JUST AS EXPECTED
The latest inflation report released by the Federal Reserve indicates that prices rose in July at a rate consistent with predictions from Wall Street. Specifically, the core Personal Consumption Expenditures index, which excludes food and energy costs, increased by 0.2% from the previous month, matching expectations and maintaining stability compared to June levels. This update on inflation comes on the heels of Fed Chair Jerome Powell’s suggestion of a potential interest rate cut in the near future, following his remarks at the Jackson Hole symposium. Let’s remember that Powell expressed growing confidence that inflation is on track to reach the Fed’s 2% target, and results are indeed showing that we are on the right path despite some concerns about the labor market persisting. Ultimately, the possibility of a rate cut happening at the September meeting is more than likely, however, uncertainty remains regarding the extent of the anticipated rate cut in September, with investors estimating a 33% likelihood of a 50-basis point decrease by the end of the month.
VOLATILITY LOOMS
After experiencing a rally, Bitcoin’s price has dropped below $59,000 due to profit-taking, with ETFs recording net outflows signaling a decline in demand. The U.S.-listed BTC ETFs saw $71 million in outflows, with Fidelity’s FBTC and Grayscale’s GBTC being hit hardest. Surprisingly, even BlackRock’s IBIT, the largest bitcoin fund, had outflows of $13 million. Nonetheless, it is worth remarking that despite this, there has been an increase in demand from U.S. retail investors on the Coinbase exchange, with Bitcoin flowing from exchanges outside the U.S. Moreover, in the coming weeks, market volatility is expected to pick up, with uncertainty prevailing due to caution about potential downside risks, however, as the Federal Reserve is projected to lower borrowing costs next month, the market sentiment may be boosted. Nevertheless, as September approaches, traders expect the choppy momentum to continue.
UP FOR RISK
Lately, there has been a surge in the market for risky exchange-traded funds (ETFs), with investors showing increased interest in leveraged and inverse funds such as the ProShares UltraPro QQQ. Assets in these leveraged and inverse ETFs have climbed to around $112 billion in 2022, possibly hitting a record high. These funds offer amplified returns tied to the Nasdaq index but also carry higher risks, leading to potential steeper losses. Thus, despite the current appeal of higher returns, experts have highlighted that holding onto these complex and volatile funds for extended periods can result in diminishing returns over time, and have recommended to grasp the risks associated with these ETFs before diving into this booming market, and that proceeding with caution is a must.
FINANCIAL STUMBLE
Lululemon faced difficulties in its recent financial report, posting its first revenue miss in over two years due to challenges with a new product launch and sluggish growth in the Americas. As a result, the company revised its full-year revenue and earnings projections downward. While net income and sales saw an increase, Lululemon’s comparable sales and anticipated sales growth fell short of analyst expectations. Issues with reintroducing a product following customer complaints and struggles to meet consumer demands for specific styles and sizes contributed to the company’s sales woes. Despite these setbacks, Lululemon’s CEO, Calvin McDonald, remains positive about the company’s future and is implementing leadership changes to address the issues. In addition, Lululemon’s emphasis on operational efficiency helped mitigate the impact of declining demand, resulting in better-than-expected profits and improved gross margins.
INTERNATIONAL NEWS
Euro-area inflation has decreased in August, prompting discussions about potential interest rate cuts by the European Central Bank (ECB). Consumer prices rose by 2.2% compared to the previous year, lower than July’s 2.6%, while core inflation, which excludes volatile components like food and energy, also dropped to 2.8%. This decline in inflation aligns with recent remarks from the Federal Reserve, ECB, and Bank of England signaling upcoming rate reductions, and as a result, investors are anticipating multiple ECB rate cuts in the coming months. Nevertheless, the latest economic data also revealed that there has been rising services inflation due to increased worker wages, while euro-zone unemployment unexpectedly decreased to 6.4%. These mixed economic indicators have led to divergent opinions among policymakers regarding the timing and necessity of rate cuts versus the importance of maintaining focus on inflation goals and overall economic stability.
