Sunday Ghospel

Reflections and Outlooks.

Author

Philip Kurzrock
September 16, 2024 • Today's Reading Time: 7 minutes

Happy Sunday

opening the Wall Street Journal this morning I was greeted with headlines of skittish bond investors, inflation complaints and US presidential nominees voicing their opinions on pressing political matters like their taste and distaste for Taylor Swift. 16 years ago on this day, the Wall Street Journal reported similarly shocking headlines:

“Crisis on Wall Street as Lehman Totters, Merrill Is Sold, AIG Seeks to Raise Cash”.

With this throwback to investment journalism that seems like a distant past, I share this week’s outlook. A busy week ahead.

Cheers
Philip

The week in review

Taking the temperature

  • Tech Stocks rallied as cooling inflationary readings past week further support the anticipated FED pivot for Wednesday’s FOMC meetings. Last week’s inflation reports showed consumer prices rising at 2.5% YoY in August (vs. 2.9% in July). Lowest inflation reading since February 2021

  • September has already proven to be a highly volatile month - primarily on the back of IT sector performance, which dropped 7% to start the month before gaining back 7% in the latest week

  • Bond Yields - particularly the most receptive to expectation changes (2Y Bonds that is) - extended their recent slide amid expectations of a cut coming this week. 10Y yields have reached their lowest point since June 2023 @ 3.66%. The 2/10 spread now sits @ 45bps

  • Gold futures continue to reach new heights. The shiny metal has climbed above the USD 2,600 mark for the first time on Friday

  • The Michigan consumer sentiment index came in @ 69.0 on Friday (+1.1 vs. August readings). This marks the second consecutive positive movement in consumer confidence. Add to: Recorded consumer expectations for inflation over the next 12 months came in as low as last observed in December 2020

Venture tabs

  • Formo raises USD 61m in the biggest European financing round for animal-free cheese. The Series B saw existing investors like EQT Ventures and Happiness Capital participate alongside new cap table members: Sazaby Leageu, SevenVentures, Woodline Partners, Indiposa, The Nature Conservatory and REWE. With the cap table filling up I believe the question: Who doesn't love cheese is proven rhetorical. The fresh capital is earmarked to scale the German start-up’s operations and roll out of Koji protein-based cheese. Having raised USD 117m to date, Formo is looking to launch precision fermentation-based animal-free cheese by H1 2025. Some additional context: A recent Bloomberg report supported by data from the US Department of Agriculture shows that while milk consumption has dropped steadily for the past 50 years, cheese has been on the rise. Per capita consumption of the versatile dairy product has increased from 8.6kg in 1975 to 19.1kg in 2022. Interestingly the report also shows: Animal-free milk products have seen strong growth - yet alternative cheese has not yet found its popular touch with the American consumer. Let’s see if Formo can change that.

The week ahead

Economic Events

Eventful is an understatement for the week ahead. It’s the economic equivalent of Christmas, Thanksgiving and any selected further holiday of your choosing

  • UK CPI

    • The Wednesday inflation reading is expected to come in @ +2.2% YoY (in line with prior months YoY reading)

  • EURO CPI

    • Eurozone consumer price inflation is expected to show a +2.2% increase YoY (as in the UK this is flat on the July reading for CPI)

  • US FOMC Meeting and Interest Rate Decision

    • Markets are pricing closer to a 25bps cut for Wednesday’s FOMC meeting

    • Consensus forecasts see the FED target interest rate clock in @ 525bps

    • J Powell is expected to deliver the first interest-rate reduction since early 2020. However, as of Friday, traders continued to show uncertainty and discussion on whether the cut would come in @ 25 or 50bps. Economic commentators whose opinion I subscribe to, are more concerned with what happens after a cut rather than the cut itself.

  • BOE Interest Rate Decision

    • The UK is expected to hold rates steady on Thursday

    • Consensus continues to see the BoE holding the 500bps target rate. Last month’s 25bps rate cut still to show effects

  • BOJ Interest Rate Decision

    • After national Holidays in Japan (Respect for the Aged Day) the BoJ will get busy on Thursday - expectations see rates to be held steady @ 250bps - perhaps a good idea after the market shock delivered by the recent 15bps hike

  • Philly FED Manufacturing Index

    • Philly FED manufacturing survey results scheduled for Thursday for the Philadelphia FED (often viewed as a sound proxy for national manufacturing activity. For an additional nugget of info: Healthcare is the region’s largest industry)

    • Consensus estimates of (0.6) for August continue to show weak conditions amongst manufacturers - still a noteworthy improvement to July’s reading of (7.0)

Earnings I will be watching

  • Ferguson

  • FedEX

  • FactSet

  • Cracker Barrell

  • General Mills