Inflation Cools, but Economic Uncertainty Lingers (Weekly Cheat Sheet)

The stock market is a fickle beast, and this week was no exception. As the legendary investor Warren Buffett once said, “The stock market is a device for transferring money from the impatient to the patient.” And patience was certainly a virtue this week, as investors grappled with a mixed bag of economic data and corporate earnings.

On the bright side, we saw impressive results from the Treasury note auctions, strong earnings from Carnival and FedEx, and Amazon eclipsing a $2 trillion market cap. Plus, all 31 large banks passed the Fed’s annual stress test with flying colors.

The Personal Income and Spending report for May also hit the right notes for a soft landing, with gains in personal income and spending, and a moderation in the PCE Price indexes.

But it wasn’t all sunshine and rainbows.

The equal-weighted S&P 500 declined 0.8% for the week, suggesting a lack of broad-based participation. Nike took a massive 20% hit after issuing a disappointing sales outlook, while rising tensions between Israel and Hezbollah added geopolitical uncertainty to the mix. Micron and Walgreens also disappointed with their guidance and earnings, respectively.

Bond & Interest Rates

The May core PCE inflation data, released on June 28, 2024, showed a softening to 2.6% year-over-year, down from 2.8% in April, aligning with market expectations. This deceleration in the Federal Reserve’s preferred inflation measure could influence future monetary policy decisions.

The monthly core PCE rose by 0.1%, a slower pace compared to April’s 0.2% increase. This data, along with other economic indicators, may impact the Fed’s considerations for potential rate cuts, with markets currently pricing a 37.7% probability of unchanged rates in September.

Consumer spending in the United States has shown resilience despite economic headwinds, with total spending increasing by 5.9% from December 2022 to December 2023. However, recent data indicates a shift towards more cautious spending patterns. In January 2024, consumers exhibited restrained spending, with only a minimal increase in nominal expenditures and a slight decrease in real terms.

Looking ahead to 2024 and 2025, experts anticipate small-to-moderate gains in consumer spending, with improvements expected in 2025. Factors supporting continued spending include accumulated pandemic savings, estimated at around $850 billion, and rising household incomes.

However, the resumption of student loan payments and inflation in essential categories like housing and food may dampen discretionary spending. Additionally, younger consumers in emerging markets are showing a strong willingness to spend on premium products, potentially influencing global consumer trends.

US Market Highlights

  • Home prices are cooling off as active listings jump 35% from last year, potentially leading to more favorable conditions for buyers.
  • A US judge rejected Visa and Mastercard’s $30B settlement, citing insufficient relief for merchants. This could force them to negotiate a more favorable settlement or go to trial.
  • Southwest Airlines cut its revenue forecast, expecting RPASM to fall 4-4.5% this quarter, while unit expenses will rise 7.5%.
  • Paramount+ is increasing prices for its streaming plans as it looks to turn around its business.
  • The NFL was ordered to pay $4.7 billion in damages for violating antitrust laws with its Sunday Ticket package.
  • Prosecutors recommend criminal charges against Boeing over allegations related to two fatal 737 Max crashes.

Global Highlights

  • The EU charged Microsoft with antitrust violations over its bundling of Teams and Office.
  • Apple’s iPhone shipments in China surged 40% last month, extending the rebound seen in April.
  • ByteDance is developing an advanced AI chip with Broadcom to ensure a stable high-end chip supply amid US-China tensions.
  • Canada’s inflation reaccelerated to 2.9%, complicating the Bank of Canada’s plans for a July rate cut.
  • EU regulators accused Apple of breaching its tech rules by not allowing App Store customers to be steered to alternatives.
  • Shein confidentially filed for a London IPO as its U.S. listing stalls amid mounting backlash over alleged forced labor.

Commodities & Crypto Corner

In the energy sector, oil prices continue to rise due to Middle East tensions. Brent is trading around $85.5, while WTI is around $81.80.

Copper continues its decline on the London Metal Exchange, trading close to $9,515. Gold is holding steady around $2,355.

In crypto, Bitcoin sees its third consecutive week of decline, falling nearly 3% to around $61,300, partly due to the start of repayments to customers affected by the 2014 Mt. Gox hack. Meanwhile, Ether ends a four-week losing streak, rebounding 0.8% to around $3,450.

Calendar – The Week Ahead

The upcoming week on Wall Street will be cut short by the Independence Day holiday on July 4th, but there are still significant events for investors to monitor.

The primary focus will be on the labor market, with several key data releases scheduled. On Tuesday, the Job Openings and Labor Turnover Survey will provide insights into job openings and labor dynamics. Wednesday will feature ADP’s private sector employment report, offering a preview of the broader employment situation. Finally, Friday’s nonfarm payrolls report for June is expected to show a slowdown in job gains from 272,000 in May to 200,000, while the unemployment rate is projected to remain steady at 4.0%.

Although the earnings calendar is relatively light this week, attention will turn to production and delivery figures from major automakers. Tesla’s Q2 numbers will be under scrutiny, with analysts anticipating a decline in quarterly deliveries due to concerns over consumer demand and registration data from Europe and China.

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