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JULY 27, 2023

RESILIENT GROWTH

According to the recent report by the Commerce Department, the U.S. economy defied recession fears in the second quarter as Gross Domestic Product (GDP), which is the sum of all goods and services activity, expanded at an annualized rate of 2.4%, surpassing the predicted 2% estimate. This growth was driven by strong consumer spending, along with increases in non-residential fixed investment, government spending, and inventory growth. Additionally, inflation remained controlled during this period, with the personal consumption expenditures price index rising by 2.6%, significantly lower than the previous quarter. Despite concerns, the economy demonstrated surprising resilience, even amidst multiple Federal Reserve interest rate increases. This positive report has led to a favorable response in the stock market, with stocks expected to open positively and Treasury yields seeing an increase.

REGULATION BILL PASSED

The U.S. House Financial Services Committee has successfully passed a bill, which holds crucial implications for the cryptocurrency industry. This bill serves the purpose of establishing whether cryptocurrencies should be classified as securities or commodities. Additionally, it seeks to enhance the regulatory oversight of the Commodity Futures Trading Commission and brings clarity to the jurisdiction of the Securities and Exchange Commission (SEC). This development is considered a win by crypto lobbyists who have long advocated for regulatory clarity, however, the bill may face challenges in the Senate, particularly from Democratic lawmakers who could oppose it.

POSITIVE RESULTS CONTINUE

Continuing the trend of positive performances, Meta, McDonald’s, and Comcast unveiled their second-quarter earnings reports, impressing investors with remarkable results across diverse sectors. Meta, the parent company of Facebook, outperformed analysts’ estimates for both earnings and revenue, benefiting from a notable rebound in the digital advertising market. Meanwhile, McDonald’s, the renowned fast-food giant, delivered robust earnings and revenue, comfortably surpassing expectations. The company’s global same-store sales soared, driven in part by the phenomenal popularity of marketing initiatives like the viral Grimace Birthday Meal. Moreover, Comcast managed to exceed analyst estimates, with higher pricing successfully offsetting the slowdown in its broadband business, and with its streaming service, Peacock, experiencing a substantial increase in subscribers, despite NBCUniversal’s media business facing some challenges due to platform-related losses. Following these reports, the shares of Meta rose by almost 9%, while McDonald’s and Comcast’s shares rose more than 1% and 2%, respectively.

THE ONE LEFT OUT

Among the latest earnings reports, Southwest Airlines stood out as the only one that reported disappointing results in its recent earnings report. The airline disclosed lower unit revenue and higher costs during the second quarter, with expectations for these trends to persist in the current quarter. Unlike the other companies, Southwest faced challenges with an 8.3% drop in second-quarter unit revenue from a year earlier, which the airline attributed to a policy change related to pandemic travel credits. Following this report, the shares of Southwest slid over 6% in premarket trading, and the airline now expects unit revenue to decline by as much as 7% in the third quarter, signaling ongoing difficulties in comparison to the surge in travel demand seen in 2022 and higher-than-normal growth.

INTERNATIONAL NEWS

The European Central Bank (ECB) has raised its main rate by 25 basis points, reaching 3.75%, completing a year of consecutive rate hikes to address high inflation. Although inflation has decreased to 5.5% in June from 6.1% in May, it remains well above the ECB’s 2% target. Furthermore, recent data shows a drop in corporate loans in the euro zone, and business activity declines in major economies like Germany and France, raising the likelihood of a recession in the region. The bank did not provide clear guidance on future moves, stating “The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction”, which leaves uncertainty about ECB’s post-summer approach.

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