Market Wraps
Watch For:
Chicago Business Barometer-ISM-Chicago Business Survey-Chicago PMI; University of Michigan Final Consumer Survey
Today’s Headlines/Must Reads
– How the U.S. Economy Is Sticking the Soft Landing
– Why the Drivers of Lower Inflation Matter
– Everyday Investors Are Thriving in a World Awash in Yield
– The Benefit of Owning Stocks Over Bonds Keeps Shrinking
Opening Call:
Stock futures were little changed early Monday, holding levels that would secure a fifth consecutive month of gains, helped by optimism over corporate earnings.
Apple, Amazon.com and Starbucks will report earnings this week, offering insights into where consumers are spending their money as inflation eases and interest rates rise.
During the week, 170 S&P 500 companies, including four Dow Jones Industrial Average components, are scheduled to report.
Citi said it was increasing its S&P 500 year-end target for 2023 and 2024 to 4,600 and 5,000 respectively.
“The near-term hurdles we envisioned headed into Q3 are now behind,” Citi said.
“The new targets reflect increased probability of a soft landing in our scenario approach. Related, stronger earnings growth headed into ’24 is an important call out.”
Premarket Movers
Chevron was upgraded to Buy from Neutral at Goldman Sachs, with a price target of $187. The stock rose 1.3%.
Johnson & Johnson was down 1.4% after a bankruptcy judge tossed out the second chapter 11 case that the healthcare giant filed in its ongoing effort to settle tens of thousands of lawsuits it faces from plaintiffs who say they were harmed by the company’s talc products.
Palantir shares gained roughly 5% after the stock rose 10% on Friday, boosted by an analyst note that said it was poised to be a major player in the artificial-intelligence revolution.
Forex:
The dollar’s recovery is likely to extend into August, driven by a potential rise in inflation, Bannockburn Global Forex said.
The recovery is “encouraged by the risk of the first increase in the U.S. year-over-year headline CPI since June 2022, when it peaked slightly over 9%,” it said.
The U.S. economy is looking resilient, and more so than in Europe, which strengthens the case for an interest-rate rise in September.
“We suspect the risk of a September Fed rate hike is greater than the market, which has less than a 20% chance discounted.”
Bonds:
The renewed widening of yield spreads between Treasurys and Bunds should prove to be a temporary phenomenon, LBBW said.
Based on money market forward rates, market players currently rate the probability of another European Central Bank interest-rate rise only moderately higher than the probability of a hike by the Federal Reserve after the summer.
Markets are pricing in about 20% probability of a Fed rate hike in September and 30% probability of a hike by the ECB, according to Refinitiv data.
Energy:
Oil prices edged lower but remained on course for their biggest monthly gain in more than a year, as OPEC+ supply cuts have tightened crude supplies.
“Evidence of cuts to exports from Russia and Saudi Arabia has boosted sentiment in the market,” ANZ said, adding that Russian seaborne exports have dropped to their lowest level in seven months.
“This comes amid a broad pick-up in risk appetite across markets due to a combination of additional stimulus measures in China and robust economic data in the U.S.”
Metals:
Base metals and gold prices were under pressure in London as a rising dollar helped to peg back the gains made last week, with signs of more bullish macroeconomic signals coming through.
“This is an important week for global manufacturing data and commodity company earnings ahead of Friday’s U.S. nonfarm payrolls job report. Bond markets think that the Fed is done hiking in 2023-this week’s data will shift the odds of additional hikes,” Peak Trading Research said.
Today’s Top Headlines
Walmart Pays $1.4 Billion to Boost Flipkart Stake
Walmart has paid $1.4 billion to buy out a large investor in Flipkart, further cementing its control of the Indian e-commerce giant.
In recent days, Walmart bought the remaining shares of Flipkart owned by Tiger Global, according to a letter the New York hedge-fund sent to its investors that was reviewed by The Wall Street Journal. The transaction valued Flipkart at $35 billion, down from nearly $38 billion when it sold shares to Japan’s SoftBank, Walmart and other investors in 2021.
Trucking Giant Yellow Shuts Down Operations
Yellow, one of the oldest and biggest U.S. trucking businesses, shut down on Sunday, wrecked by a string of mergers that left it saddled with debt and stalled by a standoff with the Teamsters union.
The 99-year-old company is known for its cut-rate prices and has more than 12,000 trucks moving freight across the country for Walmart, Home Depot and many other smaller businesses. What Yellow couldn’t deliver-despite swallowing rivals, getting union concessions and securing a government bailout-was consistent service for customers or profits for investors.
Wall Street to Procter & Gamble, Colgate-Palmolive: Start Moving Units
So far this earnings season, only one household-goods giant has been able to mutter the magic words that Wall Street wants to hear: volume growth.
Investors are no longer impressed with margin-defending price increases at consumer-staples titans such as Kimberly-Clark and Colgate-Palmolive. With room to keep hiking prices running out, they expect these will soon stop being a driver for overall revenue growth. That will put the onus on companies to start moving more units in contrast to the modest volume declines they have been seeing lately.
BlackRock Clashes With Hedge-Fund Giant Over Control of Funds
Hedge-fund manager Boaz Weinstein is locked in a fight with BlackRock over control of several investment products it runs, a battle that could upend part of the mutual-fund world.
Saba Capital Management, Weinstein’s $4.4 billion hedge fund, has been buying up shares in three of BlackRock’s closed-end funds that are trading at a discount to their underlying assets.
Europe Returns to Timid Growth, but Bigger Headwinds Loom
Rising borrowing costs and stagnating Chinese demand for European goods could pave the way for another miserable economic winter for the eurozone this year.
These headwinds, which also include the continuing war in Ukraine and stubbornly high inflation, mean the region is likely to keep underperforming the U.S. for now, according to fresh data and recent sentiment surveys.
China’s Economy Stutters Forward as Growth Concerns Linger
HONG KONG-Growth momentum in China’s economy showed continued signs of weakness in July, raising calls for Beijing to intervene more aggressively to prevent negative sentiment from taking root.
An official measure of Chinese manufacturing activity contracted for a fourth straight month in July, while a gauge of activity in the services sector-a key driver of growth after China lifted its Covid-containment measures in January-fell to its lowest level this year.
How the U.S. Economy Is Sticking the Soft Landing
To see what an economic soft landing looks like, search no further than business hiring.
Parts of the economy are cooling, just as the Federal Reserve would like to see to combat inflation. Freight railroads, for instance, are seeing shipping volumes decline. Construction firms are cutting back on equipment purchases. A vending-machine company’s customers are negotiating prices downward.
Congress Faces Crunchtime in Fight Over Spending Cuts
WASHINGTON-One down, a lot to go.
House Speaker Kevin McCarthy (R., Calif.), who all year has tangled with his party’s hard-line fiscal conservatives, heads into the August recess with the unfinished business of funding the government and only about a dozen legislative days when Congress returns in September.
Saudi Arabia to Host Ukraine Peace Talks as Part of Western Effort to Woo Global South
Saudi Arabia is set to host peace talks among Western countries, Ukraine and key developing countries, including India and Brazil, early next month, as Europe and Washington intensify efforts to consolidate international support for Ukraine’s peace demands.
According to diplomats involved in the discussion, the meeting would bring senior officials from up to 30 countries to Jeddah on Aug. 5 and 6. It comes amid a growing battle between the Kremlin and Ukraine’s Western backers to win support from major developing countries, many of which have been neutral over the Ukraine war.
Trump Political Committee Spent More Than $40 Million on Legal Fees
Donald Trump’s political committee has spent more than $40 million this year on legal fees as he and a constellation of advisers have been swept into various investigations, people familiar with the situation said.
The spending highlights the legal peril facing the former president, who is bracing for a third indictment as early as this week over his attempts to undo the 2020 election results. Trump remains the GOP front-runner in the 2024 presidential nominating contest. He has vowed to stay in the race even if convicted.