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Good Morning!

All eyes on the U.S. consumer this week as Home Depot, Target, and Walmart report earnings and July retail sales data drops. With consumer spending making up +70% of the U.S. economy, dissecting this data is crucial for uncovering hints of an incoming recession.

Prices as of 4 pm EST, 8/11/23

@LizAnnSonders

📊 While last week’s CPI print was cooler than expected, upstream prices proved stickier in July. Headline and core producer prices came in above Wall Street consensus with each rising by 0.3% last month (vs. +0.2% est). They were the sharpest monthly increases since January and November, respectively. On an annual basis (shown above), headline prices increased by 0.8% (vs. +0.7% est) while core rose by 2.4% (vs. 2.3% est). Driving the index higher were services costs which saw their largest monthly increase since August 2022. The bulk of those gains, however, came from a 7.6% surge in prices for portfolio management, which can largely be explained by the stock market’s big recent gains. Good prices, meanwhile, rose only modestly (excluding food and energy).

Goldman Sachs, @isabelnet_sa

✂️ When will the Fed begin cutting interest rates? The answer to that question depends on who you ask. Odds provided by CME Group show traders are placing the highest chances of a cut in May of next year. Economists at Goldman Sachs agree, expecting the first rate cut will be delivered in Q2 2024. Across the Street, JPMorgan doesn’t see Powell & Co. cutting rates until the second half of 2024. Next door, Morgan Stanley is more optimistic, predicting the first reduction in rates to arrive in Q1. Something most investors can agree on: the Fed will pause at its upcoming meeting on September 20.

  • Monday: Consumer inflation expectations

  • Tuesday: Retail sales, NY Empire State Manufacturing Index, Import/Export prices, business inventories, API stocks change

  • Wednesday: Building permits, housing starts, industrial production, FOMC minutes

  • Thursday: Philadephia Fed Manufacturing Index, jobless claims, CB Leading Index

  • Friday: Baker Hughes rig count

Topdown Charts

🐻 What can leveraged ETFs tell us about the overall investor outlook? So far in 2023, assets under management (AUM) for leveraged long ETFs have been rising steadily. At the same time, AUM for leveraged short ETFs have modestly declined. This combination points to bullish positioning among investors. That trend has recently reversed, however, with flows now gravitating to short ETFs as stocks experience a pullback/possible correction. Confirming the recent trend are ETF volumes, which have recently spiked in favor of bearish funds (shown above).

Financial Times

🧵 Remember Threads? As Elon Musk and Mark Zuckerberg hash out the details of their (increasingly unlikely) cage match, the battle between Twitter and Threads looks to have a clear winner already. After gaining 100 million users in the 5 days following its launch (something which took Twitter 5 years to do), Threads shattered download records and had talking heads prematurely calling for Twitter’s funeral. Over the past 3 weeks, however, DAUs at Threads have plunged by ~80%, falling to just 11 million. Twitter, meanwhile, saw DAUs increase slightly over the same period to nearly 120 million. Pardon the pun, but it appears as though Threads is…unraveling.

🛢️ The number of US oil and natural gas rigs in operation–a proxy for future output–fell for the 5th consecutive week. The total rig count dropped from 659 to 654, the lowest since March 2022. It was the 14th drop in 15 weeks. The number of oil rigs remained steady after falling for 8 straight weeks but remains at its lowest since March 2022 at 525 rigs, while the number of gas rigs (123) is at its lowest since February 2022. Meanwhile, the recovery in oil continues with prices hitting a fresh YTD high last week.

The Transcript

👀 What we’re watching today:

  • SU Suncor

  • ROIV Roivant

  • MNDY Monday.com

  • ERJ Embraer

  • FTRE Fortrea

  • SLRN Acelyrin

  • RUM Rumble

  • GETY Getty Images

  • Yield curve clues: Wall Street is becoming more confident the US can avoid a recession.

  • Takeover class action: Credit Suisse shareholders plan to sue the lender over its UBS takeover.

  • AI race: Amazon is developing custom microchips for generative AI to compete with Microsoft and Google in the space.

  • Labor supply: The previously Covid-affected labor supply has returned to pre-pandemic levels.

  • Red flag: One of China’s largest private wealth managers has raised alarms after missing payments on high-yield investment products.

  • Food budgets: Supermarkets and restaurants are revamping meals, expanding menus, and offering discounts to attract consumers amid high prices.

  • Smells fishy: Deloitte has resigned as auditor for Adani Ports, Gautam Adani’s logistics unit.

  • SBF jailed: A US judge has sent Sam Bankman-Fried to jail over alleged witness tampering.

  • Steel M&A: US Steel has rejected a +$7 billion takeover offer from Cleveland-Cliffs.

  • Healthcare tech: Exor has acquired a 15% stake in Royal Philips for ~$2.82 billion.

  • Wireless stake: Mastercard is taking a minority stake in Africa’s biggest wireless carrier, MTN Group.

  • Mortgage tech: Intercontinental Exchange’s $12 billion takeover of Black Knight could transform the $12 trillion US mortgage market.

  • Arm IPO: SoftBank is in talks to acquire the remaining 25% stake in Arm from Vision Fund 1.

The author, publisher or insiders of the publisher may currently have long or short positions in the securities of the companies mentioned herein, or may have such a position in the future (and therefore may profit from fluctuations in the trading price of the securities). To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.

Sources:

  • https://www.bloomberg.com/news/articles/2023-08-13/goldman-pencils-in-first-fed-rate-cut-for-second-quarter-of-2024?srnd=premium

  • https://www.chartstorm.info/p/weekly-s-and-p500-chartstorm-13-august

  • https://www.ft.com/content/330d8771-7b0e-40e3-8574-b5b6921a4486

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