Member Briefing August 10, 2023
Forecasts for July CPI Predict Continued Slowing Inflation Year on Year, But Slight Rise from June
The July Consumer Price Index report is expected to show a 3.3% increase in inflation from year-ago levels, according to the FactSet consensus forecast. That’s well below last July’s reading of 8.5%, though a hair above last month’s reading. For July, the headline CPI is forecast to rise 0.2% from month-ago levels, while core CPI (which excludes volatile food and energy costs) is also expected to rise 0.2%. The June CPI report showed the overall CPI rising by 0.2% as well, which was an uptick from May’s 0.1% rise.
“The underlying rate of inflation is coming down such that inflation will stay down for good,” says Preston Caldwell, chief U.S. economist at Morningstar. Scott Clemons, chief investment strategist at Brown Brothers Harriman, echoes that sentiment: “Inflation is really, really coming down. We can see that objectively in the figures. In the July CPI report, the headline number won’t be as informative as the details,” says Clemons. He and other economist will be looking closely at shelter costs. The July CPI data will be released later today (August 10th)
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- Russia Moves to Boost Army Near Europe After NATO Expansion - Bloomberg
- Ukrainian Troops Launch Surprise Raid Across Dnipro River and Break Through Some of Russia’s Defences – The Independent
- Explosion at Moscow Area Factory Adds to Russian Jitters as Officials Blame Ukraine for Drone Attack - AP
- Russia Says It Shot Down 2 Drones Near Moscow Overnight - NYT
- Woman Arrested in Plot to Kill Ukrainian President Volodymyr Zelensky – The Hill
- Ukrainian Separatists Built Crude Rockets—And Deployed Them Opposite The Entire Ukrainian Marine Corps - Forbes
- Returning Ukrainian Refugees Say There’s No Place Like Home - WSJ
- Shock at Dramatic Water Loss in Wake of Ukraine Dam Blast Attack France 24
- Poland to Send 2,000 Troops to Reinforce Belarus Border – Reuters
- Interactive Map: Assessed Control of Terrain in Ukraine – Institute for the Study of War
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
U.S. Bans Some Investments in China
The U.S. is set to ban private-equity and venture-capital investments in some Chinese technology companies under an executive order the Biden administration released Wednesday, escalating Washington’s efforts to prevent Beijing from developing cutting-edge technology for its military. The executive order covers direct investments in three technology sectors: semiconductors, quantum computing and artificial intelligence. It would prohibit investments in some forms of those technologies, while requiring Americans doing business in China to inform the U.S. government about investments in the three high-tech sectors more broadly.
Investors that violate those rules may face fines and be forced to divest themselves of their stakes, according to people familiar with the order. Before enforcing the new rules, the Biden administration is expected to accept feedback on them. They are expected to apply to future transactions and won’t cover portfolio investments in Chinese stocks and bonds, according to the people.
China Slips Into Deflation in Warning Sign for World Economy
Instead of experiencing a surge in prices after the lifting of Covid-19 pandemic curbs late last year, China is suffering an unusual bout of falling prices for a range of goods, from commodities such as steel and coal to daily essentials and consumer products such as vegetables and home appliances. China’s economic predicament stands in contrast to that of the U.S. and other developed Western economies, where soaring inflation after the lifting of Covid restrictions sent central banks on an aggressive path of interest-rate increases.
For China, the absence of inflation reflects an imbalance in an economy characterized by ample supply and dormant domestic demand, the latter of which economists say Beijing must do more to rouse. Chinese consumer prices fell 0.3% in July compared with a year earlier. Prices charged at the factory gate, which have been contracting on a year-over-year basis since last October, fell 4.4% in July from a year earlier, narrowing from June’s 5.4% decline, according to data published by China’s National Bureau of Statistics on Wednesday.
COVID Update - Hospitalizations Jump Again: Maps Show Where it’s Worst
An additional 9,056 people were hospitalized with the virus last week, according to data from the Centers for Disease Control and Prevention – that represents a 12.5% jump. The summer wave started a few weeks ago. Last week, the number of new hospitalizations was up 12.1%. About two dozen states saw a more than 20% increase in new COVID hospitalizations. New York’s increase was 17.8%.
Jill Rosenthal, director of public health policy at the Center for American Progress, told The Hill that summer surges of COVID-19 may be the new norm. “We have had a summer wave of COVID for the last few summers, and so it’s not surprising to see an increase in COVID right now.”While winter means more people socialize indoors (known to accelerate the spread of the coronavirus), summer means more people are traveling and socializing overall. Plus, in hot parts of the country, people are more likely to socialize and spend time in the air-conditioned indoors than they are to be outside.
The US Will be 'Drowning in Debt' Over the Next 30 Years as Interest Costs Rise
A recent projection from the Congressional Budget Office, which predicted the ratio of federal debt-to-GDP would nearly double from 98% in 2023 to 181% in 2053. That projection depicts the government "drowning in debt," Renaissance Macro analyst Stephen Pavlick said. That could spell trouble for the US given the current macro environment, where interest rates have been raised aggressively to control inflation.
The government's debt servicing costs hit $475 billion in 2022, up 35% from the $352 billion spent to service the national debt in 2021. Debt servicing costs will likely increase to $663 billion this year, the CBO estimated, with total interest payments on the debt potentially mounting to $10.6 trillion over the next 10 years. Historically, national debt servicing costs exceeding 14% of national revenue leads to a "prolonged period of austerity," Glenmede said in a previous note, which could weigh on the economy and corporate profits.
Credit Card Debt Hits $1T for the First Time Ever – Total Household Debt Also at Record High
Americans increasingly turned to their credit cards to make ends meet heading into the summer, sending aggregate balances over $1 trillion for the first time ever, the New York Federal Reserve reported Tuesday. Total credit card indebtedness rose by $45 billion in the April-through-June period, an increase of more than 4%. That took the total amount owed to $1.03 trillion, the highest gross value in Fed data going back to 2003. The increase in the category was the most notable area as total household debt edged higher by about $16 billion to $17.06 trillion, also a fresh record.
As card use grew, so did the delinquency rate. The Fed’s measure of credit card debt 30 or more days late climbed to 7.2% in the second quarter, up from 6.5% in Q1 and the highest rate since the first quarter of 2012 though close to the long-run normal, central bank officials said. Total debt delinquency edged higher to 3.18% from 3%.
Setbacks Pile Up for the Wind Industry
After months of warnings about rising prices and logistical hiccups, developers and would-be buyers of wind power are scrapping contracts, putting off projects and postponing investment decisions. The setbacks are piling up for both onshore and offshore projects, but the latter’s problems are more acute. In recent weeks, at least 10 offshore projects totaling around $33 billion in planned spending have been delayed or otherwise hit the doldrums across the U.S. and Europe.
Equinor The Norwegian energy major and BP are developing three wind farms off the coast of New York to power around two million homes but told the state in June that it will need to renegotiate power prices or else the projects won’t get financing. Europe’s strong winds and shallow waters have made offshore wind one of its fastest-growing renewable technologies. But a 40% cost increase recently halted a giant project in the U.K., a global leader in offshore wind, while developers delayed two investment decisions in the Baltic Sea. Another three projects in the North Sea totaling about $19 billion in planned spending are potentially delayed or revising terms too, said Peter Lloyd-Williams, a senior analyst at Westwood Global Energy Group. “If the soundest projects in the most mature markets start to sink, that is a major red flag,” he said.
UPS Cuts Forecast – Cites “Win-Win” Contract with Teamsters
Quarterly earnings from UPS, reported Tuesday, reveal that the rough contract negotiations with the Teamsters, which stirred fears that much of the nation’s shipping would be shut down if there was a strike, hurt the business even though a deal was made. UPS said its revenue fell in the second quarter as clients diverted their business elsewhere because of worries about a potential work stoppage. Daily package volume was down almost 10%, or by about 1 million a day.
Teamsters Union members will vote on the negotiated contract this month. On the earnings call with analysts and investors, UPS Chief Financial Officer Brian Newman characterized the contract a win-win. At the same time, “the union wage rate increases included in our new labor agreements for the first year are higher than we originally planned,” he said. Newman added that that’s one reason the company reduced its revenue and profit targets for the year.
Germany Spends Big to Win $11 Billion TSMC Chip Plant
Taiwanese chipmaker TSMC on Tuesday committed 3.5 billion euros ($3.8 billion) to a factory in Germany, its first in Europe, taking advantage of huge state support for the $11 billion plant as the continent seeks to bring supply chains closer to home. The plant, which will be TSMC's third outside of traditional manufacturing bases Taiwan and China, is central to Berlin's ambition to foster the domestic semiconductor industry its car industry will need to remain globally competitive.
The European Union has approved the European Chips Act, a 43 billion euro subsidy plan to double its chipmaking capacity by 2030, in a bid to catch up with Asia and the United States after shortages and high prices during the COVID-19 pandemic created havoc for the continent's carmakers and machine builders.Germany, which has been courting the world's largest contract chipmaker since 2021, will contribute up to 5 billion euros to the factory in Dresden, capital of the eastern state of Saxony, German officials said.
Campbell Soup Company Buys Rao Pasta Sauce Maker Sovos Brands
The Campbell Soup Company announced this week that it’s acquiring Sovos Brands, maker of Rao’s tomato sauce, in a deal valued at $2.7 billion. Rao’s has its roots in a Harlem restaurant that’s known for being impossible to get into. And its jarred sauce is not cheap. This acquisition provides Campbell’s with a foothold in the high-end pasta sauce market, which happens to be a growth area.
A jar of Rao’s marinara sauce can go for about ten bucks. And while that’s pricey by tomato sauce standards, Campbell’s CEO Mark Clouse argues it’s cheap if you compare it with going out for Italian. Premium pasta sauce sales are growing faster than sales of regular priced sauce. And Campbell’s Mark Clouse said that only 14% of households in the U.S. buy Rao’s products now.
Kellogg Forecasts Annual Sales of up to $13.6 Bln for Snacks Business Ahead of Split
Packaged food maker Kellogg said on Wednesday its snacking business Kellanova is expected to report full-year sales between $13.4 billion and $13.6 billion after Kellogg separates into two units at the end of the year. Kellanova — which will house the Pringles, Cheez-It and Pop-Tarts snack brands among others — is also expected to report an annual adjusted profit between $3.55 and $3.65 per share, Kellogg said.
Kellogg last year unveiled plans to split the company to sharpen its focus on the snack business. The cereal business, WK Kellogg, which will be home to brands including Kellogg's and Froot Loops, is expected to post full-year net sales of $2.7 billion. Earlier this month, Kellogg forecast a smaller drop in annual profit than previously expected following multiple price hikes for its breakfast snacks and cereals.
UAW President Shawn Fain Trashes Stellantis Contract Proposal
United Auto Workers President Shawn Fain threw a printed contract proposal from the maker of Jeep SUVs, Ram pickup trucks and other vehicles into the trash Tuesday, accusing the company of reneging on its commitment not to seek a "concessionary agreement" amid national contract talks. The automaker's proposal as explained by Fain stands distinct from the "members' demands" from the UAW outlined last week. The union's proposals include eliminating wage tiers for full-time employees, expanding profit sharing to supplemental employees, providing pensions and retirement health-care coverage for all workers, reducing the work week to 32 hours while paying workers for 40, and granting a 46% wage hike over four years.
Estimates in total say the proposal could increase labor costs to more than $100 per hour per worker at the Detroit Three automakers, roughly double labor costs at foreign automakers assembling vehicles in the United States.
NLRB Adopts New Legal Standard for Evaluating Employer Work Rules
On August 2, 2023, the National Labor Relations Board (NLRB or Board) issued its decision in Stericycle, Inc., 372 NLRB No. 113 (2023), where it adopted a new legal standard to determine whether an employers’ work rules violate Section 8(a)(1) of the National Labor Relations Act (NLRA). The Board’s decision overrules existing precedent and establishes a more stringent test that is likely to render some existing work rules facially unlawful.
Ultimately, the Board ruled that the prior existing standard under Boeing allowed employers to adopt overbroad work rules that had a chilling effect on employees’ exercise of their Section 7 rights, including the “right to self-organization, to form, join, or assist labor organizations, to bargain collectively …, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Significantly the Board noted that the extant standard from Boeing as clarified in LA Specialty Produce failed to acknowledge employees’ economic dependence on their employers, and the resultant reluctance employees have to risk violating, or even construing work rules liberally, for fear of disciple or discharge. Further, the then-existing standard places too much weight on the employers’ interests and does not require employers to narrowly tailor its rules to only promote substantial and legitimate business interests while avoiding burden to employees.
Iron And Rust Could Be The Secret To Storing Clean Power For Days
Rechargeable lithium-ion batteries have become a core technology. They can store enough electricity to support millions of homes for hours. And they’re a central part of power plants’ ability to store ever greater amounts of renewable energy. But they can also overheat into toxic chemical fires; They’re not always reliable, have failed to deliver the driving range certain companies claim and they’re also expensive
That’s why the former vice president of Tesla’s stationary power business, Mateo Jaramillo, is focusing on building batteries made with iron, an abundant and cheap material that only costs $115 per ton. He says that his startup, Form Energy, has created iron-air batteries that can store electricity for at least 100 hours — far longer than the four to six hours large-scale lithium-ion packs provide. Form is building its first factory, a $760 million facility, on the site of an old steel plant in Weirton, West Virginia. The state is providing an incentive package worth up to $290 million. Form aims to begin delivering its iron-air modules to utility customers, including Xcel Energy and Georgia Power, by 2025.