Weekly | Inflation at the surface

Your weekly summary with the most important news for your investments.
Sproutfi Weekly

Your weekly summary with the most important news for your investments:

  • Results of the main stock market indexes.

  • Factors that influenced the financial world last week.

  • Summary of the Fed's Open Market Committee decisions.

  • News on the retail front.

The weekly stock market behavior in the month of August has been similar with a first half seeking to recover part of the losses registered in the month, and then in the middle of the week, losing height again to close with another decline. It is in this scenario:

  • The Dow accumulates a mismatch in the month of -3%.

  • The S&P 500 -4.8%. 

  • The Nasdaq -7.4%. 

  • The sovereign rate accumulated a rebound of +28 basis points closing at 4.25%, something unforeseen only a couple of weeks ago. 

Among the factors that influenced the week we can highlight: 

  1. A written anti-inflationary intervention by the Federal Reserve (FED).

  2. An incipient frontal attack by the credit agencies against U.S. banks.

  3. Less-than-robust quarterly results from large consumer companies.

  4. Increased concerns about Chinese economic dynamics, which otherwise led the Chinese government to lower its rate structure in recent hours.

  5. A geopolitical environment in Asia that has escalated following war exercises by China and Russia, while in the United States President Biden took a verbal stance with warlike overtones together with South Korea and Japan from Camp David.

But this week the stock market movement may come from the verbal intervention that Fed Chairman Jerome Powell will manage on Friday from the annual symposium in Jackson Hole Wyoming where he could outline the monetary policy that will govern for the remainder of the year.

Let's start by managing a brief summary of the general thinking of the Fed's Open Committee who expressed the following in the minutes of its last monetary policy meeting: 

"However, [participants] emphasized that inflation remained unacceptably high and that further evidence would be needed to be certain that inflation was clearly on track toward the Committee's 2 percent objective. [In addition,] they continued to see a period of below-trend growth in real GDP and some weakening in labor market conditions as needed to achieve a better balance between aggregate supply and demand and reduce inflationary pressures sufficiently to bring inflation back to 2 percent over time. [They] also noted that, while [wage] payroll growth had slowed recently, it continued to exceed values consistent over time with an unchanged unemployment rate, and that wages continued to rise at rates above levels assessed as consistent with sustained achievement of the Committee's 2 percent inflation objective. [Finally, several participants commented that significant disinflationary pressures in core services prices, excluding housing, had not yet emerged.”

This is a summary of several excerpts from the brief where as you can see it seems that the Fed's anti-inflationary tone is in full force. We will see what Powell tells us on Friday, but I would give the impression that he will remain aligned with this discourse since headline inflation changed direction (up) in July.

On the banking side, the risk agency Fitch verbally announced that it was assessing the risk of the industry as a whole, not only because of the dynamics of commercial real estate prices, but also because structural interest rate hikes, such as those that occurred in August, could generate greater unexpected losses in investment portfolios. Thus, the combination of falling commercial asset prices, loss of value in fixed income portfolios and increased capital requirements from regulators would put the industry at risk. This concern was fully captured in the minutes of the Fed who mentioned the following: 

"Several participants commented on risks that could affect some banks, including unrealized losses on assets resulting from rising interest rates, significant reliance on uninsured deposits, and rising funding costs. Participants also commented on the risks associated with a potential sharp drop in CRE [commercial real estate] valuations that could negatively affect some banks and other financial institutions, such as insurance companies, that are heavily exposed to CRE." 

This caused the share prices of the largest banking institutions to give up -4% for the week.

Meanwhile, on the retail front, Walmart in the face of more robust than expected sales during the second quarter noted that consumption had stabilized and that: 

"We're in good shape with inventory, and we like our position for the second half of the year." 

However, Target was more cautious as its CEO, Brian Cornell, argued the following: 

"As we look at the consumer landscape today, we recognize that the consumer still faces the challenge given the inflation they're seeing in food and beverage and household essentials. So that's taking up a much larger portion of their budget." 

More companies will be reporting this week including Bath and Body Works, BJ's, Dicks Sporting Goods, Footlocker and Williams Sonoma among others. But the eye will be on results from tech companies Nvidia and Snowflake.

Finally, on the international front, the Chinese government, in the wake of the bankruptcy of construction behemoth Evergrande, disinflation and lower economic activity, opted to cut a series of interest rates this morning. These measures were accompanied by changes in the investment industry after the Hong Kong market gave up almost -6% the previous week. Meanwhile in Ecuador there will be a second round of elections on October 15 between Luisa Gonzales and Daniel Noboa who obtained almost 33% and 24% of the vote, respectively.

In conclusion, as August comes to a close, investors' focus will be on inflation and the complex speech that Powell will have to give on Friday in order to calm down the inflationary anxieties that are at the surface.

This Week

Monday (August 21)

Quarterly Reports

  • Zoom Video Communications, Inc.

  • Fabrinet

  • Lufax Holding Ltd

  • Atlas Lithium Corporation

  • Tingo Group, Inc.

Tuesday (August 22)

Quarterly Reports

  • Lowe's Companies, Inc.

  • Baidu, Inc.

  • BJ's Wholesale Club Holdings, Inc.

  • MINISO Group Holding Limited

  • Macy's Inc.

Economic Reports

  • Speech by Fed Governor Michelle Bowman

  • FED Richmond Manufacturing Index Report

Wednesday (Aug. 23)

Quarterly Reports

  • NVIDIA Corporation

  • Analog Devices, Inc.

  • Autodesk, Inc.

  • Bath & Body Works, Inc.

  • Advance Auto Parts Inc.

Economic Reports

  • New Home Sales Monthly Change Report

  • New Home Sales Report

Thursday (Aug. 24)

Quarterly Reports

  • Intuit Inc.

  • NetEase, Inc.

  • Marvell Technology, Inc.

  • Dollar Tree, Inc.

  • Polestar Automotive Holding UK Limited

Economic Reports

  • Non-Perishable Goods Order Report

  • Initial Jobless Claims Report

Friday (August 25)

Quarterly Reports

  • SatixFy Communications Ltd.

  • Ubiquiti Inc.

  • IperionX Limited

  • Bridgford Foods Corporation

Economic Reports

  • Speech by Jerome Powell, Chairman of the Fed's Board of Governors

Now you have more information about your investments. See you next week with more news.

*This is an illustrative example and does not represent an investment recommendation.