CPI Day: Economists are expecting a 0.3% MoM increase in headline, and a 0.3% increase in core. On a YoY basis, the expectations are for a 7.3% and 6.1% increase respectively.
(Bloomberg Economics)
Americans Cut Back on Spending With Inflation Hitting Holidays
(…) About 60% of respondents said they plan to buy fewer gifts and to purchase gifts for fewer people. A similar percentage are cutting back on holiday travel.
Meanwhile, more than one-third have decided to skip gift-giving altogether due to the costs. (…)
Among those still planning to buy presents, 70% are using debit cards or cash to fund their purchases, while 60% are using credit cards, 29% are dipping into their savings accounts and 22% are turning to buy now, pay later services.
BTW, the latest Gallup poll says that the average household is seen spending $867 on gifts, down from the $932 prediction at the end of October. This is actually lower than the levels prevailing in the comparable pre-COVID-19 period in 2019.
BTW #2: Quotes from a Goldman Sachs’ Conference last week, courtesy of The Transcript:
- When we look at our own consumer spend information and we talk to the companies that we bank, there are some that are doing quite well, and there are some that are struggling more — Net-net-net, the growth is shrinking that we’ve seen in card, albeit there’s still growth. Debit card spend is about flat with transactions being down a little bit, offset by inflation” – Wells Fargo (WFC ) CEO Charles Scharf
- “We are seeing sales growth moderate. So, card sales were up 14% in September. That slowed to 11% in October and then now 9% for November, but still pretty robust. In terms of the holiday spending, a bit early to get a — we saw retail sales for that Thanksgiving week and Black Friday, up 3%. And again, hard to know whether that’s timing. We’ll see how the rest of the season plays out.” – Discover Financial Services (DFS ) CEO Roger Hochschild
- So the consumers are still spending more money this right now than they did last year at this time, and they’re spending more money this quarter than they did last quarter, but the rate of growth is slowing.” – Bank of America (BAC ) CEO Brian Moynihan
- “It’s a hurricane. Right now, it’s kind of sunny, things are doing fine, and everyone thinks the Fed can handle this. That hurricane is right out there, down the road, coming our way. We just don’t know if it’s a minor one or Superstorm Sandy or Andrew or something like that. You better brace yourself. What I said about a hurricane, I said those storm clouds could mitigate. It could be a hurricane. We simply don’t know. As a risk manager, I prepare for both, but I’m not guessing which one’s going to happen.” – JPMorgan Chase (JPM ) CEO Jamie Dimon
- (…) the current market is challenging. And we’re in it every day, and we see it, and that challenge is both on the linear side and on the digital side, again, no surprise as probably what you heard yesterday.” – Paramount Global (PARA ) CEO Robert Bakish
- “I think we’ve seen material or real weakening of that across the month of November. And like anything, it’s — like it’s been, since May, different trends across different sectors. But you saw real softness and pullbacks across CPG, some pharma, a few other sort of discretional ad budgets where both on the premium side — well, let’s start with the premium side. They’re not — they’re just pulling back on campaigns or not executing. So you have a slowdown there” – IAC/InterActiveCorp (IAC ) CFO Christopher P. Halpin Executive
- “The industry downturn is continuing and continues to be pretty severe — Our goal is that we quickly get to a point where the demand growth is ahead of supply growth so that the significant amount of — inventory starts to normalize..The sooner [inventories] start to normalize the better it will be because the current trajectory is for these inventories to continue to increase. Changing the trajectory of these inventories is a hugely important focus item for us. In order to address that, we are significantly reducing our capital investment in the short term” – Micron (MU ) EVPP & Chief Business Officer Sumit Sadana
- “Our estimation is that inventory digestion that’s been going on with our customers, probably doesn’t finish at the end of this year, it continues into next year. That, coupled with macro headwinds in basically every geography out there. Didn’t give us a ton of confidence that there would be some reason for us to be better than seasonal.” – Intel (INTC ) CFO David Zinsner
NFIB: Inflation Pressures Ease Slightly on Main Street but Remains the Top Business Problem The Small Business Optimism Index rose 0.6 points in November to 91.9. November’s reading is the 11th consecutive month below the 49-year average of 98.
- The net percent of owners raising average selling prices increased one point to a net 51% seasonally adjusted, a high reading but lower than earlier this year.
Unadjusted, 8 percent (unchanged) reported lower average selling prices and 56 percent (unchanged) reported higher average prices. - The net percent of owners who expect real sales to be higher improved five points from October to a net negative 8%, a weak economic reading.
- Layoffs & Hiring Freezes Surge: 15% of SMB Employers Reduce Staff (Up 7%) & 74% Halt Hiring (up 12%)
The percentage of small business employers now laying off staffers has nearly doubled in one month’s time, going from 8% in November to 15% in December.
Beyond that, nearly three out of four small business employers (74%) say they can’t afford to hire anyone now, and don’t expect to hire again until at least Q2 2023. That finding is up 12 percentage points over last month’s number: 62%. (…)
the rates of hiring freezes and layoffs are the same among Canadian small business employers as they are in the U.S. right now — 74% and 15%, respectively.
This chart shows how similar these trends are across North America. Many businesses are scaling back hiring based on economic conditions. (…)
- Only 11% of retailers said Q4 2022 has helped them rebound or has otherwise reflected a major increase in revenue.
- By year’s end, 40% said they expect Q4 2022 will yield less revenue than they generated this time last year. One percent of that group has already decided to shut down for good.
- Another 9% predict Q4 might also be the “end of the line for them,” as they contemplate closing their business.
- Finally, the remaining 40% say sales have been “disappointing,” but they’re still hoping for a last-minute surge in revenue before December 31st.
(Alignable is the largest online referral network for small businesses with 7.5 million+ members across North America.)
FYI: There are over 32 million small businesses in the U.S., generating 44% of economic activity, according to the Small Business Administration. (Axios)
China Postpones Key Economic Policy Meeting Due to Covid Spike China is delaying a closely watched economic policy meeting due to start this week after Covid infections surged in Beijing, according to people familiar with the matter.
(…) Signs are now emerging that the virus is spreading rapidly, including in Beijing where there are long lines at hospitals and growing shortage of medication to treat fevers. Beijing’s fever clinics reported 22,000 visits on Sunday, 16 times greater than the previous week, state broadcaster CCTV reported Monday, citing Li Ang, a spokesperson from the municipal health commission. (…)
- China Braces for ‘Massive’ Covid Outbreak on Faster Reopening
- Covid Rips Through China Trading Desks, Banks Prep Backup Plans Half of the currency traders at one Chinese bank in Beijing were off sick as of yesterday, one of the people said.
Bonds Cheap, Stocks Not
This is from Topdown Charts’ Callum Thomas:
(…) I chose this chart for this edition because it’s interesting to reflect on where this chart sat this time last year. Back then, both stocks and bonds were about 2 standard deviations expensive. And I think this line is uncanny, how I just nonchalantly stated:
It would be nearly unthinkable that both stocks and bonds could fall at the same time to the extent required to drive both of those valuation indicators back to their mean. But a heavy dose of inflation and or/policy tightening could be one thing to do that.
(…) as things sit here and now, the odds are firmly in favor of bonds vs stocks, just from a valuation standpoint. But when you factor in the macro backdrop where next year likely features a global recession — that’s a situation where stocks likely suffer, and bonds outperform.
So a very interesting chart in how it prepared us for this year, but also for its implications headed into next year…
Investors Are Losing Faith in Cathie Wood’s ARK Innovation The ETF founder is seeing a drop in large holdings such as Tesla and Zoom
Investors who bought the dip in Cathie Wood‘s ARK Innovation ARKK exchange-traded fund have been punished this year. Some finally appear to be losing their conviction.
Shares of the fund, a pandemic-era favorite largely made up of unprofitable, growth-oriented technology companies, are down 63% this year. While the S&P 500 index has rallied 12% since mid-October to cut its 2022 losses to 16%, Ms. Wood’s flagship fund is hovering near a five-year low.
Investors heeding a “buy the dip” rallying cry poured money into the fund in each of the first five months of the year—a net $1.89 billion—as markets tumbled. Since then, their enthusiasm has waned. They pulled money in three of the next six months, or a net $76.5 million, according to FactSet. On Nov. 30 alone, they yanked $146 million, which was among the largest single-day outflows of the year. (…)
Since Jan. 1, the number of accounts holding the fund is down 8%, Webull Chief Executive Anthony Denier said. By mid-November, the total had fallen to the lowest level of the year.
“The big change started happening in July,” Mr. Denier said. “It’s been steadily declining.” (…)
ARKK could see another hit come in the coming weeks, Mr. Denier said, if savvy individual investors target their holdings for what is known as tax-loss harvesting—selling losing positions before year-end to realize losses and write them off as a tax loss. (…)
- Crypto exchange Binance temporarily halts withdrawals of the stablecoin USDC. (CNBC)
WeWork’s Once Robust Cash Reserves Have Dwindled, Raising Chances of Default Recession fears and tech-industry job cuts are lowering demand for co-working desks. Meanwhile, money-losing companies such as WeWork are hurt by higher interest rates.
Moderna’s mRNA Cancer Vaccine Shows Promise in Preliminary Study The shot combined with a Merck immunotherapy reduced the risk of relapse in people with skin cancer in a study, Moderna said.
Europe Strikes Deal to Tax Imports Based on Greenhouse-Gas Emissions The European Union agreed to impose a tax on imports based on the greenhouse gases emitted to make them, inserting climate-change regulation for the first time into the rules of global trade.
(…) The plan aims to protect European manufacturers from competitors in countries that haven’t regulated carbon-dioxide emissions. It would also use the bloc’s economic heft to push countries to set a price on carbon—either through a tax or other means such as a cap-and-trade system; manufacturers from those countries would benefit from a deduction of that cost from the tax when their goods arrive at Europe’s borders. (…)
The tax would apply first to some of Europe’s most-energy intensive industries: aluminum, steel, fertilizers, cement, some chemicals and hydrogen production, which is expected to grow quickly in the coming years. It would come into effect in October 2023, first just as a requirement to report the greenhouse-gas emissions associated with imports. (…)