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JULY 28, 2023

INFLATION EASES

According to the U.S. Bureau of Economic Analysis, inflation, as measured by the Personal Consumption Expenditure (PCE) Price Index, decreased to 3% in June. This result was below the expected rate of 3.1%, and although the rate is still higher than the desired 2% price growth, it is positive news for the U.S. economy and the Biden administration. In addition, the Core PCE Price Index, which the Federal Reserve uses as a key inflation indicator, also dropped to 4.1% annually, compared to May’s 4.6% and the expected rate of 4.2%. Moreover, the report also revealed that Personal Income rose by 0.3% and Personal Spending increased by 0.5%, and on a monthly basis, both the PCE Price Index and the Core PCE Price Index increased by 0.2%.

SEC’S CYBERSECURITY MANDATE

The Securities and Exchange Commission (SEC) has ordered listed companies, including crypto firms, to publish annual reports on their cybersecurity risk management, strategy, and governance. The new rule aims to build trust between investors and public companies by requiring them to disclose any significant cybersecurity incidents within four business days. They must explain how the cyberattack could impact their business, providing details about the incident and its timing. While most companies already mention cybersecurity risks in their investor documents, this mandate makes it an official requirement. The new rule will take effect between 30 to 180 days after the publication of the financial release in the Federal Register, with smaller companies given the full 180 days to comply. In case of national security or public safety risks, companies can request to postpone disclosures.

JOBLESS CLAIMS DECREASED

Last week, there was a notable decline in the number of Americans applying for unemployment benefits, with the figure reaching 221,000. This marked the lowest figure in five months and came as a pleasant surprise, as it was significantly below market’s expectations of 235,000. At the same time, the number of continuing claims also dropped significantly by 59,000 to 1,690,000 – the lowest since January, which suggests that people looking for jobs are finding new opportunities relatively quickly. These positive trends indicate that the U.S. labor market remains tight, leading to speculation that the Federal Reserve may continue its efforts to stabilize the economy in September. Moreover, the four-week moving average, which smoothens out week-to-week fluctuations, also decreased by 3,750 to 233,750, supporting the overall positive trend. Furthermore, the non-seasonally adjusted initial claims saw a sharp decrease of 44,487 to 213,677, with significant declines in states like New York, California, and Florida.

POSITIVE RESULTS

In the latest earnings reports, Intel made a remarkable turnaround, returning to profitability after two consecutive quarters of losses and surpassing market expectations. The company’s earnings per share reached 13 cents, compared to the expected 3 cents loss, while revenue soared to $12.9 billion, exceeding the projected $12.13 billion. Meanwhile, Ford Motor delivered impressive second-quarter earnings, outperforming expectations due to robust pricing and demand for traditional vehicles, despite a slower-than-expected adoption of electric vehicles (EVs). Consequently, Ford raised its 2023 guidance and reported a net income of $1.92 billion, a significant increase from the previous year’s $667 million. On another front, Procter & Gamble achieved better-than-expected results in its fiscal fourth quarter, attributed to price hikes on products like Crest toothpaste and Pampers diapers; and although the company’s fiscal 2024 outlook indicated lower revenue growth expectations, it remains optimistic due to a $400 million after-tax benefit from favorable commodity costs.

CAPITAL RESILIENCE PLAN

The Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) have proposed a new plan requiring the nation’s largest banks to hold extra capital on their balance sheets to better withstand risks beyond economic downturns, which means that Wall Street banks will need to set aside tens of billions of dollars to meet the Fed’s requirements. The plan addresses how banks with assets over $100 billion should value risk-weighted assets on their balance sheets to determine the buffer needed to withstand market fluctuations. The impact of this new rule will vary, with banks relying more on fee income facing greater effects than those holding bonds and securities. Following the announcement of this new plan, the banking industry has expressed opposition, arguing that they already possess sufficient capital to weather crises. Nonetheless, this plan is not finalized yet, and it is expected to incorporate industry feedback into the decision-making process.

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