Market Pulse - The week in review - Aug. 14th 2023

THIS WEEK’S RECAP:

▪ In the wake of the recent US credit rating downgrade, Moody’s took aim at a selection of US mid-tier banks. Rating downgrades were issued based on higher funding costs, regulatory capital weakness and the rising commercial real estate exposures. Additionally, several larger banks were put on negative watch, indicating the possibility of future downgrades.

 

▪ The July CPI report out of the US had some promising results rising only 0.2% m/m. Goods prices continue to improve, while certain less flexible components like rents and services, including transportation, are showing slower declines. Overall, the Federal Reserve should be reasonably pleased with this outcome. However, there is considerably more data to be seen before their upcoming interest rate decision on September 20th.

 

▪ Energy prices have been climbing since late June, with oil prices now up 25%. This surge is primarily due to decreased supply, orchestrated by OPEC+ countries. As concerns grow over global wheat supply due to constraints at Black Sea ports resulting from Russia's decision to halt Ukraine's sea exports, coupled with elevated oil expenses, headline inflation is at risk of rising again. These factors are variables that central bank policy typically has limited influence over.

 

▪ Over 90% of S&P 500 companies have reported Q2 earnings. Results have broadly surprised to the upside relative to subdued expectations. However, earnings growth is a mixed story. Energy and materials sectors exhibited relative weakness, while sectors that faced challenges post-COVID are still performing well. This indicates persistence of the revenge travel and spending habits well into Q2 2023. In the upcoming weeks several key names, particularly in the IT (benefiting from AI) and consumer staples sectors, are due to report.

 

 

ON DECK FOR NEXT WEEK: ▪ With most major central banks now on a data dependant path, every piece of economic information will be watched closely by policymakers and investors alike. On Tuesday, Statistics Canada will release July CPI data. In the US, the latest read on retail sales (Tuesday) and regional manufacturing measures will be released (throughout the week).

 

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