The Impact of Inflation, Earnings, and the American Consumer

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Asian markets mixed
Japan’s Nikkei 225 climbed 0.67% and the Topix was up 0.72% early Thursday. Hong Kong’s Hang Seng Index dropped 0.95%, while mainland Chinese indexes extended their losses. This comes after losses on major U.S. indexes overnight. The Dow Jones Industrial Average slipped 0.54% at the close of trade on Wednesday, while the S&P 500 declined 0.7%, and the Nasdaq Composite shed 1.17%. Markets are waiting for Thursday’s July consumer price index report, which will likely show that the pace of price increases is easing — but not enough to get the Federal Reserve to retreat on its inflation fight.

“Blatant economic coercion”
China sharply rebuked President Joe Biden’s executive order limiting U.S. investment in technology — but Beijing stopped short of issuing immediate counter measures. China’s Foreign Ministry says the move is “blatant economic coercion.” Rather than an outright ban, the measures are aimed at limiting U.S. investment and expertise in semiconductors and microelectronics, quantum computing and certain artificial intelligence capabilities in China, Hong Kong and Macao.

Pricier Disney+
Disney shares rose in after hours trading after the company pledged to raise the price on its ad-free streaming tier in October and said it would crack down on password sharing. At its earnings release, Disney reported subscriber losses continued over the last three months, declining 7.4% decline from the previous quarter — a larger loss than Wall Street expected. This contributed to a net loss of $460 million for the most recent quarter from a net income of $1.41 billion from a year ago.

El Niño effects
Ongoing drought conditions have forced the managers of the Panama Canal to reduce slots for carriers to book passage. There are 154 vessels waiting for their turn, and the current wait time to cross the major shipping gateway is now around 21 days. Meanwhile, rice prices surged to their highest in almost 12 years on the back of India’s rice export ban and adverse weather conditions that could impact production, said the United Nations’ food agency. The Food and Agriculture Organization All Rice Price Index for July rose 19.7% from a year ago to its highest nominal value since September 2011. The sharpest increases in price came from Thailand.

[PRO] Trading the CPI numbers
As investors wait for the latest inflation report and weigh the Federal Reserve’s forward path, JPMorgan’s trading desk laid out five potential scenarios tied to how Wall Street might respond, judging by the month-over-month increase.

What does the latest slew of earnings releases say about American consumer behavior?

If U.S. airlines — sans budget carrier Southwest Airlines — are any indication, Americans still prefer spending money on experiences rather than shopping.

In fact, airlines and hotel chains in recent weeks have reported a surge in bookings and rising prices for international trips — at the expense of domestic destinations.

Theme park operators and restaurants are also seeing good traffic, though some companies are pulling back on perks as they chase higher margins.

However, toymakers and department stores such as Macy’s and Nordstrom are warning of tepid holiday spending. Retailers are resorting to promotional activities and markdowns — even Amazon is seeing the need to hook consumers planning to start their holiday shopping early by hosting a second Prime Day-like sales bonanza in October.

Clearly, Americans are being very careful where and how they are spending their money in an age of rising prices.