There will also be data on inflation, consumer confidence, and second quarter gross domestic product (GDP). On the earnings front, big tech results will be the major highlight with results due from Google-parent Alphabet and Microsoft on Tuesday, Meta on Wednesday, and Amazon on Thursday. About 18% of S&P 500 companies have reported Q2 results so far and 75% have topped estimates (but estimates are low). In fact, S&P 500 companies are on track for a Q2 earnings decline of -9%, according to FactSet, which is down from -7.2% the previous week and -7.0% at the end of June.
The Federal Reserve is also in the spotlight this week, with officials meeting on Tuesday and Wednesday. The latest monetary policy decision and a press conference with Fed Chair Jerome Powell are both scheduled for Wednesday afternoon.
The big question is whether this will be the last rate hike for this cycle, although the Fed is not likely to provide a definitive answer at this point. The CME Fed Watch Tool shows traders give nearly 100% odds of a +25 basis-point hike on Wednesday, which would push the Fed's benchmark rate to a range between 5.25%-5.50%. Odds favor the Fed maintaining that rate for the rest of 2023 (65.3%) versus another +25 basis-point hike (23.6%) by the end of the year.
Traders have also lowered their odds of any rate cuts until mid-2024. Keep in mind, the Fed's next meeting isn't until September 19-20 (no August meeting), meaning two months of data before the next decision. Investors are also anxious to hear the latest policy updates from the European Central Bank on Thursday and the Bank of England on Friday.
There is some concern among Wall Street insiders that the Fed may be growing uncomfortable with the ongoing stock rally. That's largely due to the so-called "wealth effect," which is an economic theory suggesting that people spend more as the value of their assets rise.
Keep in mind, home prices are still near record-highs, jobs remain plentiful, and consumer confidence is the highest its been since January 2022. Bears argue that these things all point to potential for stronger consumer spending ahead, which could interrupt the current disinflation trend and require the Fed to keep rates higher for longer, or possibly even hike further.
There are also growing concerns that food and energy prices may shoot higher again. Food prices are being impacted by Russia's termination of the Black Sea grain deal, as well as declining harvest prospects for several key crops across the globe.
On the energy front, some oil insiders are warning that increasing oil demand from China and India is going to start outstripping supply in the second half of the year. While the Fed prefers inflation gauges that strip out food and energy, these costs (particularly energy) nonetheless filter out into the wider economy and can impact inflation across nearly every sector.
Key US inflation updates this week include flash PMIs today (Monday) and the PCE Prices Index on Friday. It's also worth noting that the Fed is expected to unveil new bank capital requirements on Thursday. Regulators have already warned that big Wall Street banks might face a +20% average increase in overall capital requirements. A greater number of banks are also expected to be subject to the Fed's capital requirements, with the agency likely lowering the threshold to $100 billion in assets, down from $250 billion currently.
Bottom line, this is going to be an extremely busy week for major headlines.
High-Income Households Now Starting to Cut Back: Across the US, companies catering to the households that can afford a $12,000 couch or $4,000 coffee table are reporting a similar phenomenon: wealthier Americans are reining in their discretionary spending. Shares in Leslie’s have plunged more than -40% in the past week after the country’s biggest seller of swimming pools and hot tubs warned that increasingly price-sensitive customers would drag its sales well below expectations. Recreational vehicle shipments were down almost -50% in the first five months of 2023. Companies that did well early in the pandemic are now finding it hard to outstrip their earlier success. Elevated borrowing costs and more limited access to credit, has many thinking the pullback in wealthier Americans’ discretionary spending could last into 2024. Source Financial Times
Yellow" Avoids a Teamsters Strike: The Teamsters union pulled back its threat of a strike this week at financially-ailing trucker Yellow, averting an action the company had said would send the business into liquidation. The union said Sunday that it withdrew plans for the walkout, which could have started as soon as Monday, after a pension fund agreed to continue to extend health benefits to unionized workers at Yellow and a sister company and would give Yellow another 30 days to make a missed payment to the fund. Source WSJ
Schools Sue Social-Media Platforms Over Alleged Harms to Students: Plaintiffs’ lawyers are pitching school boards throughout the country to file lawsuits against social-media companies on allegations that their apps cause classroom disciplinary problems and mental-health issues, diverting resources from education. Nearly 200 school districts so far have joined the litigation against the parent companies of Facebook, TikTok, Snapchat, and YouTube. The suits have been consolidated in the U.S. District Court in Oakland, Calif., along with hundreds of suits by families alleging harms to their children from social media. The lawsuits face a test later this year when a judge is expected to consider a motion by the tech companies to dismiss the cases on grounds that the conduct allegedly causing the harm is protected under the internet liability shield known as Section 230. In the new lawsuits, school districts and families contend that the social-media companies have created an addictive product that pushes destructive content to youth—and that a product, unlike content, doesn’t enjoy Section 230 protections. Source WSJ
Housing Market's Lock-In Effect is Very Real: Throughout the course of the Pandemic Housing Boom, homebuyers were jumping at the opportunity to secure mortgages at ultra-low rates of 2% to 3%, creating a whirlwind of housing market transactions. But now, a growing frustration is seeping into the industry as those once tantalizingly low rates have given way to a stark reality of higher rates and fewer transactions. Enter the “lock-In effect,” a term that has real estate professionals sounding the alarm and grappling with the consequences of the abrupt change. The idea of the “lock-in effect” is that homeowners are reluctant to sell their properties—and buy something new—due to the financial shock that would come with losing their historically low mortgage rates. Just consider the fact that 91% of mortgage borrowers have an interest rate below 5%, including 70.7% with an interest rate below 4%. For those homeowners, it simply doesn't make a lot of sense to sell and purchase a property right now at a 6% or 7% mortgage rate. This so-called “lock-in effect” is happening just about everywhere. According to Realtor.com, there were -26% fewer U.S. homes listed for sale in June 2023 than in June 2022, and -28.9% fewer than in June 2019. Source Fortune
US Senators Push Additional Rules for Foreign Landowners: Sens. Tammy Baldwin, D- Wisc., and Chuck Grassley, R- Iowa, introduced legislation they say will increase transparency and oversite of foreign ownership within American agriculture. The Farmland Security Act of 2023 would add additional requirements to the Agriculture Foreign Investment Act of 1978. Per the terms of that law, foreign landowners must disclose their holdings to the Secretary of Agriculture and file an FSA-153 in with the Farm Service Center where the land is located. Baldwin and Grassley say more rules are now needed. The bill mandates research on foreign agricultural production capacity ownership and foreign ownership of agriculture economic activity. Foreign owners or shell companies that fail to accurately report their acreage would face new financial penalties. USDA would be required to conduct annual compliance audits and provide annual training on how to identify foreign landowners who do not report. Source Feedstuff
How ButcherBox Is Killing It With Free Bacon For Life: Since its 2015 debut, Mike Salguero’s "ButcherBox" has grown to become one of the largest online meat-sellers in America with $550 million in sales. This comes at a time when food-box companies, which once seemed to be the next big thing, have mostly faded. Stock prices of competitors like Blue Apron and Hello Fresh have plummeted. Just this month, New Age food brands Tattooed Chef and Do Good Chicken filed for bankruptcy. But Salguero’s $169 monthly subscription did two things his rivals didn’t: as a promotion, he gave away free bacon (or chicken wings, or ground beef), and he shunned venture investment. “If we’d taken outside investment, we’d be out of business right now,” said Salguero, 42. Unlike most of its competitors, ButcherBox has been profitable since the start, but not ridiculously so. Last year’s annual Ebitda margin came in at under 5% — on par with the razor-thin profits of the grocery industry. ButcherBox is asset-light by design. In contrast to some of its rivals, ButcherBox doesn’t raise animals or slaughter them. The brand buys meat from a handful of big producers — including 90% of its pork from Perdue-owned Niman Ranch, grassfed beef imported from Australia from a joint venture with agribusiness giant Cargill, and organic, antibiotic-free chicken from Perdue. Source Forbes
American Airlines Increases Offer the Pilots by +$1 Billion: American Airlines Group Inc (AAL.O) on Friday said it raised the value of its contract offer to pilots by more than $1 billion to match a more generous deal at United Airlines after American's union warned that ratification was in jeopardy. The Texas-based carrier said the changes bring the total value of the four-year proposed contract to $9 billion. Its pilots are due to vote on the deal on Monday. American said it would match the pay rates and retroactive pay in United's tentative agreement reached July 15 and provide extended sick leave and increased life insurance. United's pilots will get cumulative +34.5% to +40.2% pay raises in that four-year agreement. A shortage of pilots and increased public support for unions have given union negotiators greater leverage in contract talks. Source Reuters
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