💴 Inflation reports coming

Good morning investors! The market was mixed yesterday as we await new data this week.

Fun fact: Americans say you need $778K to feel financially comfortable, but it takes a massive $2.5M to be considered truly wealthy.

Today we cover:

• More inflation reports to come.

• Oil falls.

• A look at stocks.

📊 Economy and News 

Keep an eye on these inflation reports

This week, the Federal Reserve gets its final look at inflation readings before deciding on the widely anticipated interest rate cut.

The focus will be on data from the Labor Department's Bureau of Labor Statistics (BLS), which releases its consumer price index (CPI) report for August today. Tomorrow, the BLS will issue its producer price index (PPI) report, providing insights into wholesale costs.

CPI and PPI Reports: Impact on Interest Rates

The general consensus is that the Federal Reserve will lower interest rates at its next policy meeting on September 18. However, the question remains about the size of the cut. The market is looking to the upcoming CPI and PPI data for clarity, as the recent jobs report offered little guidance.

Analysts expect the CPI to rise by 0.2% in both the overall measure and the core (which excludes food and energy). On an annual basis, this would mean inflation rates of 2.6% for the all-items measure and 3.2% for the core. A similar 0.2% increase is forecasted for both the headline and core PPI. Federal Reserve officials tend to place more weight on core inflation figures, viewing them as better indicators of long-term trends.

Inflation vs. the Fed's 2% Target

While the CPI is not directly aligned with the Fed's 2% long-run inflation target, there are important factors to keep in mind.

First, the Fed primarily relies on the Commerce Department’s personal consumption expenditures (PCE) price index to gauge inflation, which reported a headline rate of 2.5% for July.

Second, policymakers are closely watching the trend rather than focusing solely on absolute values. Inflation has been moderating in recent months, and the forecasted 12-month CPI for August represents a slight decline from July's figure.

Shifting Focus: Inflation to Labor Market

In recent months, the Federal Reserve’s attention has shifted from inflation to concerns about the labor market. Hiring has slowed significantly since April, with average monthly job gains falling from 255,000 to 135,000, and job openings have declined.

This slowdown in the labor market has fueled expectations for the Fed to begin reducing interest rates. Currently, the benchmark federal funds rate stands between 5.25% and 5.50%.

Market Expectations for Rate Cut

Markets appear to expect a gradual approach from the Federal Reserve. Futures market pricing as of Tuesday shows a 71% probability that the Federal Open Market Committee (FOMC) will start with a quarter-point rate cut, while only a 29% chance exists for a more aggressive half-point reduction.

Global hits:

• Apple must pay 13 billion euros in back taxes, EU’s top court rules.

• Federal Reserve unveils toned-down banking regulations in victory for Wall Street.

• Australia plans a minimum age limit for social media use.

Oil slips: Global benchmark Brent oil prices on Tuesday fell below $70 per barrel for the first time since December 2021, as OPEC lowered its demand forecast for the second time in two months. Brent hit a low of $69.08 per barrel, the lowest since Dec. 2, 2021, while U.S. crude oil traded down to $65.82 per barrel, the lowest since May 4, 2023.

📈 Stocks

S&P 500 5,495.52 (+0.45%)
DJIA 40,736.96 (-0.23%)
NASDAQ 17,025.88 (+0.84%)
BRENT CRUDE 69.74 (-2.92%)
* Prices as of Sep 11th, 12:20 AM UTC

Trouble in paradise?

Yesterday the market was mixed but we heard some negative reports:

• BMW downgrades 2024 outlook over brake issues and weak demand in China.

• Goldman Sachs is expected to post $400 million hit to third-quarter results as it unwinds consumer business.

• JPMorgan Chase shares fell -5% on Tuesday after the bank’s president told analysts that expectations for net interest income and expenses in 2025 were too optimistic. The current estimate for 2025 of about $90 billion “is not very reasonable” because the Federal Reserve is cutting interest rates, JPMorgan President Daniel Pinto said at a financial conference. The move was the New York-based bank’s worst drop since June 2020.

• AstraZeneca shares recorded their biggest one-day drop (-5%) in seven months, after the British pharmaceutical giant announced disappointing lung cancer drug trial results. Data published Monday showed that its experimental drug did not significantly improve overall survival results for patients. The Covid-19 vaccine maker was trading at the bottom of the FTSE 100 and dragged the wider healthcare sector lower.

💵 Personal Finance

Is war a good time to invest? - Part II

We talked about investing in war in yesterday’s issue, let’s continue the topic:

1. Geographic Exposure: Consider the geographic exposure of your investments. If you have significant exposure to regions directly impacted by the conflict, it may be prudent to assess the potential risks and take appropriate actions to protect your portfolio. For example, big Israeli firms like Teva Pharmaceutical Industries and Bank Leumi might suffer due to the current situation but firms with no presence in Israel and no links to the country will typically not have much of an impact. For example, look at McDonald’s which is currently offering free meals in Israel, which has resulted in a backlash in some Muslim-majority countries. This backlash could impact the company’s bottomline as it might result in reduced sales.

2. Safe Haven Assets: During periods of geopolitical uncertainty, investors often seek safe haven assets such as U.S. Treasuries, gold, or cash. These assets tend to be less volatile and may provide a degree of protection in turbulent times. Hence, we’d suggest that you consider investing in these assets. Precious metals, for example, have proven to do very well in such situations.

3. Psychological Factors: Be aware of emotional responses to geopolitical events. Fear and panic can lead to impulsive decisions that may not align with your long-term financial goals. Having a well-thought-out investment plan can help you stay disciplined. Also, it might be a good idea to get in touch with a professional to help you make the right call.

4. Monitoring and Adaptation: Continuously monitor your investments and the evolving geopolitical situation. Be prepared to adapt your investment strategy as circumstances change.

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