Wall Street is in the green before the stock market this Friday, despite Nike’s fall following its sales warning. The S&P 500 is now up 0.4%, the Dow Jones 0.1% and the Nasdaq 0.6%. The gains are confirmed following a key inflation indicator across the Atlantic. Last night, the first Trump-Biden debate held in Atlanta ahead of the November presidential election was appalling, if not catastrophic. On CNN, Joe Biden appeared very weakened, struggling to express himself in front of a Donald Trump faithful to his character. However, the American markets do not seem to be disturbed, while in the Democratic clan, things are getting complicated…
On the Nymex, a barrel of WTI crude gained 0.4% to $82. An ounce of fine gold rose 0.4% to $2,346. The dollar index stabilizes against a basket of reference currencies.
It is agreed that an election of Trump could revive inflation, but also potentially support the markets, the ex-president being in favor of a flexible monetary policy, without worrying too much about the economic context…
As expected, US GDP for the first quarter of 2024 came out yesterday as growth at a pace of 1.4% in the final reading, compared to a previous estimate of 1.3%. The price index rose at a pace of 3.1% compared to 3% consensus. Personal consumption expenditures appreciated at a pace of 1.5%, compared to 2% consensus.
U.S. household personal income for May rose 0.5% month-over-month, compared with a FactSet consensus of +0.4%. Household personal spending rose 0.2%, compared with a 0.3% consensus. The May core PCE price index rose 0.1% month-over-month, as expected. Year-over-year, the core PCE index rose 2.7%, slightly more than expected.
Thomas Barkin, head of the Richmond Fed, said he believes the Fed’s interest rate hikes so far should be enough to bring down inflation. He added that monetary policy may not be as tight as it seems, however. The challenge now, he said, is to act deliberately while keeping a close eye on the real economy. In a speech prepared for a Global Interdependence Center conference in Paris, Barkin said that “all this tightening is likely to slow the economy further.” At the same time, given “the remarkable strength we’re seeing in the economy,” the official said he was open to the idea that the neutral rate has moved up a bit.
So a rise in the neutral rate would mean the Fed’s policy rate would also have to be higher to exert the same degree of restraint on the economy. “Agility is key,” Barkin said, as the Fed receives new information every day and must adjust accordingly.
San Francisco branch chief Mary Daly and Fed Governor Michelle Bowman will also have their say during the day.
This Friday, we will still have to follow the Chicago PMI manufacturing index for June (3:45 p.m., consensus 40) and the final index of American consumer sentiment from the University of Michigan for June (4 p.m., consensus 65.9).
The 31 major US banks that participated in the Fed’s stress tests would all be able to withstand a severe global recession – implying they would not need to hold more capital. The results published the day before yesterday therefore show that these banks would have enough capital to absorb losses and continue to lend in a two-year scenario where the unemployment rate in the United States rises to 10%, where the price of commercial real estate would fall by 40% and the stock market would plunge by 55%. The simulation would still show a collective loss of nearly $700 billion in this dark scenario… “The objective of our test is to help ensure that banks have sufficient capital to absorb losses in a scenario very stressful,” said Michael Barr, Fed vice chairman for supervision.
This group of large banks includes JP Morgan, Bank of America, Citigroup, Wells Fargo and Goldman Sachs. Even large regional banks, such as PNC, Truist, M&T Bank, Citizens and Regions, would have adequate levels of capital in this worst-case scenario.
In corporate news on Wall Street, after the falls of Micron, Walgreens and Levi Strauss yesterday, it is today Nike’s turn to plummet following lackluster quarterly results and forecasts.
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Apple is gaining ground before the stock market on Wall Street towards its historical highs, while the Californian group with the apple posted iPhone deliveries in China up 40% in May following major promotions by local retailers. Bloomberg calculates that at the same time, smartphone deliveries in China increased by 13%. The latest figures from the China Academy of Information and Communications Technology therefore show a rebound in deliveries for the iPhone, which had started in March. In April, these deliveries had increased by more than 50%, while Apple and its local distributors have reduced prices since the beginning of the year to compete with Chinese players and in particular Huawei Technologies.
Nike stumbles 15% before market on Wall Street. The sports shoe giant delivered annual forecasts that were lower than market expectations. The group posted revenues for the fourth fiscal quarter down 1.7% to $12.6 billion, 2% lower than consensus, with notable weakness from Converse whose revenues fell 18% due to a pronounced slowdown in North America and Western Europe. Revenues in China, of 1.86 billion, on the other hand, exceeded expectations. Quarterly adjusted earnings per share were also better than expected, at $1.01, compared to 85 cents consensus and 66 cents a year earlier. The gross margin increased to 44.7% compared to 43.6% a year before, but it misses the consensus which was 45.3%.
The group, which also owns the Jordan brand, expects revenues to decline in the mid-single digits for the current financial year, while analysts on average forecast growth of 2%! Nike executives blamed the slowdown in part on lifestyle brands, including Air Force 1 and Nike Dunks, which make a high proportion of their sales online. The decline in activity could even reach 10% in the first fiscal quarter of 2025 alone, which has just begun. Nike previously expected sales growth in 2025. “FY 2025 will be a transitional year for our company,” Nike CEO John Donahoe said at the company’s earnings call last night. . “We expect a significant and sequential improvement in the second half compared to the first half, and this starts with the confidence we have in the new products we are marketing,” added the group’s CFO.
Berkshire Hathaway. Warren Buffett has given a record $5.3 billion in Berkshire stock to the Bill & Melinda Gates Foundation and four other charities. It is the Oracle of Omaha’s largest annual donation since 2006.
Polestar, the Swedish electric vehicle maker listed on Wall Street, has announced a decline in its 2023 revenues, as demand slows. Annual revenues declined by 3%, while the group’s loss widened. Revenues for the year came to $2.38 billion, compared to $2.45 billion in 2022. Net loss came to $1.17 billion, compared to $482 million a year earlier.
Uber and Lyft have reached a settlement in Massachusetts over driver status. The two companies agreed to a minimum hourly pay of $32.50 for their drivers in Massachusetts. They will also pay $175 million to settle a lawsuit brought by the state attorney general, Reuters reports.
Trump Media & Technology Group jumped before the market on Wall Street, the day after the first (and last?) debate between Donald Trump and Joe Biden ahead of the November presidential election. Trump is considered to have emerged victorious (by forfeit?) from the face-to-face, during which Biden appeared dull and difficult to understand.
