Good Morning!

Tech funds have seen 10 straight weeks of inflows. That’s the longest streak since September 2021!

📊 The Fed's preferred measure of inflation sent encouraging signals in July. Both the PCE and core PCE price indexes increased at the same pace as the previous month, rising 0.2% and 0.3%, respectively. Collectively, they were the smallest back-to-back gains since late 2020. Both prints were in line with economists' expectations. On an annual basis, PCE prices increased by 3.3% while core PCE rose by 4.2%. Turning to core service excluding housing—aka supercore, which, lest we forget, is closely watched by Fed officials—prices remain stubborn with the component rising by 0.46% in July to 4.7% YoY. That figure, however, was heavily influenced by rising stock prices (as flagged in yesterday's note).

🛒 Consumers, meanwhile, are not letting modest price increases get in the way of their spending. In fact, household spending increased by 0.8% in July, which ranks as the fastest pace since January. At the same time, wage growth slowed and real disposable income (which is adjusted for inflation) fell for the first time in 13 months (shown above). So what's fueling the rise in spending? Most likely, consumers are dipping into savings: the personal savings rate fell by the most since early 2022 in July, dropping to 3.5% from 4.8%.

📈 The S&P 500 is up roughly 3% over the last 10 days. How have investors reacted to recent price action? According to AAII, individual investor sentiment barely budged last week with the latest survey revealing only a modest rebound in bullish sentiment. Professional money managers, on the other hand, were a bit more reflexive. According to NAAIM, active managers piled back into equities over the past week, increasing their exposure to 61 from 34 and completely erasing the previous week's decline. Turning to State Street's Investor Confidence Index—which measures institutional investor confidence—we find that August saw the largest improvement since December 2020 with the index reaching its highest level since September (shown above).

📉 Elsewhere, sentiment towards equities is plunging. And by elsewhere, we mean China, where foreign investors sold a record $12 billion worth of stocks in August (shown above). According to data from Goldman Sachs, hedge funds capitulated Chinese stocks throughout August as well, bringing positioning in the region down to the 24th percentile on a 5.5-year lookback. Meanwhile, relative to their American counterparts (read: the S&P 500), Chinese stocks are trading at their lowest levels since 2001. There are, however, signs of dip buying: China's largest stock-focused ETF raked in record inflows in August as investors bet on a turnaround in the world's second-largest economy.

🛢️ Russia and OPEC+ have agreed to reduce crude oil exports. The details surrounding the cuts are set to be announced next week but the meeting suggests both Russia and Saudi Arabia will extend voluntary production cuts into October. Previously, Russia had pledged to cut exports by 500k barrels per day (bpd) in August and 300k bpd in September. Saudi Arabia, meanwhile, has been curbing exports by 1 million bpd since July.

📊 Yesterday's highlights:

LULU Lululemon: $2.68 EPS (vs. $2.54 expected) ✅, $2.21 billion in revenue (vs $2.17B expected) ✅.

• Strong international growth fueled 18% and 19% YoY increases to the top and bottom lines, respectively.

• Sales outside the US jumped by 52% while China sales increased by 61%.

• The retailer raised its full-year outlook for profit and sales while issuing current quarter guidance that was in line with analysts' estimates.

• China weakness: China is seeing continued weakness in real estate, manufacturing, and consumer spending.

• China real estate: Home sales in the region fell for the 3rd straight month in August.

• Adani report: Adani shares slid and politicians are demanding action following a new revealing report.

• Wagner control: Vladimir Putin is moving to take control of the Wagner paramilitary group.

• Mortgage rates: US mortgage rates declined for the first time in 6 weeks.

• Jobless claims: Initial claims for unemployment benefits dropped to the lowest level in 4 weeks.

• Freight rebound: Various measures are pointing to improving conditions for the US freight industry.

• Autos x AI: Qualcomm wants to leverage generative AI to encourage automakers to adopt its chips.

• E-commerce: Shopify is partnering with Amazon to incorporate the latter's "Buy with Prime" feature into its app ecosystem.

• Arm IPO: Arm will launch its investor roadshow after Labor Day and is expected to set a price range next week.

• High fashion: Next Plc will acquire a 34% stake in UK fashion house Reiss for $162 million.

• LNG stake: Australia's Santos is selling a ~3% stake in its PNG LNG project for $736 million.

• Cosmetics leadership: Kylie Jenner is considering reclaiming ownership of cosmetics brand Coty.

Sources

• https://www.dailychartbook.com/p/daily-chartbook-271

• https://www.chartstorm.info/p/chart-of-the-day-institutional-investor

• https://www.ft.com/content/8a6d78e1-fa95-4e7c-aade-47b33f658468

• https://www.cnbc.com/2023/08/31/lululemon-lulu-earnings-q2-2023.html

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