💡Quote of the week
“The Fed is in wait-and-see mode. They’re going to get two more months of employment and inflation data before the September meeting, so there’s no reason to make any changes now. Investors can now put this behind them and get back to earnings.” - David Russell, vice president of Market Intelligence at TradeStation
Investment news
🏦 🇺🇸 The Fed raises interest rates to the highest level in more than 22 years. The quarter-percentage-point increase was approved as a pivotal step to address inflation and guide the economy toward stability. Nevertheless, Fed Chair Jerome Powell's remarks have sparked speculation that the Fed will skip a rate hike in September, resulting in a mixed market reaction and putting investors on alert. (CNBC)
The Fed funds rate now sits within a target range of 5.25% to 5.5%. Any future rate hikes will depend on economic conditions, Fed chair Jerome Powell said. The decision had unanimous approval from committee members, and the markets are closely monitoring its impact on economic activity and inflation.
“I would say it’s certainly possible that we will raise funds again at the September meeting if the data is warranted. And I would also say it’s possible that we would choose to hold steady and we’re going to be making careful assessments, as I said, meeting by meeting,” Powell said.
🦾 More than resilient. The U.S. economy showed better-than-expected growth in the second quarter, fueled by robust consumer spending and increased business investment. Inflation showed signs of easing during the same period. (Reuters)
"The economy is more than resilient, solid second-quarter growth shows it has triumphed over the naysayers saying recession was inevitable following the inflation shock and the Fed's aggressive rates stance to stem it," Christopher Rupkey, chief economist at FWDBONDS in New York, said.
⭐ Gold surges. Gold shines close to a one-week peak, bolstered by a weakening dollar and speculations that the Federal Reserve's interest rate cycle is nearing its end.
“The general consensus is that the Fed is getting closer to the end of its interest rate hike cycle. As a result, there is an expectation that yields will slowly come down, and that is, generally a supportive environment for gold,” David Meger, director of metals trading at High Ridge Futures, said as quoted by Reuters.
📈 Dow Jones makes historic rally. The Dow Jones Industrial Average achieved a remarkable winning streak this week, the longest since 1987, while bond yields dropped following the Fed's decision to raise rates by 25 basis points. (Bloomberg)
Meanwhile, The S&P 500 remained steady, the tech-heavy Nasdaq 100 underperformed, and the dollar declined.
The Fed raised rates by 25 basis points, reaching their highest level in 22 years. Market sentiment varied, with some predicting a prolonged "hawkish hold" from the Fed, while others believe this could mark the final rate hike. Investors are now keeping a close eye on economic data as they anticipate further Fed decisions.
🤔 Wait, what? Powell said the Fed’s staff economists are no longer predicting a recession, thanks to the recent resilience showed by the economy. This comes as a surprise, considering the earlier forecast in March had indicated a downturn later in 2023. (Bloomberg)
“The staff now has a noticeable slowdown in growth starting later this year in the forecast, but given the resilience of the economy recently, they are no longer forecasting a recession,” Powell said during a press conference following a two-day policy meeting.
💵 U.S. dollar holds its ground. Charles Schwab's Kathy Jones believes the dollar won’t weaken until the Federal Reserve gives indications of transitioning from rate hikes to cuts. (Bloomberg)
“At the moment it’s hard to call a turning point for the dollar until the Fed really signals a turning point,” said Jones, the firm’s chief fixed-income strategist.
🛢️😮 Oil frenzy. Goldman Sachs is predicting a surge in oil demand, leading to a significant deficit in the market. The investment bank expects Brent crude prices to hit $86 per barrel by the end of the year, driven by record demand in the near term. (CNBC)
“We expect pretty sizable deficits in the second half with deficits of almost 2 million barrels per day in the third quarter as demand reaches an all-time high,” Goldman’s head of oil research Daan Struyven told CNBC’s “Squawk Box Asia.”
💗 All the Barbie buzz seems to be a short-lived spark for Mattel. The much-anticipated release of the "Barbie" movie has fueled excitement for Mattel's iconic doll, with hopes of a sales revival after a year-long slump. However, analysts warn that while the film's impact on Barbie sales may be significant in the short term, it is expected to taper off. (Reuters)
UBS' Arpiné Kocharyan anticipates that the movie's release will cast an "overall halo effect" on the franchise, presenting a greater potential in consumer products, particularly as the film appeals to an older audience.
While the impact on revenues may not be significant, Kocharyan highlights the potential influence on Mattel's earnings, considering the considerably higher margin of over 80% on the royalty stream.
📸 Image of the week
Opinion
🤔 Is inflation really gone? Doesn’t look like it. The most significant risk still lies in energy prices, which are showing a resurgence as exporters limit the supply in anticipation of increased demand. Gasoline futures indicate that prices at the pump, already at their highest in three months, are expected to climb even further. (Bloomberg Opinion)
“It’s tempting to go into a summer snooze after a no-surprises Fed meeting, but rising gas prices could trigger a rude awakening,” John Authers writes.
What else is happening
🇷🇺 🇰🇵 North Korea's Bold Display. North Korean leader Kim Jong Un was accompanied by Russia's defense minister Sergei Shoigu to a defense exhibition that showcased the North’s banned ballistic missiles. Pyongyang said deployment of U.S. aircraft carriers, bombers or missile submarines in South Korea could meet criteria for its use of nuclear weapons. (Reuters)
According to one analyst, Shoigu's examination of the North Korean missiles implies that Russia is accepting Pyongyang's nuclear weapons program.
"It may signify that the current geopolitical circumstances are starting to erode Russia’s long-standing interest in preserving the global non-proliferation regime," Artyom Lukin, a professor at Russia's Far Eastern Federal University in Vladivostok, said.
🌾Putin pledges free grain to African nations. In a bold move at the Russia-Africa summit, President Vladimir Putin said Russia would gift tens of thousands of tons of grain to African countries within the next few months. Despite facing Western sanctions that have impacted its grain and fertilizer exports, Putin reaffirmed Russia's commitment to being a reliable food supplier and partner to African nations. (Reuters)
The move comes as Russia aims to strengthen its influence in the continent and bolster its role in global food security.
"A paradoxical picture is emerging. On the one hand, Western countries are obstructing supplies of our grain and fertilisers, while on the other they hypocritically blame us for the current crisis situation on the world food market," Putin said.
🇺🇸 🇮🇹 Italy-U.S. ties. U.S. President Joe Biden welcomed Italian Prime Minister Giorgia Meloni at the White House, where discussions are expected to cover key topics, including the Ukraine war and Italy's relations with China. (Reuters)
In contrast to Biden's liberal stance on issues such as abortion and LGBTQ rights, Meloni and her right-wing coalition have taken firm positions that sharply differ from his. During last year's Italian election results, Biden used the occasion to caution fellow liberals about the challenges confronting democracies worldwide.
And finally…
✨ Janus Star: the two-faced wonder of the cosmos. Scientists have discovered an extraordinary white dwarf star, aptly named Janus, for its unique composition - hydrogen on one side and helium on the other. This celestial marvel challenges our understanding of stellar remnants, evoking the duality of the ancient Roman god it is named after. (Reuters)
"Janus is the Roman god with two faces, so we thought it was very appropriate. Moreover, Janus is the god of transition, and the white dwarf might be currently transitioning from having an atmosphere made of hydrogen to one made of helium," Ilaria Caiazzo, a Caltech postdoctoral fellow in astrophysics, said.
See you next week!
