Week Ahead: The Fed meets as inflation bites

Week Ahead

The Fed meets as inflation starts to bite into the US economy. Will we see any major changes from Powell and co? US GDP is in focus too with forecasts calling for more record quarterly growth. Meanwhile, Tesla hits the accelerator on the busiest US earnings season week so far this quarter.

Earnings reports aside, the week’s big event is July’s FOMC meeting.

Inflation and a hot-running economy are likely to take centre stage during July’s talks. We’ve recently seen Chairman Powell pledge “powerful support” for the US economy post-pandemic amidst a backdrop of rising inflation.

According to Powell, current rising consumer prices is down to the nation’s reopening and will fade. In a testimony to the US House of Representatives, Powell stuck to the jobs script, pointing out there is still 7.5 million jobs missing from the US’ pre-pandemic economy.

A reduction in stimulus is some way off, according to Powell. The Fed’s $120bn a month bond purchasing programme is probably not going to change. As mentioned above, this is tied in with labour markets. Bond-buying and Fed support will likely remain in place until those job gaps are filled.

No rate hike is expected until 2023 at the earliest.

But for all the Fed’s talk of inflation being broad-based, stemming from heightened economic activity, many remain unconvinced on the plan to let the economy run hot.

June’s headline CPI print of 5.4% was the highest reading for nearly 13 years. Observers on both the Democratic and Republic side will be hoping this can be tamed relatively soon.

Powell has promised that if inflation runs rampant, “we will use our tools to guide inflation back down.”

But “it would be a mistake to act prematurely.”

Sticking with the US economy, we are due the first reading of the nation’s Q2 GDP on Thursday.

So far, predictions are good. Deloitte cites technological advances may help power the US towards another bumper quarter – outstripping pre-pandemic growth levels.

The Conference Board has predicted the US economy will grow at an annualised 9% in 2021’s second quarter.

“As the economy fully reopens and consumer confidence continues to rise, we expect consumer spending to help drive the recovery forward – especially spending on in-person services,” TCB said. “These outlays will be underpinned by a strengthening labour market and a large pool of savings derived from three rounds of fiscal stimulus checks dispersed over the last year.”

We’ve also seen in previous PMI releases that manufacturing and services sectors have continued to act on a growth footing into June following a strong April and May. Three months of solid PMI performance should help power US GDP growth this quarter.

But again, all of this pent up demand being unleashed is leading into the higher core consumer goods prices the US is currently experiencing. We’ve also had reports of high input prices starting to affect manufacturing output too. June’s manufacturing PMI reading was actually slightly lower than May’s for instance.

But, if predictions are correct, the US is about to experience one of its best periods of quarterly growth since the Second World War.

Moving away from data, it’s the busiest week for earnings season this quarter so far.

Nearly 40 US large caps are due to share their Q2 earnings this week. This includes the bulk of the FAANG stocks. Netflix reported last week, but these remaining tech giants, Alphabet (Google), Amazon, Facebook, and Apple, are all reporting in.

Tesla, however, kicks off proceedings with its earnings summary coming on Monday after US market close.

This is interesting because Tesla has rocketed 330% in terms of share price between May 2020-May 2021 and traditionally share prices tend to rise prior to Tesla releases. They have done so at an average of 1.6% ahead of all quarterly releases for the past three years.

Elon Musk’s carmaker has much to celebrate this quarter. It delivered 200,000 in a quarter for the first time. Tesla has also unleashed a range of new automation services, based on an $199-per month subscription service.

Earnings forecasts are strong, but we’ll know more on Monday.

For more information on which large caps are reporting, be sure to check out our US earnings calendar.

Major economic data

Date Time (GMT+1) Asset Event
Mon 26-Jul 9.00am EUR German ifo Business Climate
 
Tue 27-Jul 3.00pm USD US Consumer Confidence
 
Wed 28-Jul 2.30am AUD CPI q/q
  2.30am AUD Trimmed Mean CPI q/q
  1.30pm CAD CPI m/m
  3.30pm OIL US Crude Oil Inventories
  7.00pm USD FOMC Statement
  7.00pm USD Federal Funds Rate
  7.30pm USD FOMC Press Conference
 
Thu 29-Jul 1.30pm USD Advanced GDP q/q
  3.30pm GAS US Natural Gas Inventories
 
Fr 30-Jul 9.00am EUR Germany Preliminary GDP q/q
  1.30pm CAD GDP m/m
  1.30pm USD Core PCE Price Index m/m

 

Key earnings data

Mon 26 Jul Tue 27 Jul Wed 28 Jul Thu 29 Jul Fri 30 Jul
Tesla 3M Automatic Data Processing CME AbbVie
General Electric Boeing Keurig Dr Pepper Aon
Advanced Micro Devices McDonald’s Mastercard Caterpillar
Alphabet (Google) Pfizer Merck Chevron
Apple Shopify Amazon Exxon Mobil
Microsoft Spotify Gilead Procter & Gamble
Mondelez Facebook Liberty Global Takeda Pharmaceutical
Starbucks Ford Pinterest Berkshire Hathaway
Teladoc Health PayPal Twilio
Visa Qualcomm

 

Billionaires, blocks & stocks: super rich shareholders cash in

Equities
Investments

Some of the world’s richest shareholders are reaping major windfalls from equities sales in 2021.

According to research by Bloomberg, the likes of Amazon’s Jeff Bezos and Google’s Sergey Brin are turning to stock sales to improve their already substantial fortunes.

A 14-month long bull market is helping industry insiders cash in. $24.4bn worth of equities have been offloaded in the period up to the first half of May 2021, compared against the $30bn sold in the same manner throughout the whole of 2020.

The bulk of these sales have been undertaken via trading programmes, a common practice for shareholders of this status.

Usually, large shareholders will sell stock in planned intervals. However, it’s the prolonged stock market rally that’s really made these deals pay off. Whether they were planned or just coincided with the current equities boom is up for debate. The key motivations to sell now are:

  • Valuations coming under pressure from rising inflation
  • Investors becoming wary of potential tighter post-Covid measures from the Fed
  • Joe Biden’s proposed capital gains tax hike

Who is selling?

The following names were mentioned by Bloomberg has being key stock sellers:

  • Jeff Bezos – Sold $6.7bn worth of Amazon shares in 2021
  • Mark Zuckerberg – Sold $1.67bn worth of Facebook shares since November 2021 through the Chan Zuckerberg Foundation charity
  • Larry Ellison – Sold $552.3m Oracle shares
  • Charles Schwab – Sold $192 worth of shares in his eponymous brokerage
  • Sergei Brin – $163m worth of Alphabet stock
  • Eric Yuan – Sold $185m of Zoom shares

One thing to note is that all of the above are involved in big tech players. Typically, such entrepreneurs’ portfolios are heavily weighted to tech stocks. It’s where they generate their wealth after all. However, divesting such levels of stocks makes sense. It’s rarely a great idea to bet solely on one horse, even if said horse has made you a multi-billionaire.

These stock sales will have further ripples away from equities markets. Hundreds of millions could be about to be poured into areas like art, real estate, and philanthropy.

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