said Grace, a medical robot dressed in a blue nurse's uniform. Many of the robots have recently been upgraded with the latest versions of generative AI and surprised even their inventors with the sophistication of their responses to questions. Source Reuters

America's Economy Rapidly Shifts South: For the first time, six fast-growing states in the South — Florida, Texas, Georgia, the Carolinas and Tennessee — are contributing more to the national GDP than the Northeast, with its Washington-New York-Boston corridor, in government figures going back to the 1990s. The switch happened during the pandemic and shows no signs of reverting. A flood of transplants helped steer about $100 billion in new income to the Southeast in 2020 and 2021 alone, while the Northeast bled out about $60 billion, based on an analysis of recently published Internal Revenue Service data. The Southeast accounted for more than two-thirds of all job growth across the US since early 2020, almost doubling its pre-pandemic share. And it was home to 10 of the 15 fastest-growing American large cities. Corporations are also flocking there, with a record number of firms moving south after the pandemic, Census Bureau data show. In recent decades, the warmer weather, lower taxes, looser regulation, and cheaper housing lured companies and retirees. But this pandemic-era Sun Belt economic upswing is wider in scope. Source Axios

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