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AUGUST 15, 2023

ROBUST CONSUMER SPENDING

According to a recent report by the Commerce Department, consumer spending in the U.S. remained strong in July, thanks to a slowdown in inflation. The report revealed that retail sales increased by a better-than-expected 0.7% for the month, surpassing economists’ estimates of 0.4%. In addition, when excluding automobile purchases, sales experienced a robust 1% rise. These figures indicate that consumers have been able to keep up with price increases despite inflationary pressures in recent years. Furthermore, online retail sales saw a significant boost of 1.9%, while sporting goods and food service industries also showed growth. However, sales for furniture and electronics/appliance stores saw declines. Gas station sales, despite rising fuel prices, witnessed a modest 0.4% increase.

CRYPTOS RESILIENCE

The U.S. Securities and Exchange Commission’s (SEC) crackdown on cryptocurrency seems to have had a diminishing impact on the 19 tokens flagged as unregistered securities due to the fact that although they initially lost about $20 billion in combined market value, these tokens are now experiencing an increase in trading volume. Additionally, despite the overall market value dropping by approximately 20% following the lawsuits, they continue to be actively traded, even after being removed from some platforms. Furthermore, these affected tokens still maintain a strong following overseas, as U.S.-based exchanges only account for 10% of the total trading volume, and major exchanges like Binance and Coinbase have not delisted these tokens, further contributing to their continued trading activity. One possible reason for the increased trading volume could be the potential for greater price volatility compared to the broader market. Nevertheless, it is worth noting that while certain tokens, such as SOL, have shown signs of recovery, others like ADA have not bounced back and have experienced a decline of around 20%

FOCUS SHIFT

As the Federal Reserve nears the end of its tightening campaign, there seems to be a shift in focus from determining how high interest rates need to go to how long they should remain elevated. The aim is to give policymakers room to keep rates steady, especially as inflation pressures are easing. However, inflation still exceeds the central bank’s target of 2%, making officials hesitant to declare victory too soon. By discussing the duration of steady interest rates, officials seek to manage expectations and exert downward pressure on the economy. Recent data shows some positive signs, such as smaller increases in the core consumer price index and a decline in consumers’ expectations of future inflation, nevertheless, there is disagreement among policymakers on the next steps, with some advocating for maintaining rates, while others believe further increases may be needed. The specific length of time for which rates will remain stable has yet to be determined, but discussions are expected at the upcoming Jackson Hole symposium. Moreover, while investors anticipate unchanged rates in the near future, policymakers are being cautious and are reluctant to limit their options until there is a clear trend of easing inflation.

DECLINING SALES

Although Home Depot achieved profits and sales that surpassed expectations in its most recent quarter, there is a continued decline in sales, primarily due to the impact of inflation and soaring interest rates on the spending decisions of American consumers. The company’s second-quarter revenue of $42.92 billion exceeded expectations, but it is down 2% from the same period last year. In addition, Home Deport’s sales have experienced a 3.1% decrease in the first half of this year compared to 2022. This decline in sales is attributed to a slower housing market and consumers’ reluctance to make big-ticket discretionary purchases, influenced by higher interest rates and limited financing options. Moreover, Home Depot has maintained its earlier guidance for the year, anticipating a sales decline between 2% and 5%, marking the first time the company has forecasted declining annual sales since the 2009 housing crisis.

INTERNATIONAL NEWS

Traders in the U.K. are once again considering the possibility of a significant interest rate hike, which could spell further losses for the country’s struggling bond market. Analysts from Saxo Bank A/S and TD Securities believe that policymakers might opt for a 50 basis-point increase next month, following data that showcased the fastest wage growth ever recorded. This has led money markets to imply a one-in-three chance of a half-point hike in September, compared to previously expecting of only a quarter-point increase. The U.K. bond market has performed poorly this year, with a 94 basis-point increase in 10-year yields, significantly surpassing the movements in U.S. and German bonds. Consequently, such a sizable hike would likely exacerbate the situation, pressuring bond investors to demand higher yields.

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