Wednesday, July 17, 2024

Markets pause while investors rotate out of tech stocks

Dow went up 243, decliners over advancers 4-3 & NAZ tumbled 512.  The MLP index added 1 to 297 & the REIT index was up 2+ to the 403s.  Junk bond funds remained mixed & Treasuries had limited buying which lowered yields slightly.  Oil gained 2+ to the high 82s & gold eased back 5 to 2562 (more on both below.

Dow Jones Industrials 

Consumers collectively spent $7.2B online during the first day of Amazon's (AMZN) 2-day shopping bonanza.  That figure is up 11.7% year over year & marked the biggest e-commerce day so far this year, underscoring the significant impact Prime Day has on online retail sales.  Yesterday also marked the biggest mobile shopping day so far this year, accounting for $3.5B in online spending across retailers, according to Adobe data.  Adobe analyzed direct consumer transactions online across over 1T US retailer sites.  While customers were clamoring for things such as electronics, video games & small kitchen appliances, back-to-school shopping saw a massive uptick.  Spending on back-to-school supplies such as backpacks, lunchboxes & stationery jumped 210% yesterday compared with daily sales levels throughout the prior month.  Spending on kids' apparel was up 159%.  Spending on electronics was up 33%, video game spending was up 134% & small kitchen appliance spending jumped up 82%.  Adobe had previously projected that spending online throughout the 2-day sales event would grow 10.5% annually to a record $14B.  E-commerce has already had a strong year, with consumers spending more than $502B online in the first 6 months of the year.  Between Jul & the end of Sep, Adobe is projecting that consumers will spend $229B online, up 7.2% year over year.  "Steep discounting has been the story of e-commerce so far this year, as consumers look to get the most value out of their dollar," Adobe Digital Insights lead analyst Vivek Pandya said.  Surprisingly AMZN stock dropped 5.09.

Amazon Prime Day drives $7.2B in spending on first day of sales event

Spirit Airlines (SAVE) said it would post a wider-than-expected loss for the last qtr because of revenue that came in short of its expectations.  Spirit expects to report an adjusted loss of $160-173M for the 3 months ended Jun 30, compared with a previous estimate for a loss of no more than $145M.  It expects sales of $1.28B, down from a forecast of at least $1.32B.  Non-ticket revenue, which accounts for the myriad fees long associated with its rock-bottom fares, came in “several dollars lower than anticipated” per passenger.  “As the Company progresses on its transformation strategy, it anticipates that over time it will be able to drive improvement in total revenue per passenger segment,” SAVE said.  The company is facing several challenges, such as oversupplied US domestic market, an engine recall from supplier Pratt & Whitney that has grounded dozens of aircraft & the fallout of a federal judge's ruling to block a planned acquisition by JetBlue Airways (JBLU) earlier this year.“  As the Company progresses on its transformation strategy, it anticipates that over time it will be able to drive improvement in total revenue per passenger segment,” SAVE said.  SAVE stock dropped 34¢ (11%).

Spirit forecasts wider quarterly loss as revenue falls short of expectations

US economic activity expanded at a slight to modest pace from late May thru early Jul & firms reported some signs that the jobs market continues to soften, underscoring the Federal Reserve's recent pivot to more keenly assessing slowing demand for labor to ensure it doesn't wait too long before cutting interest rates.  The central bank's latest temperature check on the health of the economy also showed that inflation pressures increased at a modest pace.  "Economic activity maintained a slight to modest pace of growth in a majority of Districts this reporting cycle," the Fed said in its survey, which polled business contacts across the central bank's 12 districts thru July 8.  "While seven Districts reported some level of increase in activity, five noted flat or declining activity - three more than in the prior reporting period."  The analysis, released roughly every 6 weeks, comes as Fed Chair Jerome Powell and his colleagues have emphasized that risks on inflation & jobs are now in balance.  Earlier today 2 top Fed officials said interest rate cuts are "getting closer," remarks that appear to set the stage for a lowering of borrowing costs in Sep.

More US Fed districts see pullback in economic activity in recent weeks, Fed survey shows

Gold prices notched up to an all-time high, as growing optimism for an interest-rate cut from the Federal Reserve in Sep & a weaker $ boosted demand.  Spot gold dropped about 0.6% to $2454 per ounce due to profit-taking after hitting an all-time high of $2482 earlier in the session.  US gold futures settled 0.3% lower to $2459 per ounce.  Expectations that the Fed is getting closer to an interest rate cut & as yields continue to slowly grind lower in anticipation, that, along with a weaker $, are the main supportive factors behind this gold move.  More Fed policymakers have suggested they are getting increasingly comfortable that the pace of price increases is more firmly on track, back down to the Fed's goal, after higher-than-expected readings earlier in the year.

Gold Extends Record Rally on Fed Rate-Cut Bets, Softer Dollar

West Texas Intermediate (WTI) crude oil closed higher after a report showed US inventories fell again last week amid strong summer demand while the $ fell to a 4-month low.  WTI crude oil for Aug closed up $2.09 to settle at $82.85 per barrel, while Sep Brent crude, the global benchmark, was last seen up $1.25 to $84.98.  In its weekly survey, the Energy Information Administration reported US oil inventories fell by 4.9M barrels last week, well above the estimate for a drop of 3K barrels.  Gasoline & distillate inventories rose by 3.3M & 3.5 M barrels, respectively.  The inventory drop may assuage traders who pushed oil to the lowest in more than 3 weeks yesterday as concerns over weak demand, particularly from China, the #1 oil importer.  China's ruling Communist Party is staging its Third Plenum this week to craft stimulus measures.  A weaker $ is also aiding prices, with the ICE dollar index last seen down 0.52 points to 103.75, the lowest since Mar 20 on expectations the Federal Reserve will begin cutting interest rates in Sep.

WTI Rises on Falling U.S. Inventories and Weakening Dollar

As shown above, Dow is roughly up a staggering 2K in Jul.  That qualifies as an eye popping advance.  But already the advance decline ratio is negative, more stocks are losers than gainers.  The market is heavily overbought & should take a breather to let investors digest this rally.

Markets hesitate while Nasdaq stocks are heavily sold

Dow rose 104, decliners over advancers about 5-4 & NAZ sank 446.  The MLP index inched higher in the 296s & the REIT index was up another 4+ to the 405s.  Junk bond funds fluctuated following recent strength & Treasuries had limited selling allowing yields to edge higher (more below).  Oil rebounded 1+ to the 82s & gold inched up 1 to 2479 after yesterday's dramatic gain.

Dow Jones Industrials 

Federal Reserve Governor Christopher Waller suggested that interest rate cuts are ahead soon as long as there are no major surprises on inflation & employment.  “I believe current data are consistent with achieving a soft landing, and I will be looking for data over the next couple months to buttress this view,” Waller said.  “So, while I don’t believe we have reached our final destination, I do believe we are getting closer to the time when a cut in the policy rate is warranted.”  Keeping with statements from other policymakers, Waller's sentiments point to an unlikelihood of a rate cut when the Federal Open Market Committee meets later this month, but a stronger likelihood of a move in Sep.  Central bankers have become more optimistic from data in recent months that has shown inflation easing after a surprisingly higher move for the first 3 months in 2024.  Waller outlined 3 potential scenarios in the days ahead: One, in which the inflation data turns even more positive & justifies a rate cut in “the not too distant future”; a 2nd in which the data fluctuates but still points toward moderation; & a 3rd in which inflation turns higher & forces the Fed into a tighter policy stance.  Of the 3, he considers the 3rd scenario of unexpectedly stronger inflation as the least likely.  “Given that I believe the first two scenarios have the highest probability of occurring, I believe the time to lower the policy rate is drawing closer,” Waller said.  His comments are of particular note because he has been among the more hawkish FOMC members this year, or those who have advocated for tighter monetary policy as fears escalated that inflation is proving more durable than expected.  In May, Waller said that he expected cuts to be “several months away” as he awaited more convincing data that inflation was receding. This speech indicated that the threshold is close to being met.  For 1, he said the labor market “is in a sweet spot” in which payrolls are expanding while wage gains are cooling.  At the same time, the consumer price index declined 0.1% in Jun, while the 3.3% annual rate for core prices was the lowest since Apr 2021.  “After disappointing data to begin 2024, we now have a couple of months of data that I view as being more consistent with the steady progress we saw last year in reducing inflation, and also consistent with the FOMC’s price stability goal,” he said.  “The evidence is mounting that the first quarter inflation data may have been an aberration and that the effects of tighter monetary policy have corralled high inflation.”

Fed Governor Waller sees central bank ‘getting closer’ to an interest rate cut

Treasury yields were little changed today as investors considered the state of the economy & outlook for interest rates.  The yield on the 10-year Treasury rose by less than 1 basis point at 4.17% & the yield on the 2-year Treasury was last at 4.46% after adding just over 1 basis point.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Investors considered economic data & comments from Federal Reserve officials slated for the week after central bank Chair Jerome Powell earlier this week said interest rates would likely be cut before inflation reaches 2%.  Waiting until the Fed's 2% target rate has been reached would likely be too late & could see inflation fall below this level, he said.  But Powell also noted the Fed was still looking for greater confidence that inflation is indeed on its way back to the central bank's target.  The latest reason for optimism came today, after Fed Governor Christopher Waller's comments (read above).  One more set of inflation data, the personal consumption expenditures price index, is due before the Fed meets at the end of the month, when investors are hoping to get hints that rate cuts could begin in the coming months.  Fed funds futures trading implies a 100% likelihood the Federal Reserve will lower rates in Sep, according to the CME FedWatch tool.

Treasury yields hold steady as investors weigh state of economy

Mortgage rates dropped to the lowest level since Mar last week, sparking swift demand in refinancing.  Homebuyers, however, seemed unimpressed.  Applications to refinance a home loan jumped 15% last week, compared with the previous week, to the highest level since Aug 2022, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index.  Demand was 37% higher than the same week 1 year ago when mortgage rates were exactly the same.  While the increase last week was large, it is coming off a very small base.  Refinance demand is still more than 70% lower than it was in early 2020, before the Covid-19 pandemic hit.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766K or less) decreased to 6.87% from 7.00%, with points dropping to 0.57 from 0.60 (including the origination fee) for loans with a 20% down payment.  “Mortgage rates declined last week, as recent signs of cooling inflation and the increased likelihood of Fed rate cuts later this year pulled them lower,” said Joel Kan, MBA’s VP & deputy chief economist.  Applications for a mortgage to purchase a home fell 3% for the week & were 14% lower than the same week 1 year ago.  Buyers today are facing a lean & pricey market, & now, with the expectation that rates could drop even more, they may be waiting on the sidelines for a better opportunity.  More supply is slowly coming onto the market & sellers are starting to reduce prices, especially for homes that have been sitting on the market for a while.

Mortgage refinance demand jumps to a 2-year high, as interest rates drop

After a spectacular for the Dow to new heights, the stock market needs to take a pause.  A lot is riding on rate cuts starting shortly.  Investors are increasingly confident that the global economy is headed for a soft landing, where inflation falls toward the Federal Reserve's target.  But continued high interest rates could send the economy into a serious slowdown.  Alternative narratives need to be evaluated.

Tuesday, July 16, 2024

Markets zoom while gold is at a record and tech stocks are ignored

Dow surged 742 to almost 41K & another record, advancers over decliners 4-1 & NAZ went up only 36.  The MLP index added 1+ to the 295s & the REIT index added 4+ to go over 400.  Junk bond funds rose along with the overall stock market & Treasuries had significant buying which lowered yields.  Oil dropped 1+ to go below 81 & gold rocketed ahead 41 to a new record at 2570 (more on both below).

Dow Jones Industrials 

The Intl Monetary Fund warned that upside risks to inflation have increased, calling into question the prospect of multiple Federal Reserve interest rate cuts this year.  In its latest World Economic Outlook update, the IMF said “the momentum on global disinflation is slowing, signaling bumps along the path.”  The rise in sequential inflation in the US earlier in 2024 has put it behind other major economies in the quantitative easing path, the report said.  The report comes as traders ramp up bets for a Fed rate cut in Sep.  Per the CME Group's FedWatch tool, Wall Street has priced in a 100% chance of lower rates at the Sep 18 meeting.  Traders also expect another rate decrease in Nov.  However, IMF chief economist Pierre-Olivier Gourinchas said that 1 rate cut from the Fed is most appropriate this year, highlighting still-stubborn services & wage inflation as complications to the path on lower inflation.  Gourinchas said that, while the robust wages & service inflation are “not necessarily a source of worry,” they are points of concern ahead for the US economy.  His comments came after the Labor Dept said the consumer price index grew last month at its slowest year-over-year pace since Apr 2021.  Despite the encouraging CPI report, Gourinchas stated the uptick in inflation earlier in the year indicates that the path toward lower inflation & rate cuts “could take a little bit longer than maybe the markets are expecting.”  “We’re more in the camp that there could be some cuts in the latter part of the year but maybe just one, or 2024 and maybe the rest of 2025,” Gourinchas added.  Across advanced economies globally, the IMF forecasts the rate of disinflation to slow in 2024 & 2025 on account of broadly high services inflation & commodity prices.  With regard to the US economy, the financial institution lowered its growth outlook by 0.1 percentage point to 2.6% in 2024 on cooling consumption & slower-than-expected growth at the start of the year.

IMF sees ‘bumps’ in path to lower inflation

General Motors' (GM) goal of being capable of producing 1M all-electric vehicles in North America by the end of 2025 in heavily in doubt, following comments from CEO Mary Barra.  The production capacity target for next year was 1 of the last EV targets the automaker hadn't lowered or withdrawn as demand for EVs has not materialized as quickly as many companies such as GM previously expected.  “We won’t get to a million just because the market is not developing, but it will get there,” Barra said.  “We’re going to be guided by the customer.”  For more than 2 years, GM has said it would have production capacity of 1M in EVs in each China & North America by 2025.  Even after it changed or withdrew several EV targets & product plans in the last year, the company continued to say it would install the North American capacity for EVs.  A GM spokesman said the company's target was about the production capacity, while the question was regarding actually producing 1M EVs in 2025.  Barra did not specifcally address whether it was production or production capacity that she was referring to.  The spokesman later said the company would no longer reiterate the EV production capacity plans for 2025.  The company has continually said its EV plans will be flexible to meet demand.  The stock went up 60¢.

GM’s 2025 EV production capacity target in doubt after Barra comments

Morgan Stanley's (MS) profit rose in the 2nd qtr as investment banking activity rebounded on strength in equity & debt underwriting.  The segment's revenue increased to $6.8B in the qtr from $6.7B a year earlier, roughly in line with expectations.  Net new assets in the qtr came in at $36B.  EPS however rose to $1.82, in the 3 months ended Jun 30.  That compares with $1.24 a year earlier.  "The firm delivered another strong quarter in an improving capital markets environment," said CEO Ted Pick.  A rosier economic outlook, expectations of US interest rate cuts & surging equity markets have spurred buyouts, debt sales & stock offerings after a nearly 2-year dry spell for Wall Street.  Global investment banking revenues jumped 17% in the first ½ to $41.6B & investment banking revenue surged 51% to $1.62B in the 2nd qtr.  Within the business, equity underwriting revenue jumped 56% to $352M, while fixed income underwriting surged 71% to $675M.  Advisory revenues also climbed 30% to $592M.  The institutional securities unit reported revenues of $7B in the 2nd qtr, up from $5.7B a year earlier.  Total revenue jumped nearly 12% to about $15B in the qtr.  The stock 1.59.

Morgan Stanley's profit jumps as investment banking recovers

Gold jumped to a record as rising expectations of a Sep interest rate cut bolstered demand for bullion.  Gold futures advanced 1.7% to $2471, topping the previous high of $2454 reached May 20.  Spot gold jumped 1.8% to $2465 during the session, which is an all-time high.  Gold prices hit all-time highs earlier this year before pulling back as the prospect of higher-for-longer interest rates dampened investor enthusiasm for the precious metal.  But interest in the asset has grown after Jun's softer inflation data & some recently dovish comments from Federal Reserve Chair Jerome Powell combined to raise the odds of rate cuts coming this year.  Markets are pricing in 100% odds of a rate cut in Sep now, according to futures trading tracked by the CME FedWatch tool.  A weakening $ has also supported demand for bullion.  Yesterday, the greenback rebounded after falling to a 5-week low.

Gold Jumps to Record Above $2,460 an Ounce on Hopes Fed Will Soon Cut Rates

Oil fell the most in more than 3 weeks as traders eyed a stronger $ & signs of weaker demand, which have triggered algorithmic selling.  West Texas Intermediate (WTI) dropped 1.4% to settle below $81 a barrel.  The $ strengthened for a 2nd day, making commodities priced into the currency more expensive.  WTI futures have been testing their 100-day moving average, which has served as a support level for a month.  In another sign of short-term cooling, key timespreads have softened in recent days.  Premiums of gasoline over crude fell to the lowest in almost a month.  Though still higher for the year, oil has largely swung between $75-95 as OPEC+ supply cuts vie with a cautious outlook for Chinese consumption.  WTI for Aug fell $1.15 to settle at $80.76 a barrel & Brent for Sep fell $1.12 to settle at $83.73 a barrel.

Oil Retreats Most in 3 Weeks on Stronger Dollar and Weak Demand

Investors assessed another batch of big bank earnings & fresh retail data amid growing conviction of a rate cut.  YTD Dow is up more than 3200.  At the same time, tech stocks were left on the sideline as their rally has come to a halt.  And the gold bugs are very happy, taking gold to a new record.  This euphoria is based on slower growth for the economy which is generally not welcomed by investors!  Time will tell.

Markets soar as traders see a Fed rate cut by September at 100%

Dow surged 608, advancers over decliners 4-1 & NAZ crawled up 6.  The MLP index was up 1+ to the 296s & the REIT index went up 2 to the 398s, helped by talk of lower interest rates.  Junk bond funds continued to be in demand & Treasuries were purchased, reducing yields a little.  Oil slid back almost 1 to 82 & gold soared 30 to 2459 for a new record.

Dow Jones Industrials 

US retail sales were unchanged in Jun & the underlying trend was strong, which could boost economic growth estimates for the 2nd qtr.  The flat reading in retail sales last month followed an upwardly revised 0.3% gain in May, the Commerce Dept's Census Bureau said.  The forecast for retail sales, which are mostly goods & are not adjusted for inflation, falling 0.3% after a previously reported 0.1% gain in May.  Still, the outlook for sales is unfavorable.  Households are becoming more price sensitive & focusing on basic needs, evident in earnings reports from major retailers & manufacturers.  PepsiCo (PEP) CEO Ramon Laguarta said last week lower-income consumers were "stretched" & "strategizing a lot to make their budgets get to the end of the month."  Most households have run down the excess savings accumulated during the COVID-19 pandemic & are carrying a lot of credit card debt, which is becoming more expensive as interest rates remain elevated.  Wage growth is also moderating as the labor market cools.  Nonetheless, the pace of consumer spending remains sufficient to keep the economic expansion on track.  Retail sales excluding automobiles, gasoline, building materials & food services surged 0.9% last month after rising 0.4% in May.  These core retail sales correspond most closely with the consumer spending component of gross domestic product.  Growth estimates for the Apr-Jun qtr were around a 2% rate before the retail sales data. The economy grew at a 1.4% rate in the first qtr.

US retail sales unchanged in June, beating forecasts for slight drop

Traders are now 100% certain the Federal Reserve will cut interest rates by Sep.  There are now 93.3% odds that the Fed's target range for the federal funds rate, its key rate, will be lowered by a qtr percentage point to 5.00-5.25% in Sep from the current 5.25-5.50%, according to the CME FedWatch tool.  And there are 6.7% odds that the rate will be a ½ percentage point lower in Sep, accounting for some traders believing the Fed will cut at its meeting at the end of Jul & again in Sep, says the tool.  Taken together, you get the 100% odds.  The catalyst for the change in odds was the consumer price index update for Jun last week, which showed a 0.1% decrease from the prior month.  That put the annual inflation rate at 3%, the lowest in 3 years.  Odds that rates would be cut in Sep were about 70% a month ago.  The CME FedWatch Tool computes the probabilities based on trading in fed funds futures contracts at the exchange, where traders are placing their bets on the level of the effective fed funds rate in 30-day increments.   Simply put, this is a reflection of where traders are putting their money.  Actual real life probability of rates remaining where they are today in Sep are not zero %, but what this means is that no traders out there are willing to put actual money on the line to bet on that.  Fed Chair Jerome Powell's recent hints have also cemented traders' belief that the central bank will act by Sep.  Yesterday, Powell said the Fed wouldn't wait for inflation to get all the way to its 2% target rate before it began cutting, because of the lag effects of tightening.  The Fed is looking for “greater confidence” that inflation will return to 2% level, he said.  “What increases that confidence in that is more good inflation data, and lately here we have been getting some of that,” added Powell.  The Fed next decides on interest rates on Jul 31 & again on Sep 18.  It doesn't meet on rates in Aug.

Traders see the odds of a Fed rate cut by September at 100%

Bank of America's (BAC) 2nd-qtr profit fell as income from interest on loans shrank & provisions for potential credit losses jumped, but a better-than-expected forecast for net interest income sent the bank's shares higher.  Banks are shelling out more on deposits as interest rates are at their highest since 2007, which have boosted returns on bonds, making alternatives such as money market funds more attractive.  The cost of preventing a deposit outflow has eroded banks' gains from the rising interest they are charging borrowers.  Net interest income (NII), the difference between what banks earn on loans and pay out on deposits, fell 3% to $13.7B in the 2nd qtr.  Provisions for credit losses rose to $1.5B from $1.1B a year earlier.  "The strength and earnings power of our leading consumer banking business is complemented by the growth and profitability of our global markets, global banking, and wealth management businesses," CEO Brian Moynihan said.  The 2nd biggest US lender's EPS was 83¢ in the qtr ended Jun 30, compared with 88¢ a year earlier.  The bank expects $14.5B in 4th-qtr NII, above estimates of $14.4B, partly due to headwinds from the repricing of mortgage & auto loans.  BAC's underwriting income jumped 32% in the 2nd qtr of 2024, while fees from syndication surged 77%.  The stock rose 1.92.

Bank of America profit drops on lower interest income, outlook lifts shares

Money is rotating out of tech stocks into the overall stock market.  However it is heavily overbought, an issue that is affecting tech stocks presently.  And nervous investors keep buying gold & Treasuries.

Monday, July 15, 2024

Markets struggle with limited gains while gold hovers near its record

Dow finished up 210 to a new record (but off session highs), advancers over decliners 3-2 & NAZ climbed 74.  The MLP index gained 2+ to the 294s & the REIT index went up 1+ to 296.  Junk bond funds were in demand & Treasuries continued to see selling which raised yields.  Oil was off chump change, finishing below 82, & gold was up 5 to 2428 (more on both below).

Dow Jones Industrials 

Federal Reserve Chair Jerome Powell said that the central bank will not wait until inflation hits 2% to cut interest rates.  Speaking in DC, Powell referenced the idea that central bank policy works with “long and variable lags” to explain why the Fed wouldn't wait for its target to be hit.  “The implication of that is that if you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%,” Powell added.  Instead, the Fed is looking for “greater confidence” that inflation will return to the 2% level, Powell continued.  “What increases that confidence in that is more good inflation data, and lately here we have been getting some of that,” he said.  Powell also said he thinks a “hard landing” for the US economy was not “a likely scenario.”  This was Powell's first public speaking appearance since the consumer price index report for Jun showed cooling inflation, with prices actually falling month over month. Powell said at the beginning of his appearance that he was not intending to make any signals about when the Fed might start to cut interest rates.  The central bank’s next policy meeting is at the end of Jul.  “People I don’t know will always say, ‘hey, cut rates.’ Somebody said that in the elevator this morning,” Powell said jokingly.

Powell indicates Fed won’t wait until inflation is down to 2% to cut rates

Stop & Shop is shuttering more than 30 underperforming locations throughout the Northeast by early Nov to try to ensure viability.  "Stop & Shop has evaluated its overall store portfolio and made the difficult decision to close underperforming stores to create a healthy base for the future growth of our brand," Stop & Shop Pres Gordon Reid said.  All 32 impacted locations will close either on or before Nov 2, the company announced.  In May, the grocery chain first announced its plans to close underperforming stores, though the company said that even with the closures it would still "hold a strong market share position in the Northeast."  After the closures, the company will operate more than 350 stores in 5 states, including 115 stores in Massachusetts, 91 in New York, 81 in Connecticut, 47 in New Jersey & 25 in Rhode Island.

Stop & Shop closing 32 underperforming locations

Tesla (TSLA) CEO Elon Musk signaled the automaker would take more time to unveil its robotaxi so it can incorporate an important design change to the front of the vehicle and "show off" some other things.  Musk did not disclose when the automaker would hold an event to launch its robotaxi.  A report last week said that the event, originally set to be held on Aug 8, had been delayed to Oct.  "Requested what I think is an important design change to the front, and extra time allows us to show off a few other things," Musk said on his X social media platform in a reply to a user post discussing the event.  A person familiar with the matter said the robotaxi event has been delayed.  With the road to developing robotaxis & autonomous driving systems facing several engineering & regulatory hurdles, analysts & TSLA investors have noted that a delay in the robotaxi launch would not be a surprise.  Musk had announced the Aug unveiling day after a report on Apr 5 said that TSLA had canceled its long-promised inexpensive car & would continue developing self-driving robotaxis on the same small-vehicle platform.  Musk had said in 2022 TSLA expects to mass-produce a robotaxi with no steering wheel or pedal by 2024, after missing his targets for self-driving vehicles multiple times.  TSLA stock rose 4.41.

Musk says he requested extra time for design change to robotaxi

Gold prices gained, hovering near a more than 1-month high hit last week, aided by hopes for interest rate cuts from the Federal Reserve as traders await for more comments from Fed officials to gauge the timing of those cuts.  Spot gold rose nearly 0.5% at $2422 per ounce.  US gold futures were up 0.2% at $2427 & spot gold prices hit a record high of $2449 per ounce on May 20.  The path for both gold prices is going to continue to be sideways to higher.  Weaker-than-expected GDP data from major gold consumer China might be limiting buying interest in the gold market today.  China’s economy grew 4.7% in Apr-Jun, official data showed, missing the forecast of 5.1% growth.  The $ held steady, while long-dated US bond yields rose, as investors weighed whether the assassination attempt on Trump increased his chances of victory.

Gold Hovers Near One-Month Peak as Fed Cut Rate Hopes Lend Support

West Texas Intermediate (WTI) crude oil closed lower in choppy trade with traders wary of increasing political risk following the weekend assassination attempt on Donald Trump.  Weaker than expected 2nd-qtr GDP growth in China also weighed on oil.  WTI crude was closed down 30¢ to settle at $81.91 per barrel, while Sep Brent crude, the global benchmark, was last seen down 11¢ to $84.92.  No consensus has yet emerged on the effects for markets following the attempt on Trump's life at a Sat rally, with oil repeatedly swinging under & above Fri's close.  China, the #1 oil importer, reported 2nd-qtr GDP growth of 4.7%, the lowest in more than a year & well under the estimate for a 5.1% rise.  The weak result comes as the country's ruling Communist Party stages its Third Plenum to come up with solutions to improve an economy beset by slowing consumer demand, a debt crisis in its real-estate sector & high youth unemployment.

WTI Oil Edges Down Following Assassination Attempt on Trump, Weak China GDP Data

Trading was choppy in an unconvincing rally.  Dow is in record territory but the rally in tech stocks & the overall stock market look to be tired.  Comments from Fed officials this week may help.

Markets rise after Trump survives assassination attempt

Dow climbed 335, advancers over decliners 2-1 & NAZ gained 234.  The MLP index added 1+ to the 293s & the REIT index was up another 2 to 396 following recent strength.  Junk bond funds rose along with the stock market & Treasuries had limited selling, raising yields slightly (more below).  Oil was off pennies to 82 on weak China data & gold was 17 to 2438 (just below its record).

Dow Jones Industrials

The 10-year Treasury yield advanced as investors weighed the effect of the assassination attempt on former Pres Donald Trump.  Traders also looked ahead to comments from Federal Reserve officials including Chair Jerome Powell.  The yield on the 10-year Treasury climbed more than 4 basis points to 4.23% & the 2-year Treasury yield was little changed at 4.57%.  Yields & prices have an inverted relationship & 1 basis point equals 0.01%.  Traders considered the effect of the assassination attempt on Trump on markets & the economy ahead of the Nov election.  Investors will often buy Treasuries during geopolitical tumult, but they appeared to not be doing so today with bond prices mostly lower & yields higher.  Investors are looking ahead to a series of remarks from Federal Reserve officials slated for the week.  Powell will speaks at the Economic Club today.  Many are hoping that the remarks will provide fresh hints about the path ahead for interest rates & when the first interest rate cut could happen.  This comes after last week's inflation data, which saw the consumer price index (CPI) unexpectedly decline, while the producer price index came in hotter than expected.  Investors also looked ahead to a series of remarks from Federal Reserve officials slated for the week.

10-year Treasury yield rises ahead of Powell comments

Department store Macy's (M) said its board has unanimously decided to end negotiations with the activist group that had been looking to take the retailer private for roughly $6.9B, saying that questions on financing & premium were insurmountable.  “We have concluded that Arkhouse and Brigade’s proposal lacks certainty of financing and does not deliver compelling value,” Macy's lead independent director Paul Varga said.  Arkhouse & Brigade had for months been attempting to buy out the storied retailer.  Earlier this month, the bidders increased their offer to $24.80 per share, the latest in a series of price hikes since they first launched their takeover effort last year.  Macy's said the company had gone “well beyond what is customarily required” in a due diligence period, offering the bidder group store-by-store profit & loss information & leases for each location.  The company also noted that Arkhouse & Brigade had been allowed to share that confidential information with more than a dozen “credible financing sources.”  For the fiscal year, Macy's expects net sales of $22.3-22.9B, which would be a drop from $23.09B in 2023.  It expects comparable sales, which take out the impact of store openings & closures, to decline from about 1% to a gain of 1.5% on an owned-plus-licensed basis & including 3rd-party marketplace sales.  The stock fell 2.46 (13%).

Macy’s ends buyout talks with Arkhouse and Brigade after months of negotiations

China's National Bureau of Statistics said the country's 2nd-qtr GDP rose by 4.7% year on year, missing expectations of a 5.1% growth.  Jun retail sales also missed estimates, rising 2% compared with the 3.3% growth forecast.  “We estimate that discretionary retail spending fell at the sharpest sequential pace since the April 2022 Shanghai lockdowns,” Oxford Economics Lead Economist Louise Loo said.  The firm now pegs China's 2024 GDP growth at 4.8%, higher than the 4.4% it estimated in Dec 2023 for the year ahead.  Industrial production year-on-year growth in Jun, however, beat expectations at 5.3%, compared an estimate of 5%.  High-tech manufacturing saw an 8.8% increase in value added in Jun.  Urban fixed asset investment for the first 6 months of the year rose by 3.9%, meeting expectations.  Investment in infrastructure & manufacturing slowed on a YTD basis in Jun versus May, while real estate investment declined at the same 10.1% rate.  Housing-related wealth in China rose by 2.2% in 2023, down sharply from the 13% average annual pace in 2016-2021, Oxford Economics said.  “We must work harder to invigorate the market and stimulate the internal impetus,” the bureau said.  It also called for efforts to “consolidate and enhance the momentum for economic recovery and growth, so as to ensure the sustained and sound development of the economy.”  The urban unemployment rate in Jun was unchanged from the prior month at 5%.  The jobless rate for people ages 16-24 who are not in school typically comes out a few days after the overall figure.  The latest data available showed the youth unemployment rate remained high, at 14.2% in May.  For the first ½ of the year, average per capita disposable income for city residents was 27,561 yuan ($3801), a nominal growth of 4.6% from a year ago.  Rural disposable income grew at a faster rate, up 6.8% in nominal terms, but at 11,272 yuan, it was less than ½ that of urban residents.

China reports second-quarter GDP growth of 4.7%, missing expectations

Business leaders around the US are reacting with shock, sorrow & prayers to the attempted assassination of former Pres Trump during a campaign rally Sat.  Traders considered the effect of the assassination attempt on Trump on markets & the economy ahead of the Nov election.  Investors will often buy Treasuries during geopolitical tumult, but they appeared to not be doing today with bond prices mostly lower & yields higher.  There has been little commentary from economists on the shooting.  The stock market took deeper hold, with Trump galvanizing supporters & drawing sympathy by exhibiting defiant resilience after being shot in the ear on stage at a Pennsylvania rally.

Friday, July 12, 2024

Markets rally taking the Dow to a new record

Dow shot up 247 to a record high but profit taking into the close trimmed its highs above 40K, advancers over decliners better than 3-1 & NAZ jumped 115.  The MLP index crawled higher in the 281s & the REIT index gained another 4+ to the 395s after yesterday's rally.  Junk bond funds remained in demand & Treasuries stayed near even so yields barely changed.  Oil slid back chump change in the 82s & gold was off 3 to 2418 (more on both below).

Dow Jones Industrials 

Citigroup (C) posted 2nd-qtr results that topped expectations for profit & revenue on a rebound in investment activities.  EPS jumped 10% from a year earlier to $1.52 & revenue rose 4% to $20.14B.  Equities trading revenue rose 37% to $1.5B, driven by strength in derivatives & a rise in hedge fund balances, roughly $300M more than the estimate.  “Our results show the progress we are making in executing our strategy and the benefit of our diversified business model,” CEO Jane Fraser said.  “Markets had a strong finish to the quarter leading to better performance than we had anticipated.” Citi was just this week rebuked  for failing to fix its regulatory shortfalls, so analysts will be keen to ask Fraser about her long-running efforts to address the issue.  Last year, Fraser announced plans to simplify the management structure & reduce costs at the 3rd-biggest US bank by assets.  But earnings will take a backseat if Citi cannot appease regulators concerns about its data & risk management.  The stock fell 1.18.

Citigroup tops expectations for profit and revenue on strong Wall Street results

Wells Fargo (WFC) reported a 9% decline in net interest income, even though its 2nd-qtr earnings & revenue exceeded expectations.  WFC recorded $11.9B in net interest income, a key measure of what a bank makes on lending, marking a 9% year-over-year decline.  That was below the $12.1B expected.  The bank said the drop was due to the impact of higher interest rates on funding costs.  “We continued to see growth in our fee-based revenue offsetting an expected decline in net interest income,” CEO Charlie Scharf said.  “The investments we have been making allowed us to take advantage of the market activity in the quarter with strong performance in investment advisory, trading, and investment banking fees.”  Net income dipped to $4.91B ($1.33 per share) in the 2nd qtr, from $4.94B ($1.25 per share) during the same qtr a year ago.  The bank set aside $1.24B as provision for credit losses, which included a modest decrease in the allowance for those losses.  Revenue rose to $20.7B in the qtr.  The bank repurchased more than $12B of common stock during the first ½ of 2024 & it expects to increase the 3rd-qtr div by 14%.  The stock fell 3.59.

Wells Fargo shares tumble after net interest income falls short of estimates

Hackers stole 6 months’ worth of call & text message records of nearly every AT&T (T) cellular network customer, the company said, a breach that has the potential to reveal sensitive information about Ms of Americans.  The company said in an SEC filing that it learned from an internal investigation that in Apr, hackers “unlawfully accessed and copied AT&T call logs” that were saved on a 3rd-party cloud platform.  The data contains records of calls & texts between approximately May 1 & Oct 31, 2022, & on Jan 2, 2023.  The content of the calls and messages was not compromised & customers' personal information was not accessed, but the records did include phone numbers.  Such information is often called metadata, which is information about communications, & considered highly sensitive especially when collected & analyzed at large scales to reveal patterns & connections between people.  AT&T wireless network has 127M devices connected to it.  “While the data does not include customer names, there are often ways, using publicly available online tools, to find the name associated with a specific telephone number,” the company said.  The Justice Dept & the FBI each said it is working with AT&T to investigate the hack.  The FCC also said it had launched an investigation into the breach.  AT&T said it has “taken additional cybersecurity measures in response to this incident including closing off the point of unlawful access.” Customers affected by the hack will be contacted.  The stock slid back 4¢.

AT&T says hackers stole records of nearly all cellular customers’ calls and texts

Gold is holding above $2400 an ounce as investor expectations mount that the Federal Reserve is moving closer to cutting interest rates.  A flurry of US economic data including the core consumer price index has signaled that US inflation is cooling, which could give Fed Chair Jerome Powell & his colleagues the confidence they’ll need to cut rates.  Activity in the federal funds futures market suggests that bond traders are ramping up bets that the Fed will cut rates by ½ a percentage point in Sep instead of the standard qtr-point increment.  Lower rates tend to favor non-interest bearing gold.  Spot gold edged toward the record high of $2450 an ounce reached in May, reversing earlier declines after the Bureau of Labor Statistics published data on US producer prices.  The precious metal traded at $2417 & the Bloomberg Dollar Spot Index dropped 0.4%.  Bullion has rallied 17% this year despite headwinds including high interest rates & sticky inflation, thanks in part to strong central bank buying, investor demand & the metal's appeal as a haven asset during heightened political risks.

Gold Holds Near Record as Fed' Rate-Cut Optimism Mounts

West Texas Intermediate (WTI) crude oil closed lower after the US reported its Producer Price Index (PPI) rose more than expected last month, countering some of the day-prior optimism spurred by slowing consumer-price inflation.  WTI crude oil for Aug closed down 41¢ to settle at $82.21 per barrel, while Sep Brent crude, the global benchmark, was last seen down 14¢ to $85.26.  The Bureau of Labor Statistics said producer prices rose 0.2% in Jun, unchanged from May & above expectations for a 0.1% monthly rise.  Excluding volatile items, core PPI rose 0.4% from May after being unchanged that month, while expectations called for a 0.2% monthly rise.  The $ rose off overnight lows following the data but failed to regain ground lost yesterday after the Consumer Price Index rose less than expected last month, raising expectations for interest-rate cuts from the Federal Reserve.  The ICE dollar index was last seen down 0.3 points to 104.13.  Still fundamentals appear to be sound for oil, with high summer demand cutting US oil inventories & OPEC+ continuing 2.2M barrels per day of voluntary production cuts.  However weaker demand from China, the #1 importer, is clouding the outlook after the country reported an outsized drop in imports last month.

WTI Oil Closes Lower After a Report Showed U.S. Producer Prices Rose More than Expected in June

Investors are encouraged by improved inflation data & are eager to bid stock prices higher.  As pointed out previously, even with rate reductions they remain high high for months & probably years.  Nervous investors keep buying gold, taking it to new highs.  Last week Dow rose 625 to reach a new record at 40K.

Markets rise as investors digest bank earnings and market rotation

Dow went up 225, advancers over decliners better than 4-1 & NAZ rebounded 203.  The MLP index was fractionally higher to the 292s & the REIT index rose 3+ to 395 following yesterday's rally.  Junk bond funds were in demand & Treasuries barely budged, keeping yields flat (more below).  Oil was higher fractionally to the 83s & gold slid back 6 to 2415 after yesterday's rise.

Dow Jones Industrials 

A measure of wholesale prices rose more than expected in Jun as investors assesses when the Federal Reserve will feel comfortable cutting interest rates.  The producer price index (PPI) rose 0.2% last month, the Labor Dept's Bureau of Labor Statistics reported.  The forecast was expecting a 0.1% increase for the index.  The PPI is now up 2.6% over the past year.  The PPI is a gauge of prices that producers can get for their goods & services in the open market.  In Jun, an increase in the price for services offset a decline for goods.  The reading is an increase from the May number, which was also revised higher.  Today's report said that the index was unchanged in May as compared with a decline of 0.2% in the original release.  The hotter-than-expected PPI reading runs counter to recent data that shows inflation declining, though economists & investors tend to put more weight on the consumer-focused inflation readings.  This report comes shortly after the Jun consumer price index came in cooler than expected yesterday.  The CPI actually showed that headline inflation declined on a monthly basis & now sits at 3% year over year.  The central bank's next policy meeting is at the end of Jul, where it is widely expected to hold rates steady.  Traders have increasingly dialed in on the Sep meeting as the likely time for the first rate cut.  The Fed's preferred inflation reading is the personal consumption expenditure price index & the Jun PCE data is slated for release on Jul 26.

Wholesale prices rose 0.2% in June, slightly hotter than expected

Treasury yields were a bit higher on a slightly hotter reading of wholesale inflation, but still headed for a big decline on the week following a drop in the Jun consumer price index.  The yield on the 10-year Treasury was up by more than 2 basis points to 4.21% & the 10-year yield ended last week at 4.28%.  Meanwhile, the 2-year Treasury yield was last less than 1 basis points higher at 4.498%.  Yields & prices have an inverted relationship & 1 basis point equals 0.01%.  The producer price index data reflected a slightly hotter-than-expected 0.2% increase in wholesale prices in Jun.  Yields remained slightly higher on the report.  Treasury yields had tumbled yesterday, with the 10-year Treasury yield falling by more than 7 basis points & the yield on the 2-year Treasury tumbling by over 11 basis points.  That came after the Jun consumer price index unexpectedly reflected a 0.1% decline from the previous month, & came in at 3% in an annual basis, which was its lowest level in over 3 years.  The forecast called for the inflation measure to show a 0.1% rise from May & a 3.1% increase from a year earlier.  Core CPI, which excludes food & energy prices, rose 0.1% on a monthly basis & 3.3% from a year earlier & those increases were also slightly lower than forecast.  Investors have been hoping for data to suggest that inflation is on its way back to the Federal Reserve's 2% target range, as this could mean interest rate cuts are on the horizon.  Expectations for the Fed easing monetary policy as soon as Sep jumped following the CPI data release, with traders last pricing in an over 90% chance rates being cut then, according to CME Group's FedWatch tool.

Treasury yields tick higher on a slightly hotter wholesale inflation reading

JPMorgan Chase (JPM), a Dow stock, posted 2nd-qtr profit & revenue that topped expectations as investment banking fees surged 52% from a year earlier.  Earnings jumped 25% from the year-earlier period to $6.12 per share.  Excluding items related to the bank's stake in Visa, EPS was $4.26.  Revenue rose 20% to $51B, topping the estimate, helped by better-than-expected investment banking fees & equities trading results.  CEO Jamie Dimon noted in the release that his firm was wary of potential future risks, including higher-than-expected inflation & interest rates, even while stock & bond valuations currently “reflect a rather benign economic outlook.”  “The geopolitical situation remains complex and potentially the most dangerous since World War II — though its outcome and effect on the global economy remain unknown,” Dimon said.  “There has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world.”  A rebound in stock trading activity, especially on the advisory side, was expected to aid banks this qtr, & JPM's results bear that out.  The stock fell 4.90.

JPMorgan Chase tops second-quarter revenue expectations on strong investment banking

Thoughts of lower interest rates are bringing investors into the stock market.  While inflation has been mild in recent months, that's based on monthly readings which can be volatile.  However prices up are substantially over the last 5 years.  That does not get a lot of attention but it is an important to consumers when they buy goods & services.  Even after a few rate reductions, interest rates & prices will still be at very high levels.  That will be a drag on the economy.