Supplier Inflation Stayed Elevated in August The producer-price index, which measures what suppliers are charging businesses and other customers, rose 8.7% in August from a year earlier.
The producer-price index, which measures what suppliers are charging businesses and other customers, fell 0.1% in August from July, after a decline of 0.4% in July from June, the Labor Department said Wednesday.
On an annual basis, that left the PPI 8.7% higher in August than a year earlier, down from annual increases of 9.8% in July and 11.2% in June. (…)
The so-called core PPI—which excludes the volatile categories of food, energy and supplier margins—rose 0.2% in August from July, up from a 0.1% increase in July from June. (…)
The recent figures suggest the core PCE index was up 0.5% in August from July, according to Omair Sharif, head of the advisory firm Inflation Insights. That would mark a notable increase from the 0.1% gain in July from June, bringing the 12-month reading to 4.8% in August from 4.6% in July. (…)
More PPI data:
- Core finished consumer goods prices increased 0.5% (8.4% YoY) following a 0.6% July rise.
- Durable consumer goods prices gained 0.3% (7.7% YoY).
- Core nondurable consumer goods prices rose 0.6% (8.9% YoY).
- Services prices increased 0.4% (6.6% YoY) after a 0.2% July gain.
BofA Survey Shows Investors Fleeing Equities en Masse on Fear of Recession
A historically high 52% of respondents said they are underweight equities, while 62% are overweight cash, according to the bank’s global fund manager survey, which included 212 participants with $616 billion under management in the week through Sept. 8.
As concerns over the economy escalate, the number of investors expecting a recession has reached the highest since May 2020, strategists led by Michael Hartnett wrote in a note on Tuesday. Sentiment is “super bearish,” with the energy crisis further weighing on risk appetite, they said. A net 42% of global investors are underweight European equities, the largest such position on record.
The survey showed the market’s grim mood even before Tuesday’s report on US inflation, which ran hotter than estimates in August and cemented traders’ bets on a 75 basis-point rate hike by the Federal Reserve next week. (…)
Source: Bloomberg
The outlook for corporate earnings is also deteriorating. A net 92% of participants in the Bank of America survey now expect profits to decline in the next year, while the number of investors taking higher-than-normal risk has fallen to a record low.
Source: Bloomberg
- The most crowded trades are long US dollar, long oil and commodities, long ESG assets, short US Treasuries, long growth stocks and long cash
- A net 79% of participants see slower inflation in the next 12 months, while 36% say the Fed will stop hiking rates in the second quarter of 2023 (…)
Hmmm…
- Recall Bob Farrell’s rule #9: When all the experts and forecasts agree – something else is going to happen.
- Recall the fall of 2002. The low close on the S&P 500 was on Oct. 9 at 776, a trailing P/E of 17.7, down from 29.5 the previous March. The Rule of 20 P/E was 22.7, down from 32.0. Cheaper, but still not cheap. Yet, that was the low.
- But it was better (safer) to wait until March 2003 (low close of 804 on Mar. 12) when the R20 P/E touched 20.0 (trailing P/E: 16.8). Rising earnings, low inflation (2%) and a dovish Fed.
Ray Dalio Does the Math: Rates at 4.5% Would Sink Stocks by 20%
(…) “It looks like interest rates will have to rise a lot (toward the higher end of the 4.5% to 6% range),” the billionaire founder of Bridgewater Associates LP wrote in a LinkedIn article dated Tuesday. “This will bring private sector credit growth down, which will bring private sector spending and, hence, the economy down with it.”
A mere increase in rates to about 4.5% would lead to a nearly 20% plunge in equity prices, he added.
The rate market suggests traders have fully priced in a 75-basis-point hike next week by the Federal Reserve, with a slight chance for a full percentage point move. Traders expect the Fed fund rate to peak at about 4.4% next year, from the current range of 2.25% and 2.5%. (…)
Railroad Strike Averted as Tentative Deal Is Reached The agreement came after a night of late negotiations as strikes threatened to shut down a crucial vein of the U.S. economy and put fresh pressure on prices when inflation is near four-decade highs.
Biotech May Be the Next U.S.-China Battleground Investors in Chinese biotech—and perhaps their U.S. clients too—should be prepared for a rough ride
Shares of Chinese biotech companies, especially those with large revenue exposure to the U.S., tumbled after President Biden signed an executive order Monday to boost domestic manufacturing in the biotech industry. (…)
The executive order is relatively vague for now: It just kick-started a process wherein different departments make reports and come up with plans. But China looms large in the background. The order mentioned risks posed by foreign adversaries and strategic competitors in the biotechnology supply chain. U.S. lawmakers have long raised concerns about the reliance on China for drugs and medical supplies. The pandemic further intensified that worry.
China is a major manufacturer of active pharmaceutical ingredients, the key components in drugs. There is no readily available database tracking how much of these ingredients ultimately come from China. Complicated supply chains often obscure the picture: For example, China is a key supplier of APIs to India, which in turn is a major supplier of generic drugs to the U.S.
Increasingly, pharmaceutical companies are also outsourcing more research and development—especially costly and uncertain drug discovery and preclinical trials—to save costs. Biotech startups are also relying on Chinese companies’ services to avoid big capital outlays.
(…) the selloff—before any official sanctions or policy details have been announced—reflects the worry that something more ominous could be on the way. Chinese biotech could become a new battleground between the two superpowers, similar to what happened in semiconductors. (…)
Billionaire Patagonia Founder Gives Company Away to Fight Climate Change
Patagonia founder Yvon Chouinard and his family are giving away ownership in the outdoor apparel company he created almost fifty years ago to a trust and a non-profit devoted to fighting the environmental crisis.
Chouinard considered selling the company or going public, but decided on the unusual move to ensure the company’s profits will go to protect the environment. (…)
“Even public companies with good intentions are under too much pressure to create short-term gain at the expense of long-term vitality and responsibility.”
Chouinard, his wife and two children participated in the Patagonia transfer, which is valued at about $3 billion, according to the New York Times, which first reported the move.
“Instead of extracting value from nature and transforming it into wealth for investors, we’ll use the wealth Patagonia creates to protect the source of all wealth.” (…)
It’s the latest and most drastic move Patagonia has made to address global warming. The company gives away 1% of sales each year and became a certified B Corp and a California benefit corporation.
“While we’re doing our best to address the environmental crisis, it’s not enough,” he wrote. “We needed to find a way to put more money into fighting the crisis while keeping the company’s values intact.”