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Daily Markets: Investors Digesting Fed Inflation Targets, Consumer Spending Reports

Today’s Big Picture

Equities in Asia finished trading today on a mixed note, which is also how they finished the week in full. While Hong Kong’s Hang Seng and China’s Shanghai Composite finished the day and the week higher, Japan’s Nikkei slumped 1.4% today leaving it down 0.2% for the week. Leading Japanese shares lower was the surprising resignation of Shinzo Abe as prime minister of Japan because of a relapse in his ulcerative colitis, ending an eight-year term that made him the longest-serving leader in his nation’s history. Abe’s resignation will take effect as soon as the party chooses a successor.

By mid-day trading, European equities were mixed as the euro strengthened and comments from German Chancellor Angela Merkel that the coronavirus situation would get tougher as the summer draws to a close. Yesterday, Fed Chairman Powell’s keynote speech highlighted that the Fed will keep interest rates low to help prop up the U.S. economy even if inflation rises above its target level of 2% for periods of time. Ahead of the July Personal Income & Spending report, U.S. futures point to an open that would put the Dow Jones Industrial Average into positive territory on a year to date basis. With the expiration of economic impact payments in the U.S. at the end of July, investors will be looking for clues regarding the strength of consumer spending in today’s Personal Income & Spending report.

On the housekeeping front, we will be taking next week off to rest, relax, and recharge, returning right after the Labor Day holiday. See you soon, and enjoy the rest of your summer!

Data Download

International Economy

France’s Inflation rate fell slipped to 0.2% YoY in August from 0.8% in July. The nation’s industrial Producer Price Index (PPI) rose 0.4% in July from 0.7% in June. Household Consumption increased 0.5% MoM in July from after an upwardly revised 10.3% in June, but well below expectations for 2%.

In Spain, Retail Sales fell 3.9% YoY in July after falling 4.7% in June, marking the fifth consecutive month of declines. Business Confidence improved to -9.8 in August from -11.5 in July.

Business Confidence in Italy increased to 86.1 in August from 85.3 in July, versus expectations for an increase to 88.9. Consumer Confidence moved up to 100.8 in August from 100.1 in July, nicely ahead of the expected 100.0. PPI in Italy fell 5.4% in July after falling 6.1% in June.

For the Euro Area in August, Consumer Confidence inched up to -14.7 from the prior month’s -15, matching expectations for the month. Economic Sentiment in August rose by 5.3 points MoM to 87.7, topping the expected 85. Industrial Sentiment improved to -12.7 in August vs. -16.2 in July and compared to expectations for an increase to-14.4. Services Sentiment in August also improved to -17.2 from July’s reading of -26.1 and the expected -24.4.

Domestic Economy

Yesterday’s initial jobless claims came in roughly as predicted at 1.006 million, down 98k from the prior week but still very elevated relative to history. On a non-seasonally adjusted basis, jobless claims hit a pandemic low of 821.6k from 889.6k last week, as claims tend to trend down this time of year. Continuing claims, seasonally adjusted, saw a slight improvement from 14.76 million to 14.54 million, the fourth consecutive weekly decline. This week California, Illinois, Iowa, Kansas, and Montana saw the largest percentage increases in initial claims, and out of the 53 states and territories, 41 reported lower claims.

Yesterday the Federal Reserve released an update for its Longer Run Goals and Monetary Policy Strategy. The major changes were overall dovish and include:

  • An acknowledgment that the hyper-low interest rate environment creates a challenge and that the FOMC needs to be more vigilant concerning downside risks to inflation and employment than it has been previously.
  • The Fed is committing to identifying situations where employment is below its maximum level.
  • The 2% inflation target has been replaced with a 2% average inflation target over time, which given how long inflation has been well below that level, gives the FOMC plenty of time to let inflation run higher than 2%. During Chair Powell’s speech yesterday, he said, “Our new statement indicates that we will seek to achieve inflation that averages 2% over time. Therefore, following periods when inflation has been running below 2%, appropriate monetary policy will likely aim to achieve inflation moderately above 2% for some time.”
  • Financial system stability was identified specifically as a way to maintain both price stability and maximum employment.
  • Lower levels of employment were identified as necessary for correction, but over-employment was not identified as a necessary balancing mechanism in contrast to inflation policy which allows for levels above and below target over time.

Yesterday’s second estimate for Q2 GDP had some minor revisions, particularly minor given the overall level of contraction, but no major adjustments. Overall the second estimate has the economy contracting 31.7% versus the first estimate of 32.9%. Corporate profits were estimated to have declined 12% in Q1 and 9% in Q2 – 20% overall in the first half of 2020. As corporate profits fell, wages and salaries share of national income rose the highest level since 2002.

Later today we will get Personal Income and Spending for July, PCE Price Index, Advance Goods Trade Balance, Wholesale Inventories, Chicago PMI, Michigan Consumer Expectations, and the usual weekly Baker Hughes Oil rig report.


Yesterday was a slightly new twist in the market. The high-flying Nasdaq 100 and Nasdaq Composite both declined, 0.4% and 0.3% respectively, while the S&P 500 rose just 0.2% and the Dow, the former laggard, gained the most, up 0.6%. The S&P 500 equal weight, which YTD has under-performed the market-cap-weighted by about 11%, outperformed yesterday, rising 0.5%. Former sector laggards also took the lead yesterday with Financials (down 18.1% YTD) the strongest, rising 1.7%, and Real Estate comings in second at 1.4% (down 6.4% YTD).

Stocks to Watch

Moderna (MRNA) is reportedly in talks with Japan’s Ministry of Health, Labour, and Welfare for the potential purchase 40 million or more doses for its COVID-19 vaccine, mRNA-127.

Coca-Cola (KO) announced steps to reorganize better position itself to pursue its Beverages for Life strategy, with a portfolio of drinks that are positioned to capture growth in a fast-changing marketplace. As part of the reorganization, the company will collapse from 17 business units to 9 new operating units. These structural changes are expected to result “in the reallocation of some people and resources, which will include voluntary and involuntary reductions in employees.” More details are expected to be had in the coming months but the company’s global severance programs are expected to incur expenses ranging from ~$350-550 million.

Big Lots (BIG) reported July quarter results that topped top and bottom-line expectations led by quarterly comp sales that rose 31.3% vs. the 28.1% consensus. The company expects to provide a business update at the end of September when it has greater visibility on expected results for the current quarter.

Hibbett Sports (HIBB) crushed July quarter EPS expectations by serving up EPS of $2.95 vs, the $1.15 consensus. Revenue for the quarter rose almost 75% YoY led by quarterly comp sales of 79.2%. Brick and mortar comparable sales increased 65.2% while its e-commerce sales grew by 212.2%, representing 15.7% of total sales for quarter vs. 8.6% in the year-ago one. For the second half for the year, Hibbett sees comparable sales increasing in the mid-single digits and EPS in the range of $0.85-$1.00 vs. the $0.86 consensus.

Shares of Dell (DELL) moved higher in aftermarket trading following better than expected quarterly results led by Infrastructure Solutions sales and VMware strength. Client Solutions Group revenue missed the $11.52 billion consensus forecast as consumer sales rose 18% and commercial client sales fell 11%. Revenue at the aforementioned Infrastructure Solutions Group totaled $8.2 billion, well ahead of the $7.7 billion consensus.

HP’s (HPQ) July quarter came in ahead of consensus expectations for the company’s top and bottom lines. For the quarter, printing net revenue fell 20% YoY and 5% QoQ to $3.93B due to declines in commercial hardware units and supplies. Personal systems revenue increased 7% YoY and 25% QoQ to $10.4B, boosted primarily by the 42% consumer sales growth that saw total units up 11% as pandemic-led 32% growth in notebooks offset the 30% decline in desktops. HP sees current quarter EPS of $0.50-0.54 vs. the $0.50 consensus.

Enterprise identity company Okta (OKTA) reported better than expected quarterly revenue as it rode the remote work tailwind during the quarter. The company boosted its FY21 revenue and EPS outlook to revenue of $800-803 million and a loss per share of $0.01-$0.03 vs. the $777 million and -$0.20.

Gap (GPS) reported July quarter EPS of -$0.17 vs. the -$0.40 consensus with revenue for the quarter down 18.2% YoY to $3.27 billion vs. the $2.9 billion consensus. Comp sales for the quarter rose 13% YoY driven by the company’s commerce sales, which added over 3.5 million new customers during the quarter.

  • Old Navy Global: Net sales were down 5% reflecting an increase in online sales of 136%, offset by a 36% decline in-store sales
  • Gap Global: Net sales were down 28% reflecting an increase in online sales of 75%, offset by a 55% decline in-store sales
  • Banana Republic Global: Net sales were down 52% reflecting an increase in online sales of 26%, offset by a 71% decline in-store sales

Ulta Beauty (ULTA) reported far better than expected July quarter EPS as revenue for the quarter fell 28% YoY, effectively matching consensus expectations. Comp sales for the quarter decreased 26.7% during the quarter vs. the-30.8% consensus, driven by a 36.2% drop in transactions which was partially offset by a 6.2% increase in average ticket size. Although plans for fiscal 2021 have not been finalized, the company expects to open at least 30 new stores in fiscal 2021.

Capital One (COF), the third-largest US credit card lender, is cutting borrowing limits on credit cards, reining in its exposure as the U.S. reduces support for millions of unemployed Americans.

Amazon (AMZN) is buying 1,800 electric delivery vans from Mercedes-Benz (DDAIF). Despite the order, competition for electric vans is expected to heat up with Ford (F) planning an all-electric version of its Transit van in North America for 2022, while General Motors (GM) is expected to begin production of an electric van in late 2021.

China’s ByteDance (BDNCE) told engineers of its short video app TikTok to make contingencies should it need to shut down its U.S. operations. Yesterday, Walmart (WMT) shared it is teaming up with Microsoft (MSFT) on a bid for TikTok.

Hertz Global (HTZ) is reportedly shopping for a bankruptcy loan totaling as much as $1.5 billion after regulators blocked the rental car company from pursuing a sale.

Boeing (BA) shared it has found two “distinct manufacturing issues” for its 787 Dreamliner and has told carriers, including Singapore Airlines (SINGY), United (UAL), and Air Canada (ACDVF) to remove them from their active roster so they can be serviced.

CNBC reports United Airlines (UAL) will need to cut 2,850 pilot jobs between Oct. 1 and Nov. 30 if the government does not extend an aid package to help airlines cover employee payroll for another six months while they weather the coronavirus pandemic

VeriSign (VRSN) announced that the second quarter of 2020 closed with 370.1 million domain name registrations across all top-level domains, an increase of 3.3 million domain name registrations, or 0.9%, compared to the first quarter of 2020. Domain name registrations have grown by 15.3 million, or 4.3% YoY.

After today’s market close, there are no companies expected to report their quarterly results. Investors looking to get a jump on upcoming reports to be had next week should visit Nasdaq’s earnings calendar page.

On the Horizon

  • Dates to mark:
      • August 31: Before the market open, Salesforce.com (CRM) will replace Exxon Mobil (XOM), Amgen (AMGN) will replace Pfizer (PFE) and Honeywell International (HON) will replace Raytheon Technologies (RTX) in the Dow Jones Industrial Average.
      • September 1: Before the market open, S&P SmallCap 600 constituent Lithia Motors (LAD) will replace LogMeIn (LOGM) in the S&P MidCap 400, and BankUnited (BKU) will replace Lithia Motors in the S&P SmallCap 600. Trupanion (TRUP) will replace Ring Energy (REI) in the S&P SmallCap 600.

Thought for the Day

“I am here today to cross the swamp, not to fight all the alligators.” ~ Rosamund and Benjamin Zander


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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