Is the inflation monster really dying?

Is the inflation monster really dying?
  • Corporate Earnings news
  • Global market indices
  • Currencies
  • Cryptocurrencies
  • Fixed Income
  • Commodity sector news
  • Key data to move markets this week
  • Global macro updates

Corporate Earnings News

According to Refinitiv I/B/E/S data, the 23Q2 Y/Y blended earnings growth estimate is -8.2%. If the energy sector is excluded, the growth rate for the index is -2.5%. Of the 50 companies in the S&P 500 that have reported earnings to date for 23Q2, 80.0% reported above analyst expectations. This compares to a long-term average of 66%. The 23Q2 Y/Y blended revenue growth estimate is -0.8%. If the energy sector is excluded, the growth rate for the index is 2.9%.

Corporate earning calendar 20 July - 27 July 2023

Thursday: Capital One Financial Corp., Blackstone, CSX Corp., Freeport-McMoRan, Johnson & Johnson, Newmont Corporation, Philip Morris International, Intuitive Surgical, Capital One Financial Corp., Abbott Laboratories
Friday: American Express, Schlumberger, Roper Technologies, Regions Financial Corp.
Monday: NXP Semiconductors, Cadence Design Systems, Brown & Brown, Domino's Pizza, Packaging Corporation of America, Crown Holdings
Tuesday: 3M, Alphabet, Microsoft, Visa, Spotify, General Electric, Unilever, General Motors, VerizonSnap Inc., Teladoc Health, Texas Instruments, Danaher Corp., Chubb Ltd., Waste Management Inc., Moody's, Southern Copper Corp., Kimberly-Clark, Archer-Daniels-Midland, Nucor, Paccar, Biogen, Corning, Dover Corp.
Wednesday: AT&T, Meta Platforms, The Coca-Cola Company, Boeing, CME Group, Etsy, ServiceNow, Shopify, Thermo Fisher Scientific, ADP, Equinor, QuantumScape, Union Pacific, Teradyne, Hess Corp., American Water Works, Lam Research, Fiserv, O'Reilly Automotive, Chipotle Mexican Grill, Otis Worldwide
ThursdayAmazon, AbbVie, MasterCard Inc., Bristol-Myers-Squibb, Ford Motor Company, Intel Corporation, Keurig Dr Pepper, McDonald's Corporation, Roku Inc., Takeda Pharmaceutical, T-Mobile US, Mondelez International, Honeywell International, S&P Global, Digital Realty Trust, Northrop Grumman, Valero Energy, Edison International, Canon Inc., Budweiser Brewing Company, The Hershey Company, Xcel Energy

US Stock Indices

Nasdaq 100 +4.29% MTD and +44.71% YTD
Dow Jones Industrial Average +1.58% MTD and +5.44% YTD
NYSE +2.24% MTD and +6.89% YTD
S&P 500 +2.35% MTD and +18.63% YTD

Mega caps: A generally good week for mega caps with Apple, Microsoft, Tesla, Amazon, Meta Platforms and Nvidia all up while Alphabet was down.

As noted by the Financial Times, Microsoft and Activision Blizzard agreed to extend the deadline for the completion of their $75bn merger agreement by three months, as the two companies seek to resolve UK regulatory concerns over the impact of the tie-up on the nascent cloud gaming market.

The extension to 18 October maintains the original $95 a share, all-cash purchase price. The parties, however, agreed to increase the termination fee paid by Microsoft to $4.5 billion if it doesn’t happen by 15 September.

Tesla fell after the electric vehicle maker reported its gross margin fell in the second quarter from the previous three months. Chief Executive Officer Elon Musk said Tesla will have to keep lowering the prices of its electric vehicles if interest rates continue to rise. The automotive gross margin fell to a four-year low in the second quarter due to a series of price cuts in the United States, China and other markets since late last year, and increased discounts and other incentives to reduce inventory, as it tries to shield against competition and economic uncertainty.

Energy stocks had a generally poor week on concerns around lower demand due to lower than expected Chinese growth however energy tech and service providers were mixed. Apa Corp (US), ConocoPhillips, Chevron,Phillips 66, Occidental Petroleum, Energy Fuels, Shell,Halliburton were down and Baker Hughes was up

Materials and Mining stocks were mixed this week with Albemarle Corporation, Newmont Mining, CF Industries Holdings, Yara International, Nucor Corporation, and Freeport-McMoran all down, while Mosaic, DuPont de Nemours Inc. and Sibanye Stillwater were all up.

According to Reuters news, on Wednesday,Albemarle Corporation said the terms of a joint venture with Australia's Mineral Resources would be amended to allow the US lithium producer full ownership of a lithium hydroxide processing plant in Kemerton, Australia and facilities in Qinzhou and Meishan in China, part of a joint venture the companies entered in 2022, which had been amended in February.

European Stock Indices

Stoxx 600 +0.01% MTD and +8.73% YTD
DAX -0.24% MTD and +15.70% YTD
CAC 40 -0.99% MTD and +13.18% YTD
IBEX 35 -1.47% MTD and +14.86% YTD
FTSE MIB +1,71% MTD and +21.11% YTD
FTSE 100 +0.75% MTD and +1.83% YTD

Other Global Stock Indices 

MSCI World Index +2.63% MTD and +15.77% YTD
Hang Seng +0.19% MTD and -4.19% YTD

Currencies

The USD continued to weaken this week on expectations that next week’s meeting will be the end of the hiking cycle. The GBP fell against the USD on Wednesday after inflation data came in lower than expected, thus reducing pressure on the Bank of England. It also dropped due to profit taking following its rally over the past few weeks. This caused Stirling to fall from its high of $1.3144 last Thursday, the highest since April 2022. However, Stirling is still +6.97% YTD against the USD. The EUR is +4.66% YTD against the USD. The ECB is expected to raise rates another 25 basis points next week, despite a fall in the headline inflation rate in June. However, ECB policy makers remain split about further rate rises with ECB governing council member Yannis Stournaras saying on Wednesday that another quarter point rate rise should be enough as further tightening might damage the Eurozone economy.

Cryptocurrencies

Bitcoin +11.89% MTD and +80.86% YTD
Ethereum +9.66% MTD and +58.44% YTD

While Bitcoin and Ethereum have risen this week, the biggest change appears to be XRP, which continues to rise due to it being ruled “not a security” last week. According to decrypt.co, the judge in the case, Analisa Torres of the Southern District Court of New York, this week ordered the United States Securities and Exchange Commission (SEC) and Ripple, the creator of the XRP token, to agree on dates for a possible settlement conference.

Fixed Income

US 10-year yield to 3.74%.
German 10-year yield to 2.44%.
UK 10-year yield to 4.21%.

Bond yields fell this week on expectations that global central banks are reaching their peak rates with US inflation coming in at 3.0% in June from 4.0% in May, leaving the US less likely to raise rates after next week’s meeting. However, with core inflation likely to remain sticky due to a strong labour market and a resilient economy, the Fed may choose to maintain its stance of higher for longer. UK bond yields fell this week as inflation came in below expectations. The BoE is still expected to raise rates at its next meeting on 3 August.

Commodities

Gold futures to $1,980.80 an ounce.
Silver futures to $25.15 per ounce.
West Texas Intermediate crude to $75.35 a barrel.
Brent crude to $79.46 a barrel.

Gold prices climbed this week again, now being about 5% higher since the end of June. Recent gains have mainly been due to a weaker USD and falling bond yields as investors are increasingly expecting that the Fed will reach its peak rate at this month’s meeting.

Oil prices edged lower this week due to a lower-than-expected drop in US crude inventories. Inventories fell by 708,000 barrels in the last week to 457.4 million barrels, compared with analysts' expectations in a Reuters poll for a drop of 2.4 million barrels. It also fell due to a weaker demand outlook from China. Even though China's oil imports year-on-year surged by nearly half in June, its stock levels rose to near an all-time high as it continues to get cut price oil from Russia.

Note: As of 6 pm EDT 19 July 2023

Key data to move markets this week

EUROPE 

Thursday: Eurozone Consumer Confidence.
Monday: German HCOB Composite, Manufacturing and Services PMIs, Eurozone HCOB Composite, Manufacturing and Services PMIs.
Tuesday: ECB Bank Lending Survey, German IFO Business Climate, Current Assessment and Expectations surveys.
Thursday: German Gfk Consumer Confidence and ECB Monetary Policy Decision Statement and Press Conference.

UK

Thursday: Gfk Consumer Confidence.
Friday: Retail Sales.
Monday: S&P Global/CIPS Composite, Manufacturing, and Services PMIs.
Thursday: Gfk Consumer Confidence.

US

Thursday: Initial jobless claims, Philadelphia Fed Manufacturing Survey, Existing Homes Sales Change.
Monday: Chicago Fed National Activity Index, S&P Global Composite, Manufacturing, and Services PMIs.
Tuesday: Housing Price Index, S&P/Case-Shiller Home Price Indices, and Consumer Confidence.
Wednesday: Fed Interest Rate Decision, Monetary Policy Statement and FOMC Press Conference.
Thursday: Initial jobless claims, Core Personal Consumption Expenditures, Durable Goods Orders, GDP, Non-defence Capital Goods Orders, Personal Consumption Expenditures Prices, and Pending Home Sales.

CHINA

Thursday: PBoC Interest Rate Decision.

Global Macro Updates

Will food inflation rebound? On Monday a year-old deal allowing the safe passage of Ukrainian grain through the Black Sea expired. On Wednesday the IMF said Russia’s exit from the Ukraine grain deal risks adding to global food inflation. The escalating conflict over Ukrainian grain exports, with Russia warning that ships to Ukraine would be seen as carrying arms, has led to wheat prices having their biggest daily surge in a decade on Wednesday. This may begin to diminish relief over inflation easing in Europe and other global markets. The shutdown and the new Russian shipping threats will increase the need for alternative routes to get Ukrainian crops to market. This will likely raise prices across Europe and in other markets dependent upon the grain, particularly in Africa. There is also the potential for higher food inflation following the record heat in parts of Europe, the US, and China hitting agricultural crops.

Eurozone inflation falls. Headline inflation came in at 5.5% in June. And producer prices are also falling in the Eurozone’s largest economy, Germany, with PPI coming in with June’s 0.1% being the smallest year-on-year increase since December 2020, fuelling hopes for a decline in headline inflation in the months ahead. However, across the Eurozone, core consumer prices, stripping out volatile elements like food and energy, rose 5.5% from a year earlier, Eurostat said Wednesday. That compares with a preliminary estimate of 5.4% and a reading of 5.3% in May. However, traders still expect the ECB to raise rates another 25 basis points at its meeting next week, but are still uncertain as to whether rates will increase beyond that point given that core inflation is rising. President of the Netherland’s Central Bank, Klaas Knot, a noted hawk, said on Tuesday that a rate hike beyond July "would at most be a possibility, but by no means a certainty" while Bank of Greece’s Governor Yannis Stournaras said in an interview with CGTN Europe on Wednesday that "We might have one further move next week of 25 basis points, but I'm not sure that we're going to go further than that…we'll stop there. I think that's my opinion.”

A positive surprise for Britain. UK inflation came in at 7.9% in June, below the 8.2% forecast and down from May’s 8.7%. On a monthly basis, headline CPI increased by 0.1%, below a consensus forecast of 0.4%. Core inflation, which excludes volatile energy, food, alcohol and tobacco prices, remained sticky at an annualised 6.9%, but fell from a 31-year high of 7.1% in May. Although falling prices for motor fuel was the biggest contributor to the drop, the ONS said that “There were no large offsetting upward contributions to the change in the rate.” The UK still has the highest rate of inflation in the G7 and, despite the fall in headline inflation, stubbornly high core inflation and food costs mean no real relief to households and businesses, with the BoE still expected to raise rates in August and likely further into the Autumn. Earlier this month, BoE Governor Andrew Bailey had said that high wage settlements were harming their efforts to contain inflation. And, with the lagged effects of monetary policy tightening still to hit, the UK economy may experience slower growth in the months ahead. If this happens, it could hit Stirling, despite the rate differential anticipated between UK yields and other major bond yields.

Is crypto being cracked by US regulation? Nasdaq has halted plans to launch a cryptocurrency custody service. On Wednesday it cited regulatory uncertainty as the reason for shelving plans to offer custody services for crypto, which had been central to the digital assets division it launched in September 2022. Nasdaq’s CEO, Adana Friedman, said in a call discussing Q2 results, that “This quarter, considering the shifting business and regulatory environment in the United States, we have made the decision to halt our launch of the US digital assets custodian business and our related efforts to pursue relevant licence.” As noted by Cointelegraph.com, the Nasdaq CEO said that the company remains committed to digital asset business development, stating:“We continue to build and deliver technology capabilities that position Nasdaq as a leading digital assets software solutions provider to the broader global industry. This includes advancing our custody solution as a technology platform to serve the broader, global digital assets marketplace.”

Meanwhile Europe is providing a much more crypto friendly environment, with French banking giant Societe Generale’s crypto arm receiving a full Digital Asset Service Provider (DASP) licence from the country’s financial regulator Autorité des Marchés Financiers (AMF). According to Cryptonews.com, SG Forge, the bank’s digital asset division, has become the first entity to obtain a crypto permit in the country, allowing it to offer services including crypto custody, trading and sales as of 18 July, according to an update on AMF’s website.

DISCLAIMER: While every effort has been made to verify the accuracy of this information, EXT Ltd. (hereafter known as “EXANTE”) cannot accept any responsibility or liability for reliance by any person on this publication or any of the information, opinions, or conclusions contained in this publication. The findings and views expressed in this publication do not necessarily reflect the views of EXANTE. Any action taken upon the information contained in this publication is strictly at your own risk. EXANTE will not be liable for any loss or damage in connection with this publication.

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