Good Morning!

The FED’s preferred inflation metric the PPI (core) came in slightly above expectations 2.4% vs 2.3%. The market is now expecting only a 10% probability of a 0.25% rate hike in September.

Do we believe it?

📉 Tough to find many qualms with yesterday’s CPI print. Headline and core inflation rose in line with expectations in July with the latter posting the smallest back-to-back monthly increases in over 2 years. Driving inflation lower were energy, food, and used car prices. By contrast, the shelter component of inflation remains stubbornly high despite showing continued deceleration. In fact, shelter costs drove more than 90% of the overall increase in prices. Given the component’s lagging nature, however, this should prove positive for lower inflation ahead. You see, real-time indicators of housing costs (i.e., Zillow, Redfin, etc) point to lower prices over the coming months.

🏘️ Speaking of housing costs…According to Redfin’s latest housing market update, low demand and lower supply are keeping upward pressure on prices. New listings fell 17% YoY in the 4 weeks ending August 6 while the total number of homes listed for sale fell by 18%, the largest drop since the start of 2022. The result was the largest annual increase (3%) in the median home sale price since November. As for affordability, the monthly mortgage payment on the median asking price is up over 17% YoY and sits just ~1% below its record high from last month (shown above).

🐻 To quote Real Money’s Helene Meisler, there’s “nothing like price to change sentiment”. The AAII Sentiment Survey—which gives us insights into the retail investor’s outlook—turned slightly more bearish over the past week with the percentage of bullish votes falling to 44.7% from 49%. Even so, the percentage of bullish investors sits in the 77th percentile. For a temperature check on the “smart money”, we turn to the NAAIM Exposure Index (shown above) which reveals active managers have sharply reduced their exposure to equities over the last 14 days. In fact, it’s the first back-to-back decline in the index since February. Just two weeks ago exposure was at its highest since November 2021.

📉 Vol-control funds could spark a sharp sell-off. According to Goldman Sachs, positioning across volatility targeting strategies is in the 99th percentile on a 10-year lookback, and risk in CTAs strategies is skewed asymmetrically to the downside. In other words, there’s a ton of potential supply (sellers) out there. Nomura suspects a 1% move in the S&P 500 in either direction could prove to be the catalyst that sparks an “enormous” sell-off. Year-to-date, the S&P has moved 1% up or down from close-to-close in 42 days so far.

⚡ The Department of Energy (DOE) is granting $1.2 billion towards carbon capture projects. While still nascent, direct air capture (DAC) technology promises a path to net zero by sucking (or capturing) carbon dioxide out of the atmosphere. Warren Buffett-favorite Occidental Petroleum is one of just two funding recipients thus far. The money will be used to develop DAC hubs that the DOE predicts will capture over 2 million metric tons of carbon dioxide per year.

📊 Yesterday's highlights:

NVO Novo Nordisk: $1.28 EPS (vs. $1.36 expected) ❌, $8.03 billion in revenue (vs. $8.21B expected) ❌.

• Sales of obesity treatments more than tripled YoY.

• Despite missing overall revenue estimates for the quarter, the company raised its full-year sales outlook above Wall Street consensus.

👀 What we’re watching today:

• SPB Spectrum Brands

• SHCO Soho House

• Chinese hedge funds: China’s $832 billion hedge fund industry is about to undergo a historic overhaul.

• UK GDP: The UK economy expanded by more than expected in the second quarter, rising by 0.2%.

• Executive request: President Biden has asked Congres for an additional $24 billion in Ukraine funds as part of a new $40 billion request.

• Treasuries outlook: The arguments for US long rates moving higher…and lower.

• Oil warning: The IEA cut its 2024 oil demand forecast, but not before warning of higher prices in 2023.

• Twitter rebrand: X CEO Linda Yaccarino says the name change was a step toward transforming Twitter into the everything app.

• Consulting gigs: Recent college grads are getting paid $25k to not work.

• Sackler settlement: The Supreme Court blocked Purdue Pharma’s $6 billion settlement with the Sackler family owners.

• Solar IPO: Blackstone-backed Esdec Solar is seeking to IPO at a $5 billion valuation.

• Content SPAC: FC Barcelona’s content creation unit, Barca Media, will go public in a $1 billion SPAC merger.

• Content moderation: Hive AI, an AI-powered content moderation firm, is seeking $200 million at a $4 billion valuation.

• Sports media: MLB and NBA league reps have expressed hesitancy in partnering with ESPN.

• Girl power: Women’s sports have been raking in new deals and partnerships.

Sources:

• https://www.redfin.com/news/housing-market-update-low-demand-lower-supply-high-prices/

• https://www.aaii.com/sentimentsurvey

• https://www.naaim.org/programs/naaim-exposure-index/

• https://www.bloomberg.com/news/articles/2023-08-10/a-week-of-1-moves-on-the-s-p-500-could-trigger-forced-selling

• https://www.investors.com/news/technology/novo-nordisk-stock-novo-nordisk-earnings-q2-2023/

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