Round up of today’s market news

North American News

Stock indices close mixed

Today, the major indices wrapped up their trading session with mixed results. The Dow Jones Industrial Average dipped slightly by 0.12%, closing at 40,540.12 points. Meanwhile, the S&P 500 index and Nasdaq composite both inched upward by 0.08% and 0.07%, respectively, ending at 5,463.55 and 17,370.20.

On a more concerning note, the Russell 2000 small-cap index took a hit of 1.09%, closing at 2,235.33 points. As for individual stocks, Microsoft rose by 0.34% to $146.46 per share, while Meta Platforms remained unchanged. Amazon and Apple both posted gains of 0.38% and 0.13%, respectively.

Looking ahead to this week’s earnings reports, four of the seven Mag 7 companies – a group known for their significant market influence – will be sharing their quarterly results with investors. Microsoft is set to release its report tomorrow after close, followed by Meta Platforms on Wednesday evening. Amazon and Apple will then share theirs on Thursday.

Here are some key highlights from this weeks earnings calendar:

• Today: AMD, Starbucks, Pinterest
• Tuesday: SoFi, Pfizer, PayPal, BP, P&G, Corning, Merck
• Wednesday: Boeing, Kraft Heinz, Altria; Meta (Facebook) and Qualcomm after close
• Thursday: Moderna, ConocoPhillips, Wayfair, SiriusXM; Amazon, Apple, Intel, Coinbase, DraftKings after close

Treasury says it will borrow $740 billion in Q3

• Yields lower after borrowing estimate

• During the July – September 2024 quarter, Treasury expects to borrow $740 billion in privately-held net marketable debt, assuming an end-of-September cash balance of $850 billion. The borrowing estimate is $106 billion lower than announced in April 2024, largely due to lower Federal Reserve System Open Market Account (SOMA) redemptions and a higher beginning-of-quarter cash balance.
• During the October – December 2024 quarter, Treasury expects to borrow $565 billion in privately-held net marketable debt, assuming an end-of-December cash balance of $700 billion.

Dallas Fed July manufacturing survey -17.5 vs -15.1 prior

• Results from the July survey of manufacturers in the Texas area

• Prior was -15.1

Details:

• General business activity -17.5 vs -15.1 prior
• Company outlook -18.4 vs -6.9 prior
• Prices paid +23.1 vs +21.5 prior
• New orders -12.8 vs -1.3 prior
• Shipments -16.3 vs +2.8 prior
• Employment +7.1 vs -2.9 prior

Comments in the report:

Food manufacturing

• We have seen a more stable market over the last six months for our products (which is primarily dinner sausage). Nielsen data for our category show small-to-moderate growth over the last 52 weeks, and our market share is growing in our core markets. This is leading to a more predictable environment for our company. Wages increased this month due to merit increases that we gave our team at the beginning of our fiscal year, which is July.
• The business environment feels stable, but beef prices continue to increase beyond typical seasonality due to supply constraints.
• The destabilization of our country and the politicization of things continue to impact our business.

Paper manufacturing

• Activity has slowed down, but we anticipate an uptick soon.

Printing and related support activities

• We have slowed down some from our very hectic pace of activity in late spring and through June. We hear about lots of slowness in our industry, but we continue to be pretty busy, mainly with larger jobs but then also with other smaller ones. We have a very large capital purchase machine arriving in early October. We are hopeful that the Federal Reserve will have a rate cut and that general business activity will pick up. We are actually seeing some reduction in prices and are hopeful we will not need to raise prices next year.

Fabricated metal product manufacturing

• Hurricane damage and power outages have decreased production.
• Customer demand is the overriding concern. Decreased credit availability and affordability for the markets we sell into have all but stopped demand. I estimate we are operating at 30–40 percent capacity.
• Order volume continues to see small declines. Inefficiencies in the short term will require staffing adjustments over the next few months to align with the new lower baseline. There is no major change to our long-term outlook; we are still viewing the current pullback as temporary, and we maintain a positive outlook beyond the next 12–24 months.

Machinery manufacturing

• Elections [are an issue affecting our business].
• Business activity is horrible, and we are seeing no signs of improvement.
• Inquiries and orders activity has seemingly halted. The brakes are on. This is pretty common in presidential election years, but this comes at a time when things were already volatile due to price pressures and massive inflationary pressures.
• At this point, we’re just hoping for a favorable election outcome and looking forward to 2025. The summer doldrums have hit hard and would appear to be unrelenting with respect to what we see in our crystal ball. We have some small jobs to complete, and we’re searching wider and further for new work, but we have yet to strike gold.

Computer and electronic product manufacturing

• Many customers are holding off on expenditures as well as allowing for cost-of-living adjustments to prices. The market continues to be soft, and with uncertainty in the election year, even our federal business is a bit stagnant.
• We need lower interest rates, so end customers resume buying capital equipment again.
• We typically see weakness in presidential election years as companies sort through uncertainty or slow down during those periods. With the recent events involving both presumed candidates, that uncertainty has increased, which makes it very difficult to guess what might happen. Our business is likely to be impacted by tariff policies in a negative way because some projects potentially will go away entirely. For businesses we serve that ship to other countries, we have already lost sales because it is more affordable to build those products outside the U.S. for consumption outside the U.S. That was not the case before tariffs entered the equation. We were able to build products for shipment to other parts of the globe. Both [political] parties have shown a willingness to maintain and increase tariffs, which could negatively impact our sales.
• We are expecting to see stronger signs of a cyclical recovery in industrial and automotive markets, which have not materialized, yet. This is leading to higher uncertainty that the recovery may be delayed or muted.

Transportation equipment manufacturing

• While we still have a large order backlog, new orders are significantly below where we forecasted them to be this year. This will shorten lead times and should allow us to pick up additional orders next year.

Miscellaneous manufacturing

• Customer demand is softening. We are also experiencing increasing unfair competition directly from China.
• Due to the hurricane and not having power for over a week, we had significant lost production hours.

McDonald’s Q2 2024 Results $MCD

Key Highlights

• McDonald’s reported Q2 2024 results with consolidated revenues at $6.5B, up 1% in constant currencies.
• Systemwide sales to loyalty members reached over $26B for the trailing twelve months and $7B for the quarter.
• CEO Chris Kempczinski emphasized the importance of “Accelerating the Arches” for strategic growth in chicken and loyalty.

Global Comparable Sales

• Overall sales decreased by 1.0%.
• U.S.: -0.7% • International Operated Markets: -1.1%
• International Developmental Licensed Markets: -1.3%

Financial Performance

• Consolidated revenues were flat, up 1% in constant currencies.
• Systemwide sales fell by 1%, up 1% in constant currencies.
• Operating income decreased by 6%, 5% in constant currencies.
• Diluted EPS was $2.80, a decline of 11%, 10% in constant currencies.
• Pre-tax non-cash impairment charges: $97M. • Pre-tax restructuring charges: $57M.

U.S. Market Insights

• Negative guest counts offset by strategic menu price increases.
• Digital and delivery growth positively impacted results.

International Operated Markets

• Negative sales driven by markets like France.
• Latin America and Japan showed positive sales, offset by declines in China and the Middle East due to ongoing conflicts.

Key Financial Metrics

• Operating income: $2.92B, down 6%.
• Net income: $2.02B, down 12%.
• EPS-diluted: $2.80, down 11%.
• Adjusted EPS: $2.97, down 6%.

Additional Results

• Non-cash impairment charges: $97M for Q2 and $89M for six months.
• Restructuring charges: $57M for Q2 and $100M for six months.

McDonald’s sounds the alarm on the consumer

In a concerning sign for the broader economy, McDonald’s has reported that its business slowed “meaningfully” in most of its markets worldwide. This is an unusual admission from one of the largest fast-food chains globally.

According to an executive on the company’s earnings call, the quick-service sector has been hit hard by economic pressures, with sales falling for the first time in over three years. The US, Australia, Canada, and Germany were among the markets that experienced a slowdown.

The weakness is not limited to one group of consumers; instead, it appears to be widespread, with an executive describing the decline as “deepening” and “broadened.” Global comparable sales fell 1% in Q2, exceeding analyst expectations. US sales dropped by 0.7%.

McDonald’s has forecast that consumer sentiment will remain challenging for at least several quarters ahead, citing a highly competitive market landscape.

Interestingly, McDonald’s attempted to counteract the perception of its food being too expensive with the launch of $5 meals, which exceeded initial sales projections. This move might help attract price-conscious customers in these uncertain economic times.

The implications of this slowdown are significant, as they may indicate broader challenges for the consumer goods sector and potentially even the overall economy.

UBS says a Federal Reserve policy pivot is “on the horizon”

• While the Federal Open Market Committee (FOMC) meet this week, UBS look for the first cut in September

Main points from UBS on their outlook for the US Federal Reserve:

• policy pivot on the horizon, UBS base case is a September 25bp rate cut

Citing:

• UBS expect the US continues to head toward a soft economic landing
• economy has entered a period of below-trend growth, growth has slowed to a modest pace
• steadily rising unemployment rate is also consistent with below-trend growth
• see little evidence of an imminent hard landing
• broad disinflation is in place

Morgan Stanley says this week’s FOMC statement will lay foundation for 3 cuts this year

• Morgan Stanley Federal Open Market Committee (FOMC) preview

A snippet from the Morgan Stanley Federal Reserve Federal Open Market Committee (FOMC) preview.

Morgan Stanley cite ‘considerable progress on inflation’ will allow the Federal Reserve to inch closer to rate cuts. Morgan Stanley are expecting three cuts this year, beginning at the September FOMC meeting. Morgan Stanley are expecting Powell to indicate that the Fed is nearing a decision to lower rates at his press conference. Says Powell fall short of specifying a timeline for cuts. Powell should emphasize increased confidence.

Deutsche Bank expect 3 Fed rate cuts in 2024

• Neither expect a rate cut at the July FOMC meeting this week.

Deutsche Bank expect nothing at this week’s meeting:

• first 25 basis point cut in September
• followed by a 25 bp cut in November
• and then another 25 bp cut in December
• then a pause until September 2025

Commodities

Gold falls below $2370

Gold is experiencing a sharp decline today, falling to its lowest level since earlier in the day at around $2372. The precious metal was initially trading higher before reversing course when risk sentiment began to deteriorate.

This selloff marks the latest setback for gold’s recent rally above $2450. As the series of lower highs continues, it appears that gold is struggling to maintain its upward momentum.

Moreover, gold has become increasingly sensitive to broader market trends at these levels. Today’s market dynamics have certainly not been helpful, with a 1% rally in the S&P 500 being erased.

What do you think might be driving this selloff in gold prices? Is there anything that could potentially turn things around for the precious metal?

Crude oil settles at $75.81

• Down -$1.35 or -1.75%

The price of crude oil is settling at $75.81. That is down $-1.35 or -1.75%.

The high-priced today reached $77.69. The low price was at $75.35. The low was the lowest since June 7. Fundamentally, summer doldrums with weak demand from China.

Technically looking at the daily chart, the price remains below eight 200 day moving average at $78.61. It is the seventh consecutive day that the price has closed below that moving average level. It would take a move above that level going forward to tilt the buyers more to the upside.

The price this week will be impacted by the Federal Reserve decision on Wednesday, and US jobs on Friday. The Fed is expected to keep rates unchanged. While the jobs data is expected to show a decline in non-farm payroll jobs to +177K versus versus +206K last month.

Oil markets awaiting the results of Venezuela’s presidential election

• Venezuela has an estimated 303 billion barrels of oil reserves

Polls began to close on Sunday.

For oil, S&P analysts say:

The winner of Venezuela’s July 28 presidential election will face an uphill battle in restoring crude production, which has tumbled following years of US sanctions. Those sanctions might be eased if opposition candidate Edmundo González wins, which could help bring in much-needed investments to restore the country’s dilapidated infrastructure.

S&P provide this excellent summary in infographic form:

EU News

European equity closes on a rough note

• Closing changes in Europe

• Stoxx 600 -0.2%
• German DAX -0.5%
• UK FTSE 100 +0.1%
• French CAC -0.9%
• Italy MIB -0.5%
• Spain IBEX -0.4%

UK June mortgage approvals 59.98k vs 60.40k expected

• Latest data released by the BOE – 29 July 2024

• Prior 59.99k; revised to 60.13k
• Net consumer credit £1.2 billion
• Prior £1.5 billion

On net, UK individuals borrowed £2.7 billion of mortgage debt in June. Meanwhile, the annual growth rate for net mortgage lending rose to 0.5% in June – keeping the positive trend in the last few months.

UK July CBI retailing reported sales -43 vs -24 prior

• Latest data released by CBI – 29 July 2024

UK retailers look to have endured another rough month as the retail sales balance slumps further in July. The headline reading is the weakest since April, with CBI noting that poor weather and softer demand conditions weighing on the retail sales. The outlook index for August is seen at -32, which is a mild improvement but still the weakest reading since February. Pain.

SNB total sight deposits w.e. 26 July CHF 458.2 bn vs CHF 461.3 bn prior

• Latest data released by the SNB – 29 July 2024
• Domestic sight deposits CHF 449.5 bn vs CHF 452.9 bn prior

UK Chancellor: We have inherited overspending of £22 billion, not to act isn’t an option

• Comments from new chancellor Rachel Reeves

• Disaster of Truss’ mini-budget shows what happens if you don’t take action
• We will cut spending projects worth £8 billion next year
• We will be taking immediate action
• If left unaddressed, this would result in a 25% increase in the budget deficit this year

Launches multi-year spending review says will change the fiscal framework in the autumn. Says budget will contain difficult decisions on welfare, spending and tax. The autumn budget will be on Oct 30.

Deutsche Bank expect a line ball Bank of England rate cut this week, 5-4 vote in favour

• To kick off an easing cycle

Deutsche Bank are forecasting a close call at the Bank of England meeting this week:

• 5-4 vote in favour of a 25bp cut
• expect the Monetary Policy Committee to deliver its first rate cut of the cycle
• this will lower the Bank Rate to 5%
• think the case for a rate cut rests on a shifting reaction function within the MPC, including stronger reliance on its inflation projections, forward-looking indicators of wage and services prices, as well as firming real rates

Asia-Pacific-World News

China is considering increasing stock exchange fees on HFT by a massive factor of x10

• China’s high-frequency traders will face a game-changing hike in transaction fees

Bloomberg had the report, ICYMI.

Bloomberg is gated, but in brief:

• China is considering a fee hike of at least tenfold on high-frequency trading
• Chinese authorities deem some quantitative strategies a threat to fairness in the nation’s retail investor-dominated stock market
• Consultations have taken place between the China Securities Regulatory Commission (CSRC) and the country’s stock exchanges and some market participants
• Draft plans are to raise a 0.1 yuan (1.4 cents) fee on buy and sell orders to at least 1 yuan if the transactions meet the threshold of high-frequency trading

PBOC sets USD/ CNY reference rate for today at 7.1316 (vs. estimate at 7.2522)

• PBOC CNY reference rate setting for the trading session ahead

In open market operations:

• PBOC injects bn via 7-day RR, sets rate at 1.7%
• 58bn yuan mature today
• net injection of bn yuan

National Australia Bank expects RBA to hold … until May 2025

National Australia Bank, from their latest NAB Business Pulse: August 2024:

• The cash rate is likely to remain stable at 4.35% out to May 2025, according to a recent NAB Economics outlook.
• Looking ahead, the NAB Economics team forecasts a drop to 3.6% by December 2025, falling still further in 2026.

Australian CPI data due this week, a key critical input to next RBA interest rate decision

• Three scenarios to watch for the Reserve Bank of Australia outcome

The Reserve Bank of Australia meet on August 5 and 6. Ahead of that, on July 31, are inflation data for Q2 2024 and June 2024. Both are due at 11.30 am Sydney time on Wednesday, July 31 (0130 GMT and 2130 US Eastern time on Tuesday).

Snippet preview points via Commonwealth Bank of Australia:

• Q2 24 CPI in focus as the key near-term data point.
• will make or break the near-term case for an interest rate increase at the August Board meeting
• The Q1 24 CPI and recent monthly CPI indicator outcomes have been above expectations, and the RBA has sharpened language on the inflation outlook
• the prospect of a hike in August hinges on the RBA’s preferred measure of underlying inflation, the trimmed mean.

The three scenarios to watch:

• Our forecast for next week is for trimmed mean inflation to increase by 0.9%/qtr and 3.9%/yr. In our view this would give the RBA enough breathing room to leave rates on hold, despite it being marginally above their implied forecast of 0.8%/qtr.
• We see a print of 1.0%/qtr to be in the “grey zone” where they could hold or could hike depending on the component details.
• A print of 1.1%/qtr or above would test the Board’s resolve and shift the balance of probabilities to an interest rate increase.

Australian regulator warns of slowly rising arrears on mortgage and business loans

• Australian Prudential Regulation Authority stays vigilant as arrears rates increase slowly, keeping policy settings unchanged

The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the Australian financial services industry.

• Will keep macroprudential policy settings on hold following latest quarterly assessment of domestic and international economic conditions
• Quality of new housing lending remains sound, arrears rates on mortgage and business lending portfolios continue to rise slowly
• Mortgage serviceability buffer will be kept at 3 percentage points and lending limits have not been applied
• Countercyclical capital buffer will remain at 1.0% of risk weighted assets

Comments from APRA follow their latest quarterly assessment of domestic and international economic conditions.

Japan top council urges government, BOJ to be mindful of weak yen when guiding policy

• A couple of remarks put out by Japan’s top economic council

• Cannot simply overlook the impact a weak yen and rising prices are having on consumption
• Important for government, BOJ to guide policy with a close eye on recent yen declines

Bank of Japan “paradigm shift” ideas around inflation

• A piece on a major review by the BOJ

Reuters have a long piece up on a major Bank of Japan review of past policy that “will present a paradigm shift for the central bank’s ideas around inflation”.

Summary points:

• Comprehensive review to help BOJ make case for future rate hikes
• Key message of review is that Japan is ‘ready for higher rates’
• Deputy governor highlights change in Japan’s deflationary norm
• Review won’t lead to change in price goal, policy framework

The full outcome of the review won’t be released until later this year.

Here is the link 

Cryptocurrency News

Ripple lawsuit nearing final showdown

Ripple is on the verge of a crucial moment as its lawsuit against the Securities and Exchange Commission (SEC) may come to an end by July 31, according to pro-crypto attorney Fred Rispoli. XRP traders are eagerly awaiting updates on either a settlement or a final ruling from Judge Analisa Torres.

As the anticipation builds up, Ripple’s partial victory in July 2023 has already cemented its status as a non-security for secondary market transactions and exchange platforms. However, it remains unclear whether the SEC will appeal this ruling.

In the meantime, XRP is trading above the key psychological support level of $0.60, which could potentially provide liquidity before any significant price movements.

What do you think might happen if Ripple settles with the SEC or receives a final ruling in its favor? How would it impact the cryptocurrency market and XRP’s value?

Weekend: Trump Bitcoin pump, “Will not sell government BTC, on day one will fire Gary Gensler”

• Gensler is head of the U.S. Securities and Exchange Commission (SEC) and is responsible for regulating BTC

Trump spoke at Bitcoin 2024 in Nashville, Tennessee, making a number of promises re crypto:

He said he would not sell any of Federal government bitcoin holdings, creating the core of a “strategic national bitcoin stockpile”

• “If I am elected, it will be the policy of my administration to keep 100% of all the bitcoin the U.S. government currently holds or acquires,”
• “For too long, our government has violated the cardinal rule that every bitcoiner knows by heart, never sell your bitcoin.”
• “On day one I will fire Gary Gensler”

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