Macro Matters

Fed Prepares for September Cut as Powell Shifts Focus to Jobs

For over two years, inflation has been the Federal Reserve's primary focus, but this is set to change. US central bankers are preparing to cut interest rates in September, driven by growing confidence in achieving price stability and increased risks to the labor market. Recent speeches have laid the groundwork, and Chair Jerome Powell is expected to signal this more clearly after the July 30-31 policy meeting. However, Fed officials want to see monthly price numbers trending down toward the 2% annual inflation goal before committing to rate cuts. They aim to achieve a soft landing for the US economy, which is showing signs of slowing down.

Fed’s Bowman, Logan Signal Need for Discount Window Reform

Two Federal Reserve leaders suggested that the central bank should evaluate the effectiveness of its emergency lending facility, known as the discount window, in addressing liquidity needs in the banking system. This scrutiny follows the 2023 banking crisis, which saw the failures of Silicon Valley Bank and Signature Bank. Fed Governor Michelle Bowman emphasized the need to tackle issues exposed during the 2023 banking stress by updating discount window operations and technology, ensuring payment services are available when needed. Dallas Fed President Lorie Logan echoed this sentiment, calling for an examination of the discount window during a conference at the Dallas Fed.

Initial Jobless Claims in US Increase by Most Since Early May

Initial claims increased by 20,000 to 243,000 in the week ended July 13, matching the highest level since August 2023, according to Labor Department data released Thursday. The median forecast in a Bloomberg survey of economists called for 229,000 applications.Continuing claims, a proxy for the number of people receiving unemployment benefits, also rose by 20,000 to 1.87 million in the week ended July 6, the highest since November 2021.The claims data are prone to big weekly swings this time of year, which include holidays such as Independence Day as well as school closures for summer break.

IMF Sees Obstacles on the Road to Reducing Inflation

The International Monetary Fund warned Tuesday that upside risks to inflation have increased, calling into question the prospect of multiple Federal Reserve interest rate cuts this year.

In its latest World Economic Outlook update, the IMF said “the momentum on global disinflation is slowing, signaling bumps along the path.” The rise in sequential inflation in the U.S. earlier in 2024 has put it behind other major economies in the quantitative easing path, the report said.

Smart Money Flow

The Stock Market Is Flashing Warning Signs as Tech Shares Are a 'valuation Timebomb,' Socgen Says

Albert Edwards, the chief global strategist for Societe Generale, issued another warning about the blistering 2024 stock rally in a note on Thursday.

Wall Street still has lofty expectations for tech earnings. Analysts are expecting tech stocks to post forward earnings growth of around 30% year-over-year, Edwards noted, though tech stocks have actually been posting around 20% yearly earnings growth.

The earnings gap is quickly becoming apparent to analysts. Earnings-per-share upgrades have fallen sharply for the Nasdaq 100, while upgrades for the S&P 500 and Russell 2000 are on the rise.

Russell 2000 Rally to 'lose Some Steam,' Blackrock Says

BlackRock Investment Institute Senior Investment Strategist Ann-Katrin Petersen says the outperformance of the Russell 2000 index of small-cap stocks will fade. "We are observing that 40% of earnings are currently contracting," Petersen said on Bloomberg Television, Thursday. "This rally of the past days could lose some steam." Petersen also discusses the outlook for Treasuries, saying BlackRock is "neutrally positioned."

Top Corporate News

Cybersecurity Platform Crowdstrike down Worldwide, Many Users Logged out of Systems

A major cybersecurity platform, CrowdStrike that also provides advanced cybersecurity solutions to Windows PCs is facing an outage. Many users across India, Japan, Canada, Australia and many other countries have been affected by the issue. The users across these countries have taken to social media platforms like X and Reddit to report a BSOD error or Blue Screen of Death on the platform.

Netflix Beats Subscriber Targets, Cautions on Ad Growth

Netflix (NFLX.O) reported on Thursday that it added over 8 million subscribers in the second quarter, surpassing analyst expectations of 5 million. This growth was driven by a password-sharing crackdown and popular titles like "Bridgerton," "Baby Reindeer," and "The Roast of Tom Brady." Despite the strong subscriber gains, Netflix provided cautious guidance for the third quarter and indicated that its advertising business would not significantly drive revenue growth until at least 2026.

Tesla’s California Sales Plunge With Competitors Moving In

Tesla Inc.'s new-car registrations in California fell 24% year-over-year in the second quarter, marking the third consecutive decline, according to the California New Car Dealers Association (CNCDA). Despite the Model Y remaining the top-selling car in the state, Tesla's market share in California's battery-electric car market dropped to 53.4% in the first half of the year, down from 64.6% a year ago. Overall, Tesla's sales in California have decreased by 17% this year. CNCDA analysts noted that Tesla's diminishing allure could signal potential trouble for the direct-to-consumer manufacturer.

Homebuilder D.R. Horton Soars to Record on Strong Profit Margin

D.R. Horton Inc. shares soared to a record high after the homebuilder reported a stronger-than-expected quarterly profit margin of 24%, surpassing both its earlier guidance and analyst expectations. The company also projected 90,000 to 90,500 home closings for the fiscal year ending Sept. 30, with the upper end of this forecast exceeding analyst predictions. Investor optimism was further boosted by expectations of lower mortgage rates.

TSMC Hikes Revenue Outlook to Reflect Heated AI Demand

Taiwan Semiconductor Manufacturing Co. (TSMC) raised its 2024 revenue growth projections after beating quarterly estimates, showing confidence in the global AI spending boom. The chipmaker for Apple and Nvidia now expects sales growth to exceed the previously guided mid-20% range. For the current quarter, TSMC forecasts revenue up to $23.2 billion, surpassing analysts' expectations. Additionally, it revised its capital spending forecast to $30 billion to $32 billion, from a previous low of $28 billion.

ASML Falls as Outlook Clouded by Risk of US Export Curbs

ASML Holding NV's shares fell despite a 54% increase in second-quarter bookings to €5.57 billion ($6.1 billion), surpassing estimates, due to concerns over potential severe US restrictions on its business in China. The Biden administration is considering the strictest trade measures if companies like ASML continue providing China with advanced semiconductor technology. This pressure aims to curb China's progress in the semiconductor industry, overshadowing ASML's growth in order intake.

Earnings Calendar

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