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In a rising indication that the carefully monitored index may have reached its pinnacle at 9.1% in June, economists are projecting that U.S. headline consumer price inflation would decline to 8.1% Y/Y in August from 8.5% in July. Contrarily, the Fed’s preferred inflation measure, core CPI, which does not include volatile prices, is predicted to rise to 6.1% in August from 5.9% in July as rents and wages continue to grow slowly. Noting that the Fed is presently in its “blackout” phase prior to the significant September meeting, anticipate that traders and analysts, not central bank officials, will provide all of the reactions.
Commentary: According to Interactive Brokers Senior Economist José Torres, who expects the CPI reading for August to be 8.2% Y/Y and 6.2% for core, the Fed “remains committed to easing price pressures” and the upcoming report on consumer prices “will not deter the Fed from their tightening plans” Chair Jerome Powell has already hinted that he’ll be pulling out the big guns next week, so the data is more likely to influence decisions in November and December, Keep in mind that the central bank’s dual mandate includes reducing inflation to its 2% objective, which is much below where it is at the moment.
As a result, markets are anticipating another aggressive rate increase of 75 basis points as inflation is close to a 40-year high. In contrast to the 8% possibility of a 50-bps shift, traders predict that the FOMC will increase its fed funds target range from the present range of 2.25%–2.50% to 3.00%–3.25% with a 92% probability.
How does this affect stocks? According to Ophir Gottlieb, CEO of Capital Market Laboratories, “we need CPI, Core CPI, PPI, and Core PPI to come in below estimates in order for the Fed to go slightly slower and for the recent [stock market] recovery off of June lows to hold and stay.” The latest Survey of Consumer Expectations from the New York Fed suggests that things are doing OK (for now) in terms of inflation expectations not becoming firmly established. August’s median one-year inflation estimates dropped from 6.2% to 5.7%, while indicated inflation three years out dropped from 3.2% to 2.8%. (25 comments)
Takeover of Twitter
Early voting results indicate that Twitter’s (TWTR) $44 billion proposal to be purchased and taken private by billionaire Elon Musk is likely to be approved. That shouldn’t come as a huge surprise because Musk’s $54.20 buyout offer represents a nearly 24% discount to Twitter’s current share price of $41.41. The official vote will be announced this morning, soon after Twitter’s lawyers turned down Musk’s third attempt to back out of the deal to purchase the social network.
Summary: Based on early indicators, the merger will likely pass by a significant margin, particularly with large owners like index fund managers. As for voting his 9.6% ownership, Musk hasn’t done it and isn’t likely to given claims that Twitter violated the merger agreement. He must vote his share in favour of the transaction because it would be embarrassing for him to vote against his own takeover, but if enough other investors support it, he is not required to do so.
Even if the accord receives a resounding yes, the biggest unknown is still weeks away. On October 17, a trial over holding Musk to the original terms of his acquisition will begin in Delaware Chancery Court. The “biggest X variable” will be the whistleblower allegations of former Twitter security chief Peiter “Mudge” Zatko, but Wedbush analyst Dan Ives says there is still “a strong likelihood” that the parties will reach a negotiated solution before going to court. Zatko is scheduled to appear before the Senate Judiciary Committee today; it was previously reported that Twitter and Zatko had struck a $7 million settlement.
Four possible outcomes: Among the least likely are Musk paying a $1 billion breakup fee, in which case he and Twitter would part ways, or Musk winning the case and incurring no breakup charge at all. The most likely outcome is that Musk loses in court and must pay $5 billion to $10 billion in “significant damages” to Twitter. The other outcome is that the court upholds the “specific performance” requirements of the agreement, in which case Musk purchases Twitter for the $44 billion agreed upon price. thirteen comments
Uber Eats (NYSE:UBER) and Nuro recently signed a 10-year partnership for autonomous food delivery, signalling significant recent advancements in the field of self-driving technology. The latter has created driverless delivery robots, which have started making limited appearances in a number of locations. Deliveries under the most recent agreement will begin this autumn in Houston, Texas, and Mountain View, California, with an expansion into the larger Bay Area anticipated.
Bigger picture: In 2020, Uber gave up on its independent autonomous goals by selling its self-driving unit to Aurora Technologies in the wake of a fatal collision in Arizona and declining R&D spending. While CEO Dara Khosrowshahi still sits on the board of the vehicle tech startup where Uber still has a stake, the company is under pressure to make investments in a sector that its founder previously touted as essential to the company’s future. In fact, the General Motors (GM) Cruise division recently declared that its revenue-generating rideshare service would launch in Austin and Phoenix within 90 days. If it grows quickly, this service could pose a challenge to Uber and other companies.
Cosimo Leipold, head of partnerships at Nuro, stated, “With our special autonomous delivery cars and Uber’s tremendous scale and reach, we can increase food delivery alternatives from your favourite neighbourhood mom-and-pop restaurants all the way to national chains.”
How it works: Nuro’s second-generation R2 automobile is shorter than most cars and approximately half as wide as a compact sedan. It can move at a top speed of 45 mph and has room in its temperature-controlled chambers for roughly 24 food bags. R2 is entirely autonomous as well, so clients must walk outside to unlock their “grab-and-go” orders by keying a code into a pad that is mounted to the side of the vehicle.
A new global order
According to Edward Moya, senior market strategist at OANDA, “the start of the trading week was meant to be all about the August inflation report, but Kyiv’s rapid momentum has many hoping that this moment is a turning point with the struggle against Russia.” Ukrainian armed forces appear to be advancing cautiously and consolidating their victories after retaking practically the whole Kharkiv region that Russian forces had held since the war’s beginning on February 24. The fast offensive pushed Moscow to flee quickly and might have a negative impact on the morale of Russian troops, even though the Russians still have the potential to reorganise and strike again.
Economically, there will be a distinct division and decoupling for years to come, while it is yet too early to say how sanctions and economic warfare will effect the result of the war in Ukraine. While the West won’t be pouring any foreign investment into the country for the foreseeable future, the EU now acknowledges the need for an energy grid that is independent from Russian supply. On the international stage, the new dynamics are also in play, with calls for new alliances as well as the solidification of some old ones.
In fact, President Xi Jinping is leaving China this week for the first time since the outbreak in order to meet with Vladimir Putin at a Shanghai Cooperation Organization gathering. The meeting, which will take place in Samarkand, Uzbekistan, on Thursday, comes as the two countries are becoming more dependent on one another for commodities and services. China has been importing record amounts of cheap Russian petroleum, and in Q2, 81% of Russia’s purchases of new cars came from China, with Xiaomi being the country’s top smartphone vendor.
New world order: After their previous meeting earlier this year, the two countries proclaimed their partnership to have “no limits,” but this time, they may take things a step further. “The Chinese side is willing to work with the Russian side to continuously implement high-level strategic cooperation between the two countries, safeguard common interests and promote the development of the international order in a more just and reasonable direction,” declared Yang Jiechi, minister of foreign affairs of China (29 comments)
Asia: China +0.1%, Hong Kong -0.2%, Japan +0.3%, and India +0.7%.
At noon in Europe, London gains 0.2%, Paris gains 0.4%, and Frankfurt gains 0.4%.
Futures: Dow up 0.4%, S&P up 0.4%, Nasdaq up 0.4%, Crude up 1.1% to $88.73, Gold down 0.2% to $1737.90, and Bitcoin up 1% to $22,386.
Ten-year Treasury Yield decreased by four basis points to 3.32%.
The economic calendar for today
NFIB Small Business Optimism Index at 6:00
Consumer Price Index at 8:30
Treasury Statement at 2:00 PM