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As Jerome Powell looks set on vanquishing soaring inflation and entrenched expectations, economic growth and hopes of a soft landing have been thrown into the back seat, with some arguing - maybe a bit too strongly. The crew at the central bank has even promised more rate hikes in November and December, after accelerating the unwinding of its balance sheet this month. The 10-year Treasury climbed overnight to breach the key 4% level. The last time that happened was in 2008, at the height of the global financial crisis. It's even more astonishing when considering the pace of the yield's ascent, with the benchmark sitting at only 1.50% at the start of the year.

The Nord Stream pipeline system that transports Russian gas to Europe has reported "unprecedented" damage, with management saying it was impossible to predict when operations would resume. Both Europe and Russia said sabotage cannot be ruled out for the cause of the destruction, and Swedish authorities said two powerful underwater explosions were detected in the same area of the Baltic Sea where gas had bubbled to the surface.

DocuSign will lay off 9% of its workforce as part of a major restructuring plan, the company announced this morning. The plan is designed to move the company toward profitability and improve its operating margin. As of January 2022, DocuSign had 7,461 employees, and it said the restructuring plan will largely be complete by the end of fiscal year 2023.

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U.S. home prices cooled in July at the fastest rate in the history of the S&P CoreLogic Case-Shiller Index, according to a new report out this morning. Home prices in July were still higher than they were a year ago, but cooled significantly from June gains. Prices nationally rose 15.8% over July 2021, well below the 18.1% gain in the previous month, according to the report. Home prices are dropping because affordability has weakened dramatically due to fast-rising mortgage rates – the average 30 year-year fixed mortgage is now edging toward 7%.

Investigators suspect sabotage after unexplained leaks affected both the Nord Stream 1 and 2 pipelines, which bring natural gas from Russia to Europe via the Baltic Sea. Neither pipeline was pumping gas at the time of the leaks: Nord Stream 1 stopped pumping gas to Europe “indefinitely” earlier this month, with Moscow’s operator saying international sanctions on Russia prevented it from carrying out vital maintenance work. The newer pipeline Nord Stream 2, meanwhile, has never officially opened as Germany refused to certify it for commercial operations due to Russia’s unprovoked invasion of Ukraine.

The President’s plan to erase significant amounts of student loan debt for tens of millions of Americans could cost about $400 billion, the nonpartisan Congressional Budget Office said in a report, making it one of the costliest programs in the president’s agenda.
 

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FedEx sent shudders down investors’ spines late Thursday after sounding the alarm on macro weakness and withdrawing its full-year guidance. CEO Raj Subramaniam said he expects the economy to enter a worldwide recession, and would have to implement cost-cutting initiatives to deal with softer global shipment volumes. FDX shares tumbled nearly 20% in response, and the sentiment was seen elsewhere, with the company serving as a barometer for "everybody else's business."

The market is not a fan of Adobe's new acquisition, as selling continues into this morning. The stock already plunged over 16% yesterday, after Adobe - the owner of platforms like Photoshop, Illustrator, Acrobat and XD - announced the purchase of a design software firm known as Figma. The $20B transaction will be financed by an equal mix of cash and stock, with absurdly generous grants to Figma employees.  Adobe paid over 50x revenue for the business – a valuation multiple so high it’s unlikely the deal will ever pencil economically.

China's warming ties to Russia are on full display at a meeting of the Shanghai Cooperation Organization((SCO) in Uzbekistan. The relationship between the countries had been growing over the past decade, as the two nations seek to counter the power and economic strength of the U.S. and its allies. In terms of size, the SCO is one of the world's largest regional organizations, covering nearly 60% of the area of Eurasia, 40% of the world population, and more than 30% of global GDP.

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After marathon talks, Labor Department negotiators, rail operators and union representatives reached a tentative agreement early this morning that may avert a debilitating nationwide train strike. S&P 500 futures ticked up initially on the news.

With less than 24 hours left, Labor Secretary Marty Walsh tweeted at 5:08 a.m. Eastern that a crisis had been avoided. “Our rail system is integral to our supply chain, and a disruption would have had catastrophic impacts on industries, travelers and families across the country,” he said. 
Rail unions had been negotiating for more pay, sick leave and safer working conditions; their members must still approve the deal.
Trouble is brewing in the investment banking sector as clients stay wary about the current economic environment. An aggressive Fed and the potential for a recession are weighing on corporate dealmaking, while soaring inflation continues to dim the outlook. IPOs have also hit the brakes this year as the market recorded its worst first half to a year since 1970.

House speaker Nancy Pelosi said she would bring legislation meant to curb trading by lawmakers to the House floor this month. The announcement comes a day after The Times reported that nearly 100 lawmakers had reported trades that posed potential conflicts of interest.
 

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Yesterday’s inflation report is one of the last data points the Fed will see before its September meeting next week, but it did enough damage to already worrisome policy expectations. According to the CME's FedWatch Tool, there is now a 1 in 3 chance the FOMC will raise rates by a monster full percentage point, while the probability of a half percentage point fell to zero (meaning 75 bps is a given). If that's the case, a full-fledged recession could be around the corner, with rapidly rising borrowing costs pushing any prospects for a "soft landing" off the table.

As I mentioned earlier this week, another inflation threat is in the works, with a Western-style showdown threatening the U.S. economy. A duel between 60,000 rail workers, their unions and some of the largest U.S. railroad operators is already having impacts, but the worst is yet to come. A Friday deadline to agree to new work terms hangs in the balance, with the gunslinging likely to cost the nation $2B in economic output per day if things go off the rails.

The EU's General Court has upheld an antitrust ruling against Google parent company Alphabet for imposing unlawful restrictions to consolidate the dominant position of its Android operating system. It's a major fine at $4.1B, though it was reduced by 5% from the original $4.3B price tag following the appeal. The ruling bolsters the recent crackdown campaigns of European Competition Commissioner Margrethe Vestager, who has forcefully targeted U.S. tech giants over anti-competitive behavior and market dominance.

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Inflation rose more than expected in August as rising shelter and food costs offset a drop in gas prices, according to the Bureau of Labor Statistics.  The consumer price index, which tracks a broad swath of goods and services, increased 0.1% for the month and 8.3% over the past year. Excluding volatile food and energy costs, CPI rose 0.6% from July and 6.3% from the same month in 2021.  Energy prices fell 5% for the month, led by a 10.6% slide in the gasoline index. However, those declines were offset by increases elsewhere.

Small business sentiment improved in August but remains depressed as business owners face an uncertain economic landscape.  Buoyed by marginally better expectations in the near term and a slight reduction in inflation worries, the monthly Small Business Optimism Index from the National Federation of Independent Business rose to 91.8 last month from 89.9, although it marked the eighth consecutive month during which optimism fell below the survey’s five-decade average.  Business owners reported that inflation remained their most significant impediment, with 29% naming it as their biggest operational challenge, down from 37% in July.  Just trailing inflation as the most pressing problem facing small business owners was labor quality, which 26% cited as their top issue, while an additional 10% said labor costs were their top business problem.

 

Among the 148 major regional housing markets tracked by John Burns Real Estate Consulting, 98 markets have seen home values fall from their 2022 peaks. In 11 markets, the Burns Home Value Index* has already dropped by more than 5%. Simply put: The U.S. home price correction is sharper—and more widespread—than previously thought.

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Starting today, U.S. freight railroads are poised to cut back on some service with a new union rail contract up for negotiation. The reduced service would come ahead of a potential rail strike date of Sept. 17 if talks fail to progress. While ten of the twelve railroad worker union have struck deals, the holdouts - Brotherhood of Locomotive Engineers and Trainmen and the International Association of Sheet Metal Air, Rail and Transportation Workers - account for more than 90K rail employees. A rail strike could disrupt the retail industry and giants like Walmart, Target, and Home Depot if domestic trucking rates accelerated again. FedEx and UPS could also be impacted.

Activist investor Daniel Loeb is backing away from plans to push Disney to spin off ESPN, which he hoped could result in new business areas like sports betting and reduce the entertainment giant's debt load. While ESPN gives Disney a steady cash flow, the model has been put under the spotlight given the rising costs of sports broadcast rights. Loeb's Third Point even took another $1B stake in Disney last month to push for the changes.

The dollar kicked off the week on a downbeat note as traders priced in a narrowing of policy divergence between the US Federal Reserve and other big central banks.  The euro has fallen by more than a tenth this year, while the US currency is up roughly 13 per cent — with the latter propelled higher by aggressive interest rate rises and hawkish messaging from the Fed about the future path of monetary policy.

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European energy ministers are convening in Brussels today as a deepening energy crisis confounds the bloc. Set to be discussed are a series of emergency intervention measures to stave off runaway prices, or more painful cuts that could result in de-industrialization and even social unrest. While ministers will debate the effectiveness of the actions, and their related consequences, a bigger part of the equation will be to maintain a consensus and preserve the unity of the European Union.


Vanguard is closing in on industry leader BlackRock in US exchange traded funds, a $6.6tn competitive battleground for the world’s two largest asset managers. US ETF assets under Vanguard’s management totaled $1.84tn at the end of August, compared with the $2.21tn run by BlackRock’s iShares ETF unit, according to newly released data. Vanguard led the pack in attracting money into US ETFs in 2021 and is ahead again this year, in August receiving four times as much as BlackRock.

Jay Powell did little to dispel expectations on Thursday that the Federal Reserve will deliver a third consecutive 0.75 percentage point rate rise, saying the US central bank needed to act “forthrightly” to ensure elevated inflation did not become entrenched. In his last public remarks before the bank’s policy meeting later this month, the Fed chair doubled down on the hawkish message he delivered at the recent Jackson Hole conference in Wyoming.

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Facing headwinds and crises on all sides, the European Central Bank is likely to begin a super aggressive phase of monetary policy today, with the largest hike in the institution's 24-year history. Most economists see a jumbo-sized 0.75 percentage point increase in the cards, after the bank raised interest rates by a half percentage point in July. That hike was its first in more than a decade (and the first since the pandemic), and highlighted how severely the ECB is behind the US Federal Reserve.

 

Speaking of the Fed, Lael Brainard, vice-chair of the Federal Reserve, yesterday reinforced expectations that the US central bank would opt for a third consecutive 3/4 percentage-point rate rise at its meeting later this month. Futures markets implied an 81 per cent chance that the Fed would opt for an increase of that magnitude after Brainard’s speech at a banking conference in New York.

 

Apple unveiled updates to its iPhone, AirPods and Apple Watch product lines on Wednesday, including the new Apple Watch Series 8 and iPhone 14 with satellite connectivity. Chief Executive Tim Cook kicked off the event, noting that all three products are "essential in our lives, and by adding satellite connectivity – Apple is working on making sure that you’re never disconnected.

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U.S. service sector activity contracted in August for a second straight month as inflation and rising interest rates hit demand, according to data from the purchasing managers survey.  The S&P Global U.S. Services PMI fell to 43 in August from 47 in July, which is the lowest level since May 2020, when the sector faced initial restrictions to contain the pandemic.  Services activity declined due to weak domestic and foreign client demand, while hiring moderated and inflation pressures continued.

Volkswagen announced they are going have an public offering for sports and luxury carmaker Porsche, which is a rare bright spot for the IPO market amid a year that has left investors starved for new issues.  The Supervisory Board of Volkswagen says they will pursue an IPO of up to 25% of its non-voting preferred shares in Porsche, which will be listed on the Frankfurt Stock Exchange. In a statement, the company it is targeting the late-September, early-October period for the IPO, subject to market conditions.  Volkswagen is expecting a valuation for Porsche between $60-$85 billion post IPO.

There is more bad news for the housing market after mortgage rates shot back above 6%.  The 30 Year Fixed rate mortgage is now 6.25%, a year ago that rate was under 3%.

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US Stocks traded lower last week for the 3rd negative week in a row.  In this holiday-shortened week, investors are looking ahead to speeches from Federal Reserve president Jerome Powell and a fresh rate hike decision from the European Central bank due out later this week. 

CVS Pharmacy has reached a deal to acquire in-home health-care company Signify Health for about $8 billion.  CVS said they will pay $30.50 a share in cash for Signify, an acquisition that would build on their growing health-care services. Signify provides technology and analytics to help with in-home patient care.  The deal comes as competitors from Amazon to Walgreens are moving further into the health-care sector. In July, Amazon announced they were acquiring primary-care provider One Medical for about $3.9 billion.

Orders for manufactured goods fell a sharp 1% in July, according to the Commerce Department.  This is the first decline after nine straight gains.  The factory sector, which led the economy’s recovery from the pandemic, has started to struggle.  Orders for nondurable goods were down 1.9% in the month. That’s the biggest drop since the economy was shut down in April 2020. Pre-pandemic, it is the weakest reading since November 2018.  Most of the drop was due to a decline in orders in the petroleum sector
 

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Nonfarm payrolls rose solidly in August amid an otherwise slowing economy, while the unemployment rate ticked higher as more workers rejoined the labor force, according to the Bureau of Labor Statistics.  The economy added 315,000 jobs for the month, estimate for 318,000. The unemployment rate rose to 3.7%, two-tenths of a percentage point higher than expectations largely due to a rising labor force participation rate.

 

Construction spending dipped in July, as residential construction fell amid rising mortgage rates and declining home affordability.  The US Census Bureau said that total construction spending during July 2022 was estimated at a seasonally adjusted annual rate of $1.777 trillion, down 0.4% from June.  The July figure, however, was still 8.5% above July 2021.  Through the first seven months of 2022, total construction spending was $1.01 triillion, 10.8% above the $915.2 billion for the same period in 2021. 

 

Economic activity in the manufacturing sector grew in August, with the overall economy achieving a 27th consecutive month of growth, according to the nation's supply executives in the latest Manufacturing ISM® Report

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Cleveland Federal Reserve President Loretta Mester said she sees interest rates rising considerably higher before the central bank can ease off in their fight against inflation.  Mester, a voting member this year of the rate-setting Federal Open Market Committee, said she sees benchmark rates rising above 4% in the coming months. That’s well above the current target range of 2.25%-2.5% for the federal funds rate, which sets what banks charge each other for overnight borrowing but is tied to many consumer debt instruments.

After falling back earlier this month, mortgage rates began rising sharply again to the highest level since mid-July. That caused mortgage demand to pull back even further.  Total mortgage application volume fell 3.7% last week compared with the previous week, according to the Mortgage Bankers Association. Volume was 63% lower than the same week one year ago.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.80% from 5.65%, for loans with a 20% down payment. That rate was 3.11% one year ago.  As a result, refinance demand, which is highly sensitive to weekly rate moves, fell another 8% for the week and was 83% lower than the same week one year ago. The refinance share of mortgage activity decreased to 30.3% of total applications from about 66% a year ago.

Oregon’s tax and lottery revenues continue to far outpace economists’ predictions, with the state now expected to take in $600 million more than forecasters predicted just three months ago.  Booming tax revenues from capital gains and businesses could push the state’s unique “kicker” tax rebate up by another $500 million, according to the latest quarterly forecast that. That would bring the total “kicker” rebate to $3.5 billion,

 

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Stocks fell for a third day, putting a summer market comeback in doubt as the Federal Reserve and other global central bankers continued to signal they will raise interest rates to squash inflation despite the negative consequences for economic growth and, potentially, corporate profits.

 

Companies sharply slowed the pace of hiring in August amid growing fears of an economic slowdown, according to payroll processing company ADP.  Private payrolls grew by just 132,000 for the month, a deceleration from the 270,000 gain in July, the firm said in its monthly payroll report.  The Dow Jones estimate for the ADP count was 300,000.

 

Lower gas prices helped consumer confidence bounce back in August, breaking a three-month stretch of worsening sentiment.  However this improvement, while welcome, is tempered by ongoing worries that the US economy may be heading toward a recession.  The Conference Board's monthly snapshot of consumer attitudes improved, rising to 103 from July's downwardly revised 95.

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As the fallout from Jackson Hole continues to ripple through markets, investors have their eyes on more drama stemming from the central bank. The Federal Reserve this week is set to raise the throttle of its quantitative tightening (QT) program by picking up the pace at which it unwinds its balance sheet. Note that the central bank is not selling its Treasury holdings outright, but is rather letting them mature to shrink its balance sheet. After an initial few months at a slower pace, monthly caps for offloading Treasuries is set to double to $65bn.

Home prices in June were 18% higher than during the same month last year, according to the S&P CoreLogic Case-Shiller Indices. In the last 35 years, only four complete years have witnessed increases that large. Another report last week showed home prices declined 0.77% from June to July. While the drop may seem small, it is the largest single-month decline in prices since January 2011. It is also the second-worst July performance dating back to 1991

U.S. airline sales took a sizable step back during the last week of data tracked by Bank of America, and the team thinks that if the booking softness is not reversed in the next couple of weeks, it would indicate more of an underlying demand problem.  Bookings were down -23.6% vs. the level seen in 2019 for the week ending August 21.

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The economic symposium down in Jackson Hole was about as hawkish as investors could have expected, sending markets into a tailspin on Friday. All three major averages slumped between 3%-4%, sending risk-off signals to other sectors and asset classes (Bitcoin fell below $20K for the first time since early July). Sentiment may remain dented in the week ahead, or stay at somewhat of a standstill until the release of fresh market data (home prices on Tuesday and the jobs report on Friday).

 

Facebook parent Meta Platforms has reached an undisclosed settlement in a class-action lawsuit filed over the infamous Cambridge Analytica scandal. The episode saw the U.K. consulting firm harvest up to 87M Facebook users' data for use in political ad campaigns. The two sides provided no details about the settlement, although some had speculated that META could face hundreds of millions of dollars in damages if it lost the suit.

 

Chinese tech stocks, including Alibaba, JD.com, and Baidu gave up their gains on Friday, and are slipping again this morningt, despite an agreement to let American auditors access to New York-listed Chinese firms. The preliminary deal was signed off by the SEC, the Public Company Accounting Oversight Board (PCAOB), the China Securities Regulatory Commission and the Ministry of Finance of the People's Republic of China. According to the PCAOB, inspectors can already be on the ground by the middle of next month to begin inspections.

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Personal consumption expenditures, one of the Federal Reserve’s favorite inflation indicators, slipped on a monthly basis in July and was up less on the year than anticipated.  The inflation measure fell 0.1% in July and was up 6.3% on the year, according to the Bureau of Economic. It was expected that the PCE index would be unchanged on a monthly basis in July and up 6.4% on the year.  The report also showed that personal income ticked up less than expected, up 0.2% month over month versus an estimated 0.6%. It’s one of the reports the Fed will be watching ahead of its September meeting, when it is likely to raise interest rates again.

The first revision for second-quarter GDP painted a slightly less dour picture for the U.S. economy.  The Bureau of Economic Analysis said GDP contracted by 0.6% in the second quarter. The advance estimate released last month showed a decline of 0.9%.

The labor market continues to see strength with initial filings for unemployment benefits falling last week according to the Labor Department.  Jobless claims came in 243,000 for the week ended Aug. 20, down 2,000 from the prior week. It was also lower than consensus estimates of 255,000.

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New home sales plunged in July as high prices and mortgage rates pushed buyers to think twice about closing the deal.  Sales of newly constructed homes fell by 12.6% in July from June and were down 29.6% from a year ago, according to a joint report from the US Department of Housing and Urban Development and the US Census Bureau. It was the second consecutive month of declines.  Only 511,000 new homes were sold last month, at a seasonally adjusted annualized rate, down from a revised 585,000 in June. That's the lowest sales number since January 2016. A year ago, 726,000 newly constructed homes were sold.

Les Schwab Tire Centers named a new CEO on Tuesday, promoting chief financial officer Mike Broberg to take over the business early next year. Les Schwab is among Oregon’s largest companies, with 8,000 employees at 500 locations across 10 western states. Annual sales were approaching $2 billion at the time of Schwab’s sale two years ago to a California investment fund, Meritage Group.

Shares of the department store Nordstroms tumbled more than 12% after the company slashed their financial forecast for the full year.  Nordstrom said they are facing a glut of inventory that it must discount to move off shelves. The company did report fiscal second-quarter earnings and sales ahead of analysts’ estimates.

 

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US Stocks continued their selloff that started last week suffering their worst day since early June yesterday over fears of more aggressive rate hikes from the Fed.

 

The owner of Regal Cinemas confirmed that they are considering filing for bankruptcy but promised "business as usual" as they try to shore up their finances.  British company Cineworld Group said in a statement that a "voluntary Chapter 11 filing in the United States" was one of the options it was reviewing in an attempt to reduce their debt burden.  Meanwhile, Cineworld and Regal theaters were open for "business as usual," and would remain so.  Shares in Cineworld crashed as much as 80% in London on Friday after the Wall Street Journal reported that the world's second largest movie theater chain had spoken to lawyers to advise on the bankruptcy process in the United States and United Kingdom.  The company's stock fell another 20% yesterday. The news also contributed to a plunge of more than 40% in the shares of AMC, the world's largest movie theater chain.

 

Ford Motor’s is cutting about 3,000 jobs from their global workforce, as the automaker attempts to lower costs as part of restructuring efforts under CEO Jim Farley.  Ford’s cost-cutting actions are the latest in a series of efforts by companies to reduce expense and employee head count amid fears of a potential recession or economic softening, with inflation hovering near a 40-year high.

 

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Stocks tumbled on Friday as Wall Street’s summer rally faltered and rate hike fears resurfaced, leading the major averages to end the week lower. Friday’s halt in Wall Street’s summer rally came as minutes from the Federal Reserve’s July meeting and comments from St. Louis Federal Reserve President James Bullard indicated that the central bank would likely continue hiking rates in the near term, putting a damper on investors’ hopes of a slowdown in rate hikes.


 The Conference Board’s Index of Leading Economic Indicators (LEI) was negative again in July, that’s five months in a row. The economy has never escaped Recession when this has occurred.  Retail Sales showed no growth in July (+0.8% growth in June). Of interest, ex-auto, July Retail Sales were +0.4% M/M. That means, just when supply chains have eased and automakers can once again get the chips they need, auto demand seems to have diminished.
 
Existing-home sales sagged for the sixth straight month in July, according to the National Association of REALTORS®. All four major U.S. regions recorded month-over-month and year-over-year sales declines.  Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, slipped 5.9% from June to a seasonally adjusted annual rate of 4.81 million in July. Year-over-year, sales fell 20.2%.
 

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This week's housing data did much to confirm a slowdown sought by the Federal Reserve. Along with what may have been peak inflation last week, cooler housing data is another piece in the puzzle as the FOMC tightens conditions. The outlier remains the labor market, where jobless claims dropped this week and payroll growth remains strong. The August NAHB measure of homebuilder confidence fell below 50, Housing starts for July dropped 9.6%, more than expected, (although permits dropped less than forecast), And most recently the NAR reported that July existing home sales fell 5.9%, more than anticipated.

The Big Ten Conference has struck a deal for media rights to its college sports that is reportedly worth up to $7.5B, amping up an already competitive arms race in sports programming as power among colleges continues to concentrate in a few buckets. The conference reached a seven-year deal with CBS, NBC, Fox and NBCU streaming platform Peacock, and will also show sports on the Big Ten Network and Fox Sports 1. The approach resembles the NFL's stance of spreading media rights over several partners.

Applied Materials posted third-quarter results that beat expectations and issued guidance that seemed to stave off fears of a slowdown. For the period ending July 31, Applied Materials said it earned $1.94 a share, on $6.52B in revenue. Gross margins ticked down year-over-year to 46.1%.

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The US and Taiwan agreed yesterday to begin formal trade and investment talks amid flaring tensions between Washington and Beijing over the self-governing island that China claims as its own. The discussions stem from a joint initiative announced in June and are expected to begin in the early autumn. They are aimed at deepening economic engagement in areas including agriculture, digital trade and climate.

Based on their latest meeting minutes, Federal Reserve officials are predicting a slowdown in the housing market. There have been conflicting signals: Home sales have slowed, while housing prices remain high. But a mere slowdown is unlikely to stop the Fed in its crusade to crush inflation, which has led to an increase in interest rates, putting pressure on mortgage rates. A report from Fitch this week said that the Fed’s interest-rate moves had indeed made housing prices more likely to fall, and reasoned a plausible drop to be around 15 percent.

Apple is looking at holding its annual fall product event, including the announcement of its iPhone 14 product line, on Sept. 7, according to a Bloomberg report.

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Rising costs and falling confidence in the U.S. economy are fast becoming a toxic cocktail for the housing market. As a result, a growing number of buyers are backing out of deals they’ve made with homebuilders and sellers of existing homes.  Homebuilder cancellation rates have more than doubled since April. In July, 17.6% of builder contracts fell through, compared with 8% in April and 7.5% in July 2021.

Production at U.S. factories increased more than expected in July as output rose at motor vehicle plants and elsewhere, pointing to underlying strength in manufacturing despite ebbing business confidence.  Manufacturing output rebounded 0.7% last month after declining 0.4% in June.  Manufacturing, which accounts for 11.9% of the U.S. economy, remains supported by strong demand for goods even as spending is gradually shifting back to services. But risks are rising, with retailers sitting on excess inventory, especially of apparel.

Target said their quarterly profit fell nearly 90% from a year ago, as the retailer followed through on their warning that steep markdowns on unwanted merchandise would weigh on its bottom line.  The big-box retailer missed Wall Street’s expectations by a wide margin, even after the company itself lowered guidance twice.

 

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The retail sector is in the spotlight this week with big reports due in from Walmart and Target. Both Walmart and Target saw big inventory builds during the first quarter and warned of a fall in earnings this year as consumers increasingly shopped for lower-margin goods such as food and fuel. Since the major retailers last reported quarterly results, prices shoppers pay for a variety of goods and services have shown signs of cooling following a relentless rise

China reported data for July that came in well below expectations as the real estate slump and Covid controls dragged down growth.  Industrial production, retail sales, and home prices all dramatically missed expectations. 

Saudi Aramco CEO Amin Nasser said on Sunday it is ready to raise crude oil production to its maximum capacity of 12M bbl/day if asked to do so by the Saudi government. The comments came as Aramco reported a 90% surge in Q2 profit to a stronger than expected $48.4B, the state oil company's highest quarterly net profit since it started trading shares on the Saudi stock exchange in 2019

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The number of Americans who signed up for unemployment benefits rose last week to the highest level since November, though the U.S. job market continues to show signs of strength.  Applications for jobless aid climbed by 14,000 to 262,000 and have now risen five out of the last six weeks. The four-week average for claims, which smooths out weekly ups and downs, rose to 252,000, also the highest since November.  The number of Americans collecting traditional unemployment benefits increased to 1.43 million in the last week of July — the highest number since early April.

Despite inflation cooling down a bit in July, up 8.5%, Americans are still paying significantly more for food.  According to the Bureau of Labor Statistics, the cost of food rose 10.9% , with food in the at-home category rising 13.1%. For the overall food category, that's the highest increase since May of 1979.

The cost of your blended Blue Rebel and oat milk Cocomo is going up, but Oregon drive-thru chain Dutch Bros said that higher prices are preserving its profitability and growth.  Dutch Bros, based in Grants Pass, shocked investors by announcing that inflation was cutting into customer demand and increasing the company’s own operating costs. Even so the company reported that 2nd quarter revenue rose 44% from a year ago sending the stock sharply higher.

 

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