The slowdown in tech went on full display after Facebook parent Meta Platforms announced plans to reduce headcount for the first time ever. Macroeconomic headwinds are clearly hitting the sector, as well as an advertising slump that was exacerbated by Apple's iOS privacy changes. Meta is also waiting for its big investments in virtual reality (Oculus), the metaverse (Horizon Worlds) and short-form video (Reels) to bear fruit, as growth peaks across Facebook, Instagram and WhatsApp.

Inflation in August was stronger than expected despite the Federal Reserve’s efforts to bring down prices, according to data Friday that the central bank follows closely. The personal consumption expenditures price index excluding food and energy rose 0.6% for the month after being flat in July. That was faster than estimates and another indication that inflation is broadening. On a year-over-year basis, core PCE increased 4.9%, more than the 4.7% estimate and up from 4.7% the previous month.

Consumer spending rose a modest 0.4% in August — and even less when inflation is factored in — in a sign that rising and interest rates are putting a bigger strain on households. Spending rose a scant 0.1% last month after adjusted for inflation. Outlays in July actually declined instead of rising as previously reported, the government said. The lackluster increase in spending toward the end of summer suggests people are minding their money as the economy slows and higher prices raise their cost of living. Consumer spending drives as much as 70% of U.S. economic activity.

Stocks are singing the bear market blues again this morning after the Bank of England shuffled sentiment with a dominant turnaround. Fearing a breakdown in market stability, the central bank on Wednesday promised to buy long-dated bonds "on whatever scale is necessary," sending the yields down by a full percentage point in the span of just a few hours. The chorus quickly spread across the Atlantic, with U.S. debt echoing similar moves, as the 10-year Treasury yield fell to 3.71% for its largest one-day decline since March 2009.

The IPO market may be essentially closed in current investing environment, but one company still appears to be driving at its finest. Porsche AG advanced 3% to €85/share during its first trading session in Frankfurt, after parent Volkswagen AG set the final price for the sports-car maker at the top end of its marketed range. The listing values Porsche at some €75B, making it Europe's largest initial public offering in a decade despite many challenging market conditions.

Initial filings for unemployment claims fell last week to their lowest level in five months, a sign that the labor market is strengthening even as the Federal Reserve is trying to slow things down. Jobless claims for the week ended Sept. 24 totaled 193,000, a decrease of 16,000 from the previous week’s downwardly revised total and below estimates, according to a Labor Department report this morning.

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.

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.
 

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.

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.
 

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.

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.

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.

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.

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.

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%.

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
 

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

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,