The Federal Reserve is facing a new dilemma as the futures market predicts a possible pause in its rate-setting meeting next month due to moderating inflation. However, some Fed officials caution that it’s too early to claim victory. This uncertainty is dampening investor enthusiasm, despite the initial rally in stocks prompted by the latest Consumer Price Index and core inflation readings, which showed a further moderation in price increases. However, a lackluster Treasuries auction later in the day brought down the rally.
On the positive side, inflation has fallen significantly in the past year, especially in “core goods” prices such as cars and household furnishings. Rent inflation is also easing. President Biden was quick to highlight these positive indicators as he aims to win voter support with talk of an improving economic outlook. Several economists, including BofA’s Michael Gapen and Stephen Juneau, share this optimism, calling the latest CPI figure “encouraging.”
However, food and fuel prices remain uncertain factors. Rising crude oil, diesel, and gasoline prices could pose upside risks to headline inflation in August. Consequently, the debate about the future path of interest rates continues. While some Fed officials, like Mary Daly, believe it’s premature to rule out rate increases, market strategist Quincy Krosby suggests that the Fed may wait until November to decide on the next rate hike if energy prices continue to rise.
In other news, the Supreme Court has temporarily blocked Purdue Pharma’s settlement over the opioid epidemic, which would have limited the Sackler family’s liability. The death toll from the Maui wildfire has risen to 55, raising questions about the official response. President Biden has called China a “ticking time bomb” due to its economic problems. California regulators have allowed Cruise and Waymo to offer driverless taxi services in San Francisco without restrictions.
American luxury-goods company Tapestry has announced its plan to acquire Capri, the company behind Michael Kors and Versace, for $8.5 billion. However, investors are skeptical, leading to a 16% drop in Tapestry’s shares. The deal is seen as a potential challenge to the dominance of European luxury conglomerates such as LVMH and Kering. However, questions arise regarding Tapestry’s debt and Capri’s heavy dependence on Michael Kors. Nevertheless, the luxury sector is experiencing increased M&A activity, with Kering’s recent acquisitions and speculation about LVMH’s interest in buying Bergdorf Goodman.
China has lifted its ban on group travel to more countries, including the US and UK, which could benefit the luxury industry as Chinese tourists are significant spenders overseas. Women are leading the “revenge spending” spree this summer, as Taylor Swift and Beyoncé’s concert tours are expected to generate billions in sales. This exuberant spending is propping up the economy, despite high inflation and economic uncertainty.
In other news, Linda Yaccarino, CEO of Elon Musk’s social media platform X (formerly Twitter), has expressed her autonomy in running the company. Meanwhile, Goldman Sachs CEO David Solomon continues to face challenges as the bank’s stock lags behind peers and profits decrease. Solomon has implemented a restructuring plan, including layoffs and the withdrawal from consumer lending, in an effort to improve the bank’s performance.
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