Good Morning!

Blackrock, the world’s largest money manager overseeing +$9.1 trillion in assets says that we could be headed for a “full employment recession”. Yep, you heard that right – the economy contracts, but everyone still has their jobs.

💳 US consumers are reaching for the plastic, a lot. Today, ~69% of Americans have a credit card compared to 65% in December 2019 and 59% in December 2013. There are now 700 million more credit card accounts than there were before the pandemic hit. That’s according to the New York Fed’s latest Household Debt and Credit Report which reveals credit card balances increased by 4.6% during the quarter and crossed above $1 trillion for the first time ever. While that might sound alarming—and the headlines sure make it seem that way—credit card debt as a percentage of total deposits (shown above) remains historically low at 5.8%.

🌥️ Optimism among small business owners has been improving for 3 consecutive months. NFIB’s Small Business Optimism Index unexpectedly rose in July, increasing to 91.9 (vs. 90.6 est) from 91 in June. That’s the highest since November. And while the business outlook remains negative, expectations increased to the best level since August 2021. Inflation is also no longer the single-most important problem for small businesses, now replaced by quality of labor. Meanwhile, the percentage of businesses planning to raise prices dropped to the lowest since January 2021.

🔍 Investors are mostly overweight equities. In terms of exposure levels, aggregate equity positioning ticked down last week to the 70th percentile. Discretionary investors—now in the 68th percentile—led the way while systematic strategies were mostly flat and sit in the 74th percentile. Vol-control and CTA exposure are in the 59th and 85th percentiles, respectively. Still underweight, however, are mutual funds and hedge funds. The former’s beta to the S&P 500 remains well below average while the latter’s (shown above) signal peak bearishness towards stocks.

📉 Credit rating agencies are flashing their power. Less than a week after Fitch bumped America’s credit rating down to AA+ from AAA, Moody’s has set its sights on the country’s lenders. The firm lowered the ratings of 10 small banks, including M&T Bank, Webster Financial, and BOK Financial, citing concerns about the health of the sector amid higher rates and recent bank failures. But it didn’t stop there: the agency warned downgrades could be on the way for larger lenders like US Bancorp, NY Mellon, and State Street, among others.

🛢️ The US Energy Information Administration (EIA) revised up its oil price forecast for the second half of 2023. It now sees Brent averaging $86 per barrel, up from $79 in its July estimate. EIA predicts oil production will average 12.8 million barrels per day (bdp) in 2023 before rising above 13 million bpd by early 2024.

📊 Yesterday's highlights:

LLY Eli Lilly: $2.11 EPS (vs. $1.98 expected) ✅, $8.31 billion in revenue (vs. $7.58 expected) ✅.

• The company’s 85% YoY surge in profits was led by strong sales from its weight-loss drug, Mounjaro.

• Management raised guidance for the full year on both the top and bottom lines

UPS United Parcel Service: $2.54 EPS (vs. $2.50 expected) ✅, $22.06 billion in revenue (vs. $23.04B expected) ❌.

• Profits and revenue fell 27% and 11% YoY, respectively.

• Declining global delivery volumes and labor contract negotiations with the Teamsters remain headwinds for the company.

• The company lowered its full-year guidance for revenue and margins below previous forecasts.

👀 What we’re watching today:

• DIS Walt Disney

• SONY Sony Group

• TTD Trade Desk

• MFC Manulife Financial

• ILMN Illumina

• RBLX Roblox

• BAM Brookfield Asset Management

• WYNN WYNN Resorts

• UHAL U-Haul

• APP Applovin

• VST Vistra

• CRL Charles River Lab

• Trade deficit: The trade deficit narrowed sharply in June as imports fell more than exports.

• Investment ban: The Biden administration plans to ban certain private equity and venture capital investments in China.

• WhatsApp fine: Wall Street banks are paying a collective $549 million for improper use of WhatsApp.

• Fed optimism: Philly Fed President Harker sees us on the path to a soft landing.

• AI hub: Academic strength, a multicultural environment, and progressive immigration policies are making Toronto an AI startup hub.

• AI chips: Nvidia has unveiled a new powerful chip processor for the AI market.

• WeWorried: WeWork says there’s “substantial doubt” it can stay in business.

• DeFi: Bitcoin got a boost following Moody’s downgrade of several US lenders.

• IPO grounds: The NYSE and Nasdaq are competing intensely for new high-profile listings.

• Gambling shuffle: Penn Entertainment has sold Barstool Sports back to its founder and entered into a 10-year exclusive partnership with ESPN.

• Book publisher: KKR will buy Simon & Schuster from Paramount Global for $1.62 billion.

• SoftBank offensive: After its first profitable quarter in 2.5 years, SoftBank is pressing ahead cautiously with new AI bets.

• Indigenous deal: Canada plans to sell a stake in the Trans Mountain oil pipeline to indigenous groups.

Sources:

• https://www.newyorkfed.org/microeconomics/hhdc.html

• https://twitter.com/callieabost/status/1688951289202323469?s=20

• https://www.nfib.com/content/press-release/economy/small-business-owners-continue-to-manage-challenging-economic-environment-in-july/

• https://blog.unlimitedfunds.com/harnessing-the-wisdom-of-the-crowd-to-mitigate-down-side-risk

• https://www.eia.gov/outlooks/steo/pdf/steo_full.pdf

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