US inflation data, unexpected decision by the Reserve Bank of New Zealand, corporate news
Market Reviews
• The stock market was inspired by the decline in PPI. And oil prices fell as the Iranians calmed down. US stocks are also benefiting from a weaker dollar. Markets have recovered well from recent volatility, and it is becoming clearer by the day that the recent volatility was most likely caused by the unwinding of large leveraged positions, such as yen-financed carry trades, rather than by deeper concerns about global growth. Now everyone is waiting for the US inflation report, which will be released on Wednesday and may become a test of the strength of the renewed calm in the market.
• The Producer Price Index (PPI) was lower than expected in July. US Producer Prices, a key measure of wholesale inflation and often a signal of where consumer prices are heading, rose only 2.2% YoY (2.3% expected). , which was only slightly higher than the Fed's 2% inflation target. The core producer price index rose 2.4% against expectations of 2.7%.
• Most Asian stocks were positive on data showing US producer prices rose less than expected, raising hopes that consumer price inflation would be moderate by the end of the day.
• On Wednesday the RBNZ cut interest rates by 25 basis points to 5.25%, surprising most economists polled by Reuters. It was his first policy easing since March 2020 and a year ahead of his own forecasts. Back in May, he had been seriously warning of further hikes, so the sharp reversal was a turning point. RBNZ chief Adrian Orr explained at a press conference that “when the facts change, so do we.” The Reserve Bank of New Zealand appears confident that New Zealand inflation, at 3.3% last quarter, will return to its target range of 1-3% this quarter and does not need to wait for actual third-quarter data to take action. Notably, he also forecast the cash rate to be 4.92% by December, meaning they see room for perhaps two more cuts by Christmas. Markets agree, having already fully priced in another easing in October, with some possibility of a 50 basis point move. The New Zealand dollar fell 1%, and key two-year swap rates fell 11 basis points to their lowest level since mid-2022.
• European futures are pointing to a higher open ahead of inflation data from the UK, where the annual benchmark rate is expected to slow even as headlines rise. EUROSTOXX 50 futures rose 0.2% and FTSE futures added 0.3%.
• Fed's Bostic downplays recession fears, says rate cuts are 'coming'. "A recession is not part of my forecast. There is still enough momentum in the economy that we could see a slowdown and not see the labor market deteriorating to a level of significant concern."
• Starbucks (SBUX) is changing its CEO. In a dramatic reset for the restaurant industry, Starbucks has ousted its CEO and tapped Brian Niccol of Chipotle Mexican Grill (CMG) as its next leader. The move simultaneously upended the fortunes of America's two largest consumer companies. Chipotle shares fell over 7%, while Starbucks (SBUX) shares rose 24+%.
• Home prices in the Silicon Valley area top $2 million for the first time. The median home price in San Jose topped $2 million in the second quarter, marking the first time that a U.S. metropolitan area has surpassed that threshold since U.S. home prices have risen.
• Paramount Global begins planned layoffs with 15% job cuts in the US. Paramount, which owns networks including CBS, MTV and Comedy Central, is seeking to cut $500 million in annual costs and return to profitable growth ahead of its merger with David Ellison's company.
• Weinstein Saba and TCW say credit markets should listen to stocks' "fear indicator." Stock and bond markets are sending different signals about the likelihood of a U.S. recession, leading some major investors to say there is too much complacency in the market.
• In BofA's latest survey of global fund managers, investors expressed confidence in a soft landing for the global economy. If central banks stick to lowering interest rates.
• Oklo Inc., an advanced nuclear reactor developer backed by Sam Altman, has agreed to use Siemens Energy components in its power plants. To speed up the deployment of its technology.
• Home Depot lowers its full-year forecast. This comes amid expectations that consumers will continue to rein in spending in the coming months.
• Computers with artificial intelligence accounted for 14% of quarterly shipments of personal computers. Shipped in the second quarter. With Apple at the helm. Research firm Canalys reported Tuesday. Additional AI capabilities are helping to revive demand.
• Auto workers union brings labor charges against Trump and Musk - Reuters. For attempting to threaten and intimidate workers. The move comes after Musk and Trump held a two-hour conversation on social media platform X on Monday evening, during which they discussed laying off workers.
• AI will raise electricity prices 10 times by 2025, - WSJ. Analysts say that more and more data centers are being built in the United States, which consume huge amounts of electricity. The construction of new power plants will not help - they will not be built in time. Experts believe that the popularity of neural networks and artificial intelligence will lead to similar problems throughout the planet.
• Lockheed Martin and General Dynamics announced the creation of solid rocket engines. Against the backdrop of persistent shortages that have limited missile production.
• The US Department of Justice is considering breaking up Google among other options. GOOGL shares are down 1% in premarket trading.
• Activist investor Elliott Investment Management wants to nominate up to 10 candidates for Southwest airline's board of directors. Elliott owns about 7% of LUV. LUV shares are up 1% in premarket trading.
• Nvidia, Uber and an auto parts supplier are driving shares of the tiny company that develops autonomous robots with artificial intelligence up 17%. Earlier in the trading session, Serve Robotics (SERV) shares fell 8%. SERV capitalization $430 million.
Large short shares (18% Mcap). But NVDA disclosed its ownership of 10% of SERV in July. Only 1 analyst covers them.
And in the second quarter, the company sold only $470,000 worth of product.
The company said it plans to deploy 250 food delivery robots for Uber Eats by the end of the first quarter of 2025 and plans to deploy all 2,000 by the end of that year. The pace of deployment is something new for investors. The contract should bring in between $60 and $80 million per year.
Auto parts supplier Magna International (MGA) will be the contract manufacturer.
• Shares of Trump's social network DJT fell 4% yesterday. After Trump returned to rival X from Elon Musk.
• Intel sold its stake in Arm in the 2nd quarter after a sharp rise in the latter's shares. Arm's position was valued at $147 million. Interestingly, ARM now costs 1.5 times more than INTC. Intel continued to hold a stake in Astera Labs worth $357 million (ALAB), as well as one in Joby Aviation (JOBY) worth $144 million.
• NYCB shares rose 9% yesterday. The bank will exchange preferred shares for common shares. The move eliminates excess dividend payments on preferred shares.
• DELL shares rose 5% yesterday. A Barclays analyst upgraded the stock ahead of its earnings release later this month. From Underweight to Equal Weight and reaffirmed his $97 price target on the stock. Shares closed at $100 yesterday.
Key events that may affect markets on Wednesday:
- UK inflation data for July.
- The US will publish the consumer price index for July. The consensus forecast expects CPI to grow by 2.9% YoY and Core CPI by 3.2%. Both figures are expected to be 0.1% lower than June data.
- Eurozone GDP, industrial production data.
- Speech by Atlanta Federal Reserve Bank President Raphael Bostic.
- CAH, CSCO and UBS will publish quarterly results.
International reviews
• From Trump's interview with Elon Musk
- Internal threats are much more dangerous for the United States than those that come from abroad, in particular from China or Russia.
- He called the main threat to humanity not climate change, but a nuclear conflict: “... now five countries have a significant nuclear arsenal. We cannot allow something stupid to happen because of people like Biden.”
- He considers the current leaders of Russia, China and the DPRK to be the best in their field and said that Washington should not allow the interests of Russia and China to coincide.
- He admitted that China would surpass the United States in the size of its nuclear arsenal due to its current buildup.
• Iranian officials said Iran's attack on Israel could be delayed. If negotiations for the release of hostages and a ceasefire agreement later this week are successful. "We and Hezbollah will strike Israel directly if negotiations in Gaza fail or if we feel that Israel is dragging its feet on negotiations." Ratings agency Fitch has downgraded Israel's long-term foreign currency default rating from A+ to A due to fighting in the Gaza Strip and ongoing tensions with Iran.
The forecast for the country's economy is "negative".
• Poland and the United States signed a contract for the production of 48 new Patriot systems. The transaction cost is 1.13 billion euros, the installations are planned to be delivered to Poland in 2027-29. Manufacturers Raytheon, Lockheed Martin, and Boeing.
• In 10 years, lab-grown diamonds will be more popular than mined diamonds, says Pandora CEO.
• China plans to raise the retirement age to ease labor and pension problems. After more than a decade of constant talk, delayed retirement is moving closer to reality in China, affecting more than 500 million workers as the country grapples with a rapidly aging population.
• Kishida will leave the post of Prime Minister of Japan after the election of the head of the ruling party.