Additionally, increasing geopolitical tensions with China are now hitting the US tech sector as the Chinese government places restrictions on Apple iPhones. Industry insiders think the new rules are partly in response to crackdowns designed to prevent China from gaining access to US chip technology. Most also think China's restrictions could still widen to other companies and products. China happens to be one of Apple's biggest markets, as is the case for many US tech companies, so losing any part of that could have huge implications for the sector.
Today, investors will be scrutinizing Consumer Credit for July which is expected to increase +$18 billion, about the same as June. The pace of consumer credit growth has been slowing all year and is closely tied to the sharp increase in interest rates. A much higher-than-expected change in consumer credit is going to raise duel worries about the health of consumer bank accounts as well as concerns that the economy is heating up again.
In contrast, a much lower-than-expected read will likely feed recession fears. The bigger economic tests come next week with several key reports due.
First up is the Consumer Price Index (CPI) on Wednesday, followed by the Producer Price Index (PPI) and Retail Sales on Thursday. To keep hopes alive of an end to rate hikes and possible rate cuts in the first half of 2024, bulls need these three reports to reflect a continuation of slowing inflation and softer consumer spending.
In July, both CPI and PPI headline inflation rose thanks to climbing oil and gasoline prices. However, the Fed's preferred "core" prices, which strip out food and energy, have recently begun to reflect meaningful slowdowns and economists expect that will continue in the August CPI and PPI reads. Retail Sales on Thursday will likewise have implications for Fed policy as strong consumer spending is viewed as "inflationary."
Retail sales showed no signs of a weakening consumer in July, notching an increase of +0.7% month-over-month. Investors are also anxious to see earnings results from Oracle next week, which is expected to show a boost from new AI technologies when it reports on Monday. Adobe on Thursday is the only other earnings release of note.
Investor Allocation to Gold at its Highest Level in 11 Years... Not Sure That's a Good Thing? Strategists led by Nikolaos Panigirtzoglou say the implied allocation to gold by non-bank investors has been led by central bank purchases. He derived that data by dividing the stock of gold via coins, bars or physical gold ETFs by the stock of financial assets. Investors’ allocation to gold looks rather high by historical standards at the moment and one needs to assume a structural increase in central bank demand beyond historical norms due to fear of sanctions or general diversification away from G7 government bonds, to be bullish on gold, he says. One problem with that story is that the latest data from the World Gold Council, covering the second quarter, shows a normalization in central bank purchases, though Panigirtzoglou says that’s likely due to turmoil in Turkey. Going forward, it remains to be seen whether this normalization in central bank gold purchases in Q2 2023 is temporary, which, given the concentration in one country, could prove to be the case, or whether it becomes more persistent due to price sensitivity i.e. reluctance by central banks to buy more gold than their normal pace with gold prices at close to historical highs, he added. There is little doubt that the pace of central bank purchases holds the key to gauging the future trajectory for gold prices, he says. Source Marketwatch
Health-Insurance Costs Climbing at the Steepest Rate in Years, with some projecting the biggest increase in more than a decade will wallop businesses and their workers in 2024. Costs for employer coverage are expected to surge around 6.5% for 2024... Such a boost could add significantly to the price tag for employer plans that already average more than $14,600 a year per employee, driving up health-insurance costs that are among the biggest expenses for many American companies and a drain on families’ finances. Aon is projecting employer plan costs will rise by +8.5% next year, the biggest jump in more than a decade. Individual plans will more than likely jump by +6% to 7%. Source WSJ
UAW Leader Warns of Strike: The president of the union that represents 150,000 workers of General Motors, Ford Motor Co. and Stellantis warned Thursday that a potential strike is looking increasingly likely as the union struggles to strike a deal with the automakers over hours worked, benefits and a requested 46% wage hike. UAW President Shawn Fain said on MSNBC’s Morning Joe that negotiations haven't progressed much since 97% of union members voted to authorize a strike in August, four years after a strike at GM cost the automaker nearly $4 billion. The UAW workers’ contract will expire after 11:59 p.m. September 14 and leadership will be able to call for a strike after that—the union is asking for the elimination of the companies' tiered wage and benefits system, a 46% wage increase to “to offset inflation and match the generous salary increases of company executives" and a reduction in workweek hours from 40 to 32. According to consulting firm Anderson Economic Group, just 10 days of an auto workers strike could cost the U.S. economy $5 billion. Source Forbes
Apple in Crosshairs with China... What You Need to Know: Apple shares fell about -3% on Thursday, following a -4% decline on Wednesday, after several reports suggesting that Chinese government workers could be banned from using iPhones. On Wednesday, The Wall Street Journal reported that China had ordered central government officials at some regulators not to use Apple ‘s iPhone or other foreign-branded devices for work. On Thursday, Bloomberg reported that the country plans to expand the iPhone ban to more government-backed agencies and state companies. In the past, China has cited the potential for network cybersecurity issues and national security. However, experts say the actions are more likely in retaliation to a flurry of U.S. semiconductor-related technology bans in recent years. Greater China, including Hong Kong and Taiwan, is Apple’s third-largest market, accounting for about 18% of total revenue of $394 billion. It’s also where the vast majority of Apple products are assembled. It’s unclear how much further the country might go in clamping down on iPhone use beyond the government—iPhone manufacturing employs many Chinese workers in the country. But investors can’t ignore the continued risk to multinational companies with considerable revenue exposure to China. Other U.S. technology companies—especially chip makers — could face more challenges there. New Street Research said earlier this year that Qualcomm could be most at risk as the chip war between the U.S. and China intensifies, citing the potential for companies to find other alternatives for its chips. Source Barrons
Tesla Strikes Charging Deals with Hilton, Honda: Two more big partners have signed up with Tesla’s charging network, opening up more charging availability for Tesla owners and cars equipped with NACS (North American Charging Standard) compatibility. Starting in early 2024, hotel operator Hilton will install 20,000 Tesla Universal Wall Connector plugs at 2,000 of its hotel locations in the US, Canada, and Mexico. Hilton says this project will make its EV charging network the largest of any hospitality company. Hilton, which operates its namesake brand as well as Embassy Suites, Hampton Inn, and DoubleTree, among others, says that customers are increasingly looking for EV chargers while traveling. Tesla notched another big automotive partner on Thursday as well, with Honda announcing it will implement the NACS plug in its new EVs starting in 2025, meaning native access to Tesla’s Supercharger network. News of another major automaker joining the Tesla Supercharger network is a fresh blow to network operators like EVgo, ChargePoint, and Blink. Source Yahoofinance
Chinese Social Media Campaigns Impersonating US Voters: Chinese state-aligned influence and disinformation campaigns are impersonating U.S. voters and targeting political candidates on multiple social media platforms with improved sophistication, Microsoft said in a threat analysis report Thursday. Chinese Communist Party-affiliated “covert influence operations have now begun to successfully engage with target audiences on social media to a greater extent than previously observed,” according to the report, which focused on the rise in “digital threats from East Asia.” The Microsoft report also cautioned that some Chinese influence campaigns are now using generative artificial intelligence to create visual content that’s “already drawn higher levels of engagement from authentic” users, a trend the company said began around March. Chinese influence campaigns have historically struggled to gain traction with intended targets, who in this case are U.S. voters and residents. But since the 2022 midterm elections, those efforts have become more effective, Microsoft warned. Source CNBC
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