Data on inflation and labor showed signs of cooling, which is fueling today’s morning rally. PCE (the Fed’s fav inflation metric) increased by +3% y/y, the smallest increase in 2 yrs. Core PCE (ex food and energy) was up +4.1%, a lower figure than expected. Consumer spending rose the most YTD. Employment costs were *only* up +4.5% y/y. Wages and salaries were up +4.6%. If growth is above inflation, then that will continue to help the US consumer.
That’s the question we asked ourselves when checking out higher money market funds’ rates and short-term Treasury rates post the latest Fed rate hike. Bloomberg noted that a lot of money came into money market funds because of their attractive rate level.
The FT rightfully pointed out that a positive equity market with declining bond yields will translate into looser financial conditions despite the Fed tightening. So, as people cheer the deflation news, remember that inflation can stay high or go up again. And then…what will the Fed do? Raise rates!
The BOJ announced it would allow yields to rise above a ceiling it now says is a point of reference. That’s a big deal. Yields on Japanese gov bonds rose to their highest level since 2014. The yen flip flopped around.
Intel gave investors something to cheer about with higher earning guidance due to demand recovery, per Bloomberg. T-Mobile beat on profits and raised its subscriber forecast, per Bloomberg. Ford also did a beat-raise but noted greater losses for its EVs, per Bloomberg.
German Q2 growth output flatlined, and its forecast doesn’t look so hot, per Bloomberg. France, on the other hand, showed solid 2Q growth with lower inflation growth (sound familiar?), per the FT. Spain was not so great, with 2Q growth slowing a bit and inflation getting hotter. Add to that the political mess, and there’s more wood to chop there, per Bloomberg.
With the hottest ever June and July in recorded history, investors are going to have to think through implications for their portfolios (and humanity). Scientists are saying that the last few years have been hotter than at any point in the last 125k+ years. It’s not just the effects of heat, but it includes future increases in flooding, deaths, etc. Expect solar, EVs, batteries/storage, regulation, subsidies and other solutions to be hot topics and areas of continued focus. Bloomberg has a good story out today. Hopefully the car carrier on fire near the Netherlands holding 500 EVs will survive. Also, it has a direct effect on economies today—BBG is out with a story about the $9.5bn hit to Texas due to heat.
2Q23 earnings has been a mixed bag. Consumer discretionary is showing 15% earnings growth y/y. Financials are up +7% y/y, per ASR. 2Q23 Energy earnings, though, are down -51% y/y because of lower energy prices. Healthcare is also down due to pandemic hangover profits no longer in the mix.