Futures Slide On Stagflation Fears As 10Y Yields Spike
Futures Slide On Stagflation Fears As 10Y Yields Spike
US index futures dropped after IBM and Tesla fell after their quarterly results, with investors turned cautious awaiting more reports to see the see the adverse impact of supply chain…
US index futures dropped after IBM and Tesla fell after their quarterly results, with investors turned cautious awaiting more reports to see the see the adverse impact of supply chain disruption and labor shortages on companies even as jitters remained over elevated inflation and the outlook for China’s property sector. The dollar reversed an overnight drop, while Treasuries fell pushing the 10Y yield to a 5-month high of 1.68%. At 745 a.m. ET, Dow e-minis were down 98 points, or 0.3%, S&P 500 e-minis were down 14 points, or 0.31%, and Nasdaq 100 e-minis were down 49.25 points, or 0.32%.
In the premarket, Tesla fell 1% in premarket trading as it said on Wednesday its upcoming factories and supply-chain headwinds would put pressure on its margins after it beat Wall Street expectations for third-quarter revenue. AT&T rose 1% in pre-market trading after exceeding Wall Street’s expectations for profit and wireless subscriber growth. PayPal Holdings also climbed as it explores a $45 billion acquisition of social media company Pinterest Inc., in what could be the biggest technology deal of the year. Dow gained 1.1% after it posted a more than a five-fold jump in third-quarter profit as economic recovery boosted prices for chemicals. IBM plunged 4.7% after it missed market estimates for quarterly revenue as its managed infrastructure business suffered from a decline in orders. Some other notable premarket movers:
- Digital World Acquisition (DWAC US) surges 30% after the blank-check company agreed to merge with Trump Media & Technology. Former U.S. President Donald Trump says the new company plans to start a social media firm called Truth Social.
- Denny’s (DENN US) rises 1.4% as the restaurant chain is upgraded to buy from hold at Truist Securities, which sees upside to 3Q estimates, partly due to expanding operating hours.
- ESS Tech (GWH US) adds 4.6% as Piper Sandler says the stock offers a compelling entry point for investors seeking exposure to energy storage, initiating coverage at overweight.
As Bloomberg notes, corporate results have tempered but not dissipated worries that cost pressures could slow the pandemic recovery. Among S&P 500 companies that have disclosed results, 84% have posted earnings that topped expectations, a hair away from the best showing ever. Yet, the firms that surpassed profit forecasts got almost nothing to show for it in the market. And misses got punisheddearly, by the widest margin since Bloomberg started tracking the data in 2017.
European equities faded early losses but remain in small negative territory. Euro Stoxx 50 is 0.4% lower having dropped ~0.8% at the open. IBEX lags peers. Miners led a retreat in Europe’s Stocks 600 index, while industrial commodities including copper and iron ore reversed earlier gains; retail and banks were also among the weakest sectors.
Concerns about the inflationary impact of higher prices have risen in recent days, with everyone from Federal Reserve officials to Tesla weighing in on cost pressures. Unilever Plc pushed rising raw material costs onto consumers, increasing prices by the most in almost a decade. Meanwhile, Hermes International said sales surged last quarter, showing resilience compared to rival luxury-goods makers. European autos dropped after Volvo Group warned that the global semiconductor shortage and supply-chain challenges will continue to cap truckmaking.
Here are some of the biggest European movers today:
- Soitec shares gain as much as 7.3% in Paris, the stock’s best day since June, after reporting 2Q results and raising its full- year sales forecast.
- BioMerieux shares rise as much as 5.9%. Sales in 3Q were well ahead of expectations on strong U.S. demand for BioFire respiratory panels, Jefferies (hold) writes in a note.
- Randstad shares rise as much as 4.7%, the most intraday since Dec. 2020, with RBC (sector perform) saying the staffing firm’s 3Q earnings topped estimates.
- Sodexo shares rise as much as 4.8% after activist investor Sachem Head took a stake in the French catering co., saying the investment is passive and that Sodexo is going “activist on itself.”
- Zur Rose shares fall as much as 8.1% after the Swiss online pharmacy cut its growth guidance and posted 3Q sales that Jefferies says missed consensus expectations.
- Nordic Semi shares drop as much as 7% before recovering some losses, after results; Mirabaud Securities says any weakness in the stock is a “great buying opportunity.”
- Eurofins shares drop as much as 7.5%, the most in nearly a year, after the laboratory-testing company left its 2021 Ebitda and free cash flow guidance unchanged, which Morgan Stanley says implies a lower Ebitda margin versus previous guidance.
- Bankinter shares fell as much as 6.6%, most intraday since December. Jefferies highlighted the weaker trend for the Spanish lender’s 3Q net interest income.
Earlier in the session, Asian equities fell in late-afternoon trading as investors sold Japanese and Hong Kong-listed tech shares, which helped trigger broader risk aversion among investors. Ailing China Evergrande Group sank on a worsening cash squeeze, while other developers rallied after regulators said their funding needs are being met. The MSCI Asia Pacific Index slid as much as 0.8%, with Japanese equities slumping by the most in over two weeks as the yen -- typically seen as a safe haven -- strengthened against the dollar, likely boosted by technical factors. Toyota Motor and Alibaba were the biggest drags on the regional benchmark as higher bond yields weighed on sentiment toward the tech sector. The story “shapes up to be worries about higher inflation and the follow-on policy response,” said Ilya Spivak, head of Greater Asia at DailyFX. Bucking the downtrend were Chinese developers, which shrugged off China Evergrande Group’s scrapping of a divestment plan and climbed after regulators said risks in the real estate market are controllable and reasonable funding needs are being met.
China was one of the region’s top-performing equity markets. Still, Asian stocks continue to feel pressure from higher U.S. bond yields as the 10-year rate surpassed 1.6%. In addition, earlier optimism about earnings is being muted by the outlook for inflation and supply-chain bottlenecks. Chinese growth, global supply constraints and inflation are “acting as a bit of a brake on markets,” said Shane Oliver, head of investment strategy & chief economist at AMP Capital. However, with U.S. equities trading near a record high, investors are “a bit confused,” he said.
Japanese equities fell by the most in over two weeks, extending losses in afternoon trading as the yen strengthened against the dollar. Electronics and auto makers were the biggest drags on the Topix, which fell 1.3%, with all 33 industry groups in the red. Tokyo Electron and Fast Retailing were the largest contributors to a 1.9% loss in the Nikkei 225. S&P 500 futures and the MSCI Asia Pacific Index similarly extended drops. “There has been a general turn in equity market sentiment evident by the afternoon decline in U.S. equity futures and main regional equity indexes,” said Rodrigo Catril, senior foreign-exchange strategist at National Australia Bank Ltd. “The reversal in risk-sensitive FX pairs like the AUD is reflecting this u-turn.” The Japanese currency gained 0.2% to 114.05 per U.S. dollar, while the Australian dollar weakened. The yen is still down 9.5% against the greenback this year, the worst among major currencies. Yen Faces Year-End Slump as U.S. Yield Premium Spikes With Oil The gain in the yen on Thursday probably followed technical indicators suggesting the currency was oversold and positioning seen as skewed, said Shusuke Yamada, head of Japan foreign exchange and rates strategy at Bank of America in Tokyo. The rally may be short-lived, as rising oil prices are expected to worsen Japan’s terms of trade, and monetary policies between Japan and overseas are likely to diverge further
In FX, the Bloomberg Dollar Spot Index reversed an earlier loss to rise as much as 0.2% as the greenback advanced versus all its Group- of-10 peers apart from the yen; risk-sensitive currencies, led by the New Zealand dollar, were the worst performers. The pound weakened against the dollar and was little changed versus the euro into the European session. U.K. government borrowing came in significantly lower than official forecasts, but a surge in debt costs sent a warning to the government ahead of the budget next week. The U.K.’s green gilt may price today, subject to market conditions, after being delayed earlier this week. The Australian and New Zealand dollars reversed intraday gains on sales against the yen following losses in regional stock indexes. A kiwi bond auction attracted strong demand. The yen headed for a second session of gains as a selloff in Japanese equities fuels haven bids. Government bonds consolidated.
In rates, the Treasury curve flattened modestly as yields on shorter-dated notes inched up, while those on longer ones fell; the bund curve shifted as yields rose about 1bp across the curve. Yields were richer by less than 1bp across long-end of the curve, flattening 2s10s, 5s30s spreads by ~1bp each; 10-year yields rose to a 5 month high of 1.68%, outperforming bunds by 2bp and gilts by 4bp on the day. Long end USTs outperform, richening ~2bps versus both bunds and gilts. Peripheral spreads tighten slightly. U.S. breakevens are elevated ahead of $19b 5Y TIPS new issue auction at 1pm ET.
In commodities, oil slipped from 7 year highs, falling amid a broad-based retreat in industrial commodities, though trader focus was glued to a surging market structure as inventories decline in the U.S.; Oil’s refining renaissance is under threat from the natural gas crisis; American drivers will continue to face historically high fuel prices. WTI was lower by 0.5% to trade near $83 while Brent declined 0.8% before finding support near $85. Spot gold is range-bound near $1,785/oz. Base metals are mixed. LME nickel and copper are deep in the red while zinc gains 1.5%. Bitcoin was volatile and dropped sharply after hitting an all time high just above $66,500.
Looking at the day ahead now, and data releases from the US include the weekly initial jobless claims, existing home sales for September, the Conference Board’s leading index for September, and the Philadelphia Fed’s business outlook for October. Central bank speakers will include the Fed’s Waller and the ECB’s Visco, while the Central Bank of Turkey will be making its latest monetary policy decision. Otherwise, earnings releases include Intel, Danaher, AT&T and Union Pacific.
- S&P 500 futures down 0.3% to 4,515.25
- STOXX Europe 600 down 0.2% to 469.02
- MXAP down 0.7% to 199.61
- MXAPJ down 0.4% to 659.34
- Nikkei down 1.9% to 28,708.58
- Topix down 1.3% to 2,000.81
- Hang Seng Index down 0.5% to 26,017.53
- Shanghai Composite up 0.2% to 3,594.78
- Sensex down 1.1% to 60,560.47
- Australia S&P/ASX 200 little changed at 7,415.37
- Kospi down 0.2% to 3,007.33
- Brent Futures down 1.0% to $84.98/bbl
- Gold spot up 0.2% to $1,785.09
- U.S. Dollar Index up 0.11% to 93.67
- German 10Y yield up 0.7 bps to -0.119%
- Euro down 0.1% to $1.1639
Top Overnight News from Bloomberg
- China Evergrande Group scrapped talks to offload a stake in its property-management arm and said real estate sales plunged about 97% during peak home-buying season, worsening its liquidity crisis on the eve of a dollar-bond deadline that could tip the company into default. Its shares plunged as much as 14% on Thursday.
- China’s goods imports from the U.S. have only reached about 53% of the $200 billion worth of additional products and services it promised to buy under the trade deal signed last year, far behind its purchasing target.
- Signs that policy makers are accelerating toward an interest-rate hike have traders fumbling around to figure out what that means for sterling. Money managers at Jupiter Asset Management and Aberdeen Asset Management turned neutral in recent days, following similar moves by Amundi SA and William Blair Investment Management.
- The price on eight out of 10 bonds sold in the first three quarters of this year by European investment-grade borrowers fell after issuance, wiping almost 23.5 billion euros ($27.3 billion) from portfolios.
- The Turkish lira is looking vulnerable as speculation grows that policy makers will cut interest rates again despite the deteriorating inflation outlook. Option traders see a more than 60% chance that the currency will weaken to an all-time-low of 9.50 per U.S. dollar over the next month, according to Bloomberg pricing. That’s the next key psychological threshold for a market trading largely in uncharted territory ahead of Thursday’s decision.
A more detailed look at global markets courtesy of Newsquawk
Asia-Pac indices traded somewhat mixed after the similar performance stateside where the broader market extended on gains in which the DJIA touched a fresh record high and the S&P 500 also briefly approached within 5 points of its all-time peak as attention remained on earnings, although the Nasdaq lagged with tech and duration-sensitive stocks pressured by higher longer-term yields. ASX 200 (+0.1%) was positive as Victoria state approaches the end of the lockdown at midnight and with the index led by outperformance in mining stocks and real estate. However, gains were capped amid weakness in energy as shares in Woodside Petroleum and Santos were pressured following their quarterly production results in which both posted a decline in output from a year ago, albeit with a jump in revenue due to the rampant energy prices, while Woodside also flagged a 27% drop in Wheatstone gas reserves. Nikkei 225 (-1.9%) felt the pressure from the pullback in USD/JPY and with focus shifting to upcoming elections whereby election consulting firm J.A.G Japan sees the LDP losing 40 seats but win enough to maintain a majority with a projected 236 seats at the 465-strong Lower House. Hang Seng (-0.5%) and Shanghai Comp. (+0.2%) were varied despite another respectable PBoC liquidity effort with the mood slightly clouded as Evergrande concerns persisted with Co. shares suffering double-digit percentage losses after it resumed trade for the first time in three weeks and after its deal to sell a stake in Evergrande Property Services fell through, while reports that Modern Land China cancelled its USD 250mln bond repayment plan on liquidity issues added to the ongoing default concerns although it was later reported that Evergrande secured a three-month extension on USD 260mln Jumbo Fortune bond which matured on October 3rd. Finally, 10yr JGBs traded flat with the underperformance in Japanese stocks helping government bonds overlook the pressure in global counterparts and continued losses in T-note futures following the weak 20yr auction stateside, although demand for JGBs was limited by the absence of BoJ purchases.
Top Asian News
- China Vows to Keep Property Curbs, Evergrande Risk Seen Limited
- Abu Dhabi Funds Hunt for Asian Unicorns Ahead of IPOs: ECM Watch
- Biden’s Pick for China Envoy Draws Sharp Lines With Beijing
- Carlyle, KKR Among Firms Said to Mull $2 Billion Tricor Bid
Bourses in Europe have held onto the downside bias seen since the cash open, but with losses less pronounced (Euro Stoxx 50 -0.4%; Stoxx 600 -0.2%) despite a distinct lack of news flow in the EU morning, and as Chinese property woes weighed on APAC markets, but with earnings seasons picking up globally. US equity futures are also softer with modest and broad-based losses ranging from 0.2-0.3%. Back to Europe, the Netherland’s AEX (+0.3%) outperforms as Unilever (+3.3%) also lifts the Personal & Household Goods sector (current outperformer) following its earnings, whereby underlying sales growth of +2.5%, as +4.1% price growth offset a -1.5% decline in volumes, whilst the group noted: "Cost inflation remains at strongly elevated levels, and this will continue into next year". The AEX is also lifted by Randstad (+4.5%) post earnings after underlying EBITDA topped forecasts. Sectors in Europe are mixed with a slight defensive bias. On the downside, there is clear underperformance in Basic Resources as base metals pull back, whilst Oil & Gas names similarly make their way down the ranks. In terms of individual movers. ABB (-5%) resides at the foot of the SMI (+0.2%) as the group sees revenue growth hampered by supply constraints. Nonetheless, flows into Food & Beverages supports heavy-weight Nestle (+1.0%) which in turn supports the Swiss index. Other earnings-related movers include Barclays (-0.4%), SAP (+1.5%), Carrefour (+1.5%), Nordea (-1.8%), and Swedbank (+2.7%).
Top European News
- Volvo Warns More Chip Woes Ahead Will Curtail Truck Production
- Hermes Advances After Dispelling Worries on China Demand
- Stagflation Risk Still Means Quick Rate Hikes for Czech Banker
- Weidmann Exit Could Pave Way for Bundesbank’s First Female Chief
In FX, the Dollar has regained some composure across the board amidst a downturn in broad risk sentiment, but also further retracement in US Treasuries from bull-flattening to bear-steepening in wake of an abject 20 year auction that hardly bodes well for the announcement of next week’s 2, 5 and 7 year issuance, or Usd 19 bn 5 year TIPS supply due later today. In index terms, a firmer base and platform around 94.500 appears to be forming between 93.494-701 parameters ahead of initial claims, the Philly Fed and more housing data as the focus switches to existing home sales, while latest Fed speak comes via Daly and Waller. However, the DXY and Greenback in general may encounter technical resistance as the former eyes upside chart levels at 93.884 (23.6% Fib of September’s move) and 93.917 (21 DMA), while a major basket component is also looking in better shape than it has been of late as the Yen reclaims more lost ground from Wednesday’s near 4 year lows to retest 114.00 in the run up to Japanese CPI tomorrow.
- NZD/AUD/NOK - No real surprise to see the high beta Antipodeans bear the brunt of their US rival’s revival and the Kiwi unwind some of its post-NZ CPI outperformance irrespective of the nation’s FTA accord in principle with the UK, while the Aussie has also taken a deterioration in NAB quarterly business business confidence into consideration. Nzd/Usd is back below 0.7200 and Aud/Usd has retreated through 0.7500 after stalling just shy of 0.7550 before comments from RBA Governor Lowe and the flash PMIs. Elsewhere, the Norwegian Crown has largely shrugged off the latest Norges Bank lending survey showing steady demand for credit from households and non-financial institutions, but seems somewhat aggrieved by the pullback in Brent from just above Usd 86/brl to under Usd 85 at one stage given that Eur/Nok is hovering closer to the top of a 9.7325-9.6625 range.
- EUR/CHF/GBP/CAD - All softer against their US counterpart, albeit to varying degrees as the Euro retains a relatively secure grip around 1.1650, the Franc straddles 0.9200, Pound pivots 1.3800 and Loonie tries to contain declines into 1.2350 having reversed from yesterday’s post-Canadian CPI peaks alongside WTI, with the spotlight turning towards retail sales on Friday after a passing glance at new housing prices.
- SEK/EM - Some traction for the Swedish Krona in a tight band mostly sub-10.0000 vs the Euro from a fall in the nsa jobless rate, but the Turkish Lira seems jittery following a drop in consumer confidence and pre-CBRT as another 100 bp rate cut is widely expected, and the SA Rand is on a weaker footing ahead of a speech by the Energy Minister along with Eskom’s CEO. Meanwhile, the Cnh and Cnh have lost a bit more momentum against the backdrop of ongoing stress in China’s property market, and regardless of calls from the Commerce Ministry for the US and China to work together to create conditions for the implementation of the Phase One trade deal, or fees on interbank transactions relating to derivatives for SMEs being halved.
In commodities, WTI and Brent Dec futures have gradually drifted from the overnight session peaks of USD 83.96/bbl and USD 86.10/bbl respectively. The downturn in prices seems to have initially been a function of risk sentiment, with APAC markets posting losses and Europe also opening on the back foot. At the time of writing, the benchmark resides around under USD 83/bbl for the former and sub-USD 85/bbl for the latter. Participants at this point are on the lookout for state interventions in a bid to keep prices from running. Over in China, it’s worth keeping an eye on the COVID situation – with China's Beijing Daily stating "citizens and friends are not required to leave the country, do not gather, do not travel or travel to overseas and domestic medium- and high-risk areas", thus translating to lower activity. That being said, yesterday’s commentary from the Saudi Energy Minister indicated how adamant OPEC is to further open the taps. UBS sees Brent at USD 90/bbl in December and March, before levelling off to USD 85/bbl for the remainder of 2022 vs prev. USD 80/bbl across all timelines. Elsewhere, spot gold and silver are relatively flat around USD 1,785 and USD 22.25 with nothing new nor interesting to report thus far, and with the precious metals moving in tandem with the Buck. Base metals meanwhile are softer across the board as global market risk remains cautious, with LME copper trading on either side of USD 10k/t.
US Event Calendar
- 8:30am: Oct. Continuing Claims, est. 2.55m, prior 2.59m
- 8:30am: Oct. Initial Jobless Claims, est. 297,000, prior 293,000
- 8:30am: Oct. Philadelphia Fed Business Outl, est. 25.0, prior 30.7
- 9:45am: Oct. Langer Consumer Comfort, prior 51.2
- 10am: Sept. Existing Home Sales MoM, est. 3.6%, prior -2.0%
- 10am: Sept. Leading Index, est. 0.4%, prior 0.9%
- 10am: Sept. Home Resales with Condos, est. 6.09m, prior 5.88m
DB's Jim Reid concludes the overnight wrap
I watched the first of the new series of Succession last night. I like this program as it makes me think I’ve got a totally normal and non-dysfunctional family. It’s a good benchmark to have.
There are few dysfunctional worries in equities at the moment as even with the pandemic moving back onto investors’ radars, the resurgence in risk appetite showed no sign of diminishing yesterday, with the S&P 500 (+0.37%) closing just a whisker below early September’s record high. It’s an impressive turnaround from where the narrative was just a few weeks ago, when the index had fallen by over -5% from its peak as concerns from Evergrande to a debt ceiling crunch set the agenda. But the removal of both risks from the immediate horizon along with another round of positive earnings reports have swept away those anxieties. And this has come even as investors have become increasingly sceptical about the transitory inflation narrative, as well as fresh signs that Covid-19 might be a serious issue once again this winter.
Starting with the good news, US equities led the way yesterday as a number of global indices closed in on their all-time highs. As mentioned the S&P 500 rallied to close just -0.02% beneath its record, which came as part of a broad-based advance that saw over 75% of the index move higher. Elsewhere, the Dow Jones (+0.43%) also closed just below its all-time high back in August. After the close, Tesla fell short of revenue estimates but beat on earnings, despite materials shortages and port backlogs that have prevented production from reaching full capacity, a common refrain by now. Overall 17 out of 23 S&P 500 companies beat expectations yesterday, meaning that the US Q3 season beat tally is now 67 out of 80. Meanwhile in Europe, equities similarly saw advances across the board, with the STOXX 600 (+0.32%) hitting its highest level in over a month, as it moved to just 1.2% beneath its record back in August.
For sovereign bonds it was a more mixed picture, with 10yr Treasury yields moving higher again as concerns about inflation continued to mount. By the close of trade, the 10yr yield had risen +2.0bps to 1.57%, which was driven by a +4.6bps increase in inflation breakevens to 2.60%, their highest level since 2012. That came as oil prices hit fresh multi-year highs after the US EIA reported that crude oil inventories were down -431k barrels, and gasoline inventories were down -5.37m barrels, which puts the level of gasoline inventories at their lowest since November 2019. That saw both WTI (+1.10%) and Brent crude (+0.87%) reverse their earlier losses, with WTI closing at a post-2014 high of $83.87/bbl, whilst Brent hit a post-2018 high of $85.82/bbl. Yields on 2yr Treasuries fell -1.0bps however, after Fed Vice Chair Quarles and President Mester joined Governor Waller in pushing back against the more aggressive path of Fed rate hikes that has recently been priced in. Even so however, money markets are still implying around 1.75 hikes in 2022, about one more hike than was priced a month ago. Separately in Europe, sovereign bonds posted a much stronger performance, with yields on 10yr bunds (-2.0bps), OATs (-2.6bps) and BTPs (-3.4bps) all moving lower.
Overnight in Asia stocks are trading higher this morning with the Shanghai Composite (+0.46%), CSI (+0.35%) and KOSPI (+0.23%) all advancing, whilst the Hang Seng (-0.20%) and the Nikkei (-0.45%) have been dragged lower by healthcare and IT respectively. Meanwhile Evergrande Group (-12.60%) fell sharply in Hong Kong after news that it ended talks on the sale of a majority stake in its property services division to Hopson Development. And we’ve also seen a second day of sharp moves lower in Chinese coal futures (-11.0%) as the government is mulling measures to curb speculation. And there have also been a number of fresh Covid cases in China, with 21 new cases reported yesterday, as the city of Lanzhou moved to shut down schools in response. Elsewhere in Asia, with just 10 days now until Japan’s general election, a poll by Kyodo News found that the ruling Liberal Democratic Party would likely maintain its parliamentary majority. Futures markets are indicating a slow start for markets in the US and Europe, with those on the S&P 500 (-0.09%) and the DAX (-0.05%) both pointing lower.
As we’ve been mentioning this week, the Covid-19 pandemic is increasingly returning onto the market radar, with the number of global cases having begun to tick up again. This has been reflected in a number of countries tightening up restrictions, and yesterday saw Russian President Putin approve a government proposal that October 31 to November 7 would be “non-working days”. In the Czech Republic, it was announced that mask-wearing would be compulsory in all indoor spaces from next week, and New York City moved to mandate all municipal workers to get vaccinated, with no alternative negative test result option now available. In Singapore, it was announced that virus restrictions would be extended for another month, which includes a limit on outdoor gatherings to 2 people and a default to work from home. Finally in the UK, the weekly average of cases has risen above 45k per day, up from just under 30k in mid-September. There is lots of talk about the need to put in place some additional restrictions but it feels we’re a fair way from that in terms of government-mandated ones.
From central banks, it was announced yesterday that Bundesbank president Weidmann would be stepping down on December 31, leaving his position after just over a decade. He said that he was leaving for personal reasons, and in his letter to the Bundesbank staff, said that “it will be crucial not to look one-sidedly at deflationary risks, but not to lose sight of prospective inflationary dangers either.” It’ll be up to the next government to decide on the new appointment.
Staying on Europe, our economists have just released an update to their GDP forecasts, with downgrades to their near-term expectations as supply shortages for goods and energy have created headwinds for the recovery. They now see 2021 growth at +4.9% (down -0.1pp from their previous forecast), whilst 2022 has been downgraded to 4.0% (-0.5pp). Alongside that, they’ve also included the latest oil and gas price movements into their inflation forecasts, and now project Euro Area 2022 HICP at 2.3%, although they don’t see this above-target inflation persisting, with their 2023 HICP forecast remaining unchanged at 1.5%. You can read the full note here.
Speaking of inflation, we had a couple of inflation releases yesterday, including the UK’s CPI data for September, which came in slightly beneath expectations at 3.1% (vs. 3.2% expected), whilst core CPI also fell to 2.9% vs. 3.0% expected). As we discussed earlier this week though, there was some downward pressure from base effects, since in September 2020 we had a recovery in restaurant and cafe prices after the government’s Eat Out to Help Out scheme in August ended, and that bounce back has now dropped out of the annual comparisons. UK inflation will rise a fair amount in the months ahead. Otherwise, we also had the CPI release from Canada for September, which rose to 4.4% (vs. 4.3% expected), which is its highest reading since February 2003.
Finally, bitcoin hit an all-time high, with the cryptocurrency up +2.92% to close at a record $65,996, which was slightly down from its intraday peak of $66,976. Bitcoin has surged over recent weeks, and as it stands it’s up +49.3% so far this month at time of writing, which would mark its strongest monthly performance so far this year. This latest move has occurred along with the first trading of options on Bitcoin-linked ETFs, which the US first listed the day prior.
To the day ahead now, and data releases from the US include the weekly initial jobless claims, existing home sales for September, the Conference Board’s leading index for September, and the Philadelphia Fed’s business outlook for October. Central bank speakers will include the Fed’s Waller and the ECB’s Visco, while the Central Bank of Turkey will be making its latest monetary policy decision. Otherwise, earnings releases include Intel, Danaher, AT&T and Union Pacific.
Costco Tells Americans the Truth About Inflation and Price Increases
The warehouse club has seen some troubling trends but it’s also trumpeting something positive that most retailers wouldn’t share.
Costco has been a refuge for customers during both the pandemic and during the period when supply chain and inflation issues have driven prices higher. In the worst days of the covid pandemic, the membership-based warehouse club not only had the key household items people needed, it also kept selling them at fair prices.
With inflation -- no matter what the reason for it -- Costco (COST) - Get Free Report worked aggressively to keep prices down. During that period (and really always) CFO Richard Galanti talked about how his company leaned on vendors to provide better prices while sometimes also eating some of the increase rather than passing it onto customers.
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That wasn't an altruistic move. Costco plays the long game, and it focuses on doing whatever is needed to keep its members happy in order to keep them renewing their memberships.
It's a model that has worked spectacularly well, according to Galanti.
"In terms of renewal rates, at third quarter end, our US and Canada renewal rate was 92.6%, and our worldwide rate came in at 90.5%. These figures are the same all-time high renewal rates that were achieved in the second quarter, just 12 weeks ago here," he said during the company's third-quarter earnings call.
Galanti, however, did report some news that suggests that significant problems remain in the economy.
Costco Does See Some Economic Weakness
When people worry about the economy, they sometimes trade down when it comes to retailers. Walmart executives (WMT) - Get Free Report, for example, have talked about seeing more customers that earn six figures shopping in their stores.
Costco has always had a diverse customer base, but one weakness in its business may be a warning sign for its rivals like Target (TGT) - Get Free Report, Best Buy (BBY) - Get Free Report, and Amazon (AMZN) - Get Free Report. Galanti broke down some of the numbers during the call.
"Traffic or shopping frequency remains pretty good, increasing 4.8% worldwide and 3.5% in the U.S. during the quarter," he shared.
People shopped more, but they were also spending less, according to the CFO.
"Our average daily transaction or ticket was down 4.2% worldwide and down 3.5% in the U.S., impacted, in large part, from weakness in bigger-ticket nonfood discretionary items," he shared.
Now, not buying a new TV, jewelry, or other big-ticket items could just be a sign that consumers are being cautious. But, if they're not buying those items at Costco (generally the lowest-cost option) that does not bode well for other retailers.
Galanti laid out the numbers as well as how they broke down between digital and warehouse.
"You saw in the release that e-commerce was a minus 10% sales decline on a comp basis," he said. "As I discussed on our second quarter call and in our monthly sales recordings, in Q3, big-ticket discretionary departments, notably majors, home furnishings, small electrics, jewelry, and hardware, were down about 20% in e-com and made up 55% of e-com sales. These same departments were down about 17% in warehouse, but they only make up 8% in warehouse sales."
Costco's CFO Also Had Good News For Shoppers
Galanti has been very open about sharing information about the prices Costco has seen from vendors. He has shared in the past, for example, that the chain does not pass on gas price increases as fast as they happen nor does it lower prices as quick as they sometimes fall.
In the most recent call, he shared some very good news on inflation (that also puts pressure on Target, Walmart, and Amazon to lower prices).
"A few comments on inflation. Inflation continues to abate somewhat. If you go back a year ago to the fourth quarter of '22 last summer, we had estimated that year-over-year inflation at the time was up 8%. And by Q1 and Q2, it was down to 6% and 7% and then 5% and 6%," he shared. "In this quarter, we're estimating the year-over-year inflation in the 3% to 4% range."
The CFO also explained that he sees prices dropping on some very key consumer staples.
"We continue to see improvements in many items, notably food items like nuts, eggs and meat, as well as items that include, as part of their components, commodities like steel and resins on the nonfood side," he added.
commodities pandemic canada
Under Pressure From Fat Activists, NYC Bans Weight Discrimination
Under Pressure From Fat Activists, NYC Bans Weight Discrimination
Discriminating against fat people is now illegal in New York City, after…
Discriminating against fat people is now illegal in New York City, after Mayor Eric Adams on Friday signed off on a ban that will affect not only employment, but also housing and access to public accommodations -- a term that encompasses most businesses.
We're in safe company using the word "fat," as champions of the cause refer to themselves as "fat activists." With the mayor's signature, two more categories -- both weight and height -- are added to New York City's list of protected personal attributes, which already included race, gender, age, religion and sexual orientation.
Embracing one of 2023's innumerable strains of Orwellian brainwashing, Adams declared, "Science has shown that body type is not a connection to if you’re healthy or unhealthy. I think that’s a misnomer that we’re really dispelling.”
Even the Centers for Disease Control and Prevention say obesity is an invitation to a host of maladies, including to high blood pressure Type 2 diabetes, coronary heart disease, stroke, gall bladder disease, many types of cancer, mental illness and difficulty with physical functioning.
“Size discrimination is a social justice issue and a public health threat," said Councilmember Shaun Abreu, who introduced the measure. "People with different body types are denied access to job opportunities and equal wages — and they have had no legal recourse to contest it," said Abreu. "Worse yet, millions are taught to hate their bodies."
A full 69% of American adults are overweight or obese, but our woke overlords would have us believe the real "public health threat" is a nice restaurant that doesn't want Two-Ton Tessie working the reception desk, or a landlord who's leary of a 400-pound man breaking a toilet seat or collapsing a porch.
The enticingly-named Tigress Osborn, who chairs the National Association to Advance Fat Acceptance, said New York's ban "will ripple across the globe" -- perhaps something like what would happen if the hefty Smith College Africana Studies graduate were dropped into a swimming pool.
The New York Times reports that witnesses who testified as the measure was under consideration included "a student at New York University said that desks in classrooms were too small for her [and] a soprano at the Metropolitan Opera [who] said she had faced body shaming and pressure to develop an eating disorder."
Some have dared to speak out against the measure. “This is another mandate where enforcement will be primarily through litigation, which imposes a burden on employers, regulators and the courts,” said Kathryn S. Wylde, president of the Partnership for New York City, speaking in April.
Implicitly putting the weight ordinance in the same category as Brown vs Board of Education, Abrue said, “Today is a monumental advancement for civil rights, size freedom and body positivity and while our laws are only now catching up to our culture, it is a victory that I hope will cause more cities, states and one day the federal government to follow suit.”
Taking effect in six months, the law has an exemption for employers "needing to consider height or weight in employment decisions" -- but "only where required by federal, state, or local laws or regulations or where the Commission on Human Rights permits such considerations because height or weight may prevent a person from performing essential requirements of a job."
We pray there's a federal exemption for employers of strippers and
Think we're joking? We remind you that the chair of the National Association to Advance Fat Acceptance is named "Tigress" -- and this is her Twitter profile banner photo:
“What’s More Tragic Is Capitalism”: BLM Faces Bankruptcy As Founder Cullors Is Cut By Warner Bros
"What’s More Tragic Is Capitalism": BLM Faces Bankruptcy As Founder Cullors Is Cut By Warner Bros
Authored by Jonathan Turley,
Two years ago, I wrote columns about companies pouring money into Black Lives Matter to establish their bona fides as “antiracist” corporations. The money continued to flow despite serious questions raised about BLM’s management and accounting. Democratic prosecutors like New York Attorney General Letitia James showed little interest in these allegations even as James sought to disband the National Rifle Association (NRA) over similar allegations. At the same time, Black Lives Matter co-founder Patrisse Cullors cashed in with companies like Warner Bros. eager to give her massive contracts to signal their own reformed status. It now appears that BLM is facing bankruptcy after burning through tens of millions and Warner Bros. cut ties with Cullors after the contract produced no — zero — new programming.
Some states belatedly investigated BLM as founders like Cullors seemed to scatter to the winds.
Gone are tens of millions of dollars, including millions spent on luxury mansions and windfalls for close associates of BLM leaders.
The usual suspects gathered around the activists like former Clinton campaign general counsel Marc Elias, who later removed himself from his “key role” as the scandals grew.
When questions were raised about the lack of accounting and questionable spending, BLM attacked critics as “white supremacists.”
Warner Bros. was one of the companies eager to grab its own piece of Cullors to signal its own anti-racist virtues. It gave Cullors a lucrative contract to guide the company in the creation of both scripted and non-scripted content, focusing on reparations and other forms of social justice. It launched a publicity campaign for everyone to know that it established a “wide-ranging content partnership” with Cullors who would now help guide the massive corporation’s new programming. Calling Cullors “one of the most influential thought leaders in American public life,” Warner Bros. announced that she was going to create a wide array of new programming, including “but not limited to live-action scripted drama and comedy series; longform/event series; unscripted docuseries; animated programming for co-viewing among kids, young adults and families; and original digital content.”
Some are now wondering if Warner Bros. ever intended for this contract to produce anything other than a public relations pitch or whether Cullors took the money and ran without producing even a trailer for an actual product. Indeed, both explanations may be true.
Paying money to Cullors was likely viewed as a type of insurance to protect the company from accusations of racial insensitive. After all, the company was giving creative powers to a person who had no prior experience or demonstrated talent in the area. Yet, Cullors would be developing programming for one of the largest media and entertainment companies in the world.
One can hardly blame Cullors despite criticizism by some on the left for going on a buying spree of luxury properties.
After all, Cullors was previously open about her lack of interest in working with “capitalist” elements. Nevertheless, BLM was run like a Trotskyite study group as the media and corporations poured in support and revenue.
It was glaringly ironic to see companies like Warner Bros. falling over each other to grab their own front person as the group continued boycotts of white-owned businesses. Indeed, if you did not want to be on the wrong end of one of those boycotts, you needed to get Cullors on your payroll.
Much has now changed as companies like Bud Light have been rocked by boycotts over what some view as heavy handed virtue signaling campaigns.
It was quite a change for Cullors and her BLM co-founder, who previously proclaimed “[we] are trained Marxists. We are super versed on, sort of, ideological theories.” She denounced capitalism as worse than COVID-19. Yet, companies like Lululemon rushed to find their own “social justice warrior” while selling leggings for $120 apiece.
When some began to raise questions about Cullors buying luxury homes, Facebook and Twitter censored them.
With increasing concerns over the loss of millions, Cullors eventually stepped down as executive director of the Black Lives Matter Global Network Foundation, as others resigned. At the same time, the New York Post was revealing that BLM Global Network transferred $6.3 million to Cullors’ spouse, Janaya Khan, and other Canadian activists to purchase a mansion in Toronto in 2021.
According to The Washington Examiner, BLM PAC and a Los Angeles-based jail reform group paid Cullors $20,000 a month. It also spent nearly $26,000 on meetings at a luxury Malibu beach resort in 2019. Reform LA Jails, chaired by Cullors, received $1.4 million, of which $205,000 went to the consulting firm owned by Cullors and her spouse, according to New York magazine.
Once again, while figures like James have spent huge amounts of money and effort to disband the NRA over such accounting and spending controversies, there has been only limited efforts directed against BLM in New York and most states.
Cullors once declared that “while the COVID-19 illness is tragic, what’s more tragic is capitalism.” These companies seem to be trying to prove her point. Yet, at least for Cullors, Warner Bros. fulfilled its slogan that this is all “The stuff that dreams are made of.”
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