US Oil Inventories Drop By Most On Record

Billionaire hedge fund manager Bill Ackman is making a bold move! He's shorting 30-year Treasury bills using options, and he predicts yields could skyrocket to 5.5% 'soon'. His strategy is a hedge against the impact of long-term rates on stocks in “a world with persistent 3% inflation.”

Markets

Prices as of 4 pm EST, 8/2/23

Macro

@lizyoungstrat

America’s credit rating may have been downgraded but its labor market remains remarkably strong. Figures from ADP reveal private sector resilience with companies adding 324k jobs in July, far more than the 190k expected. Job growth was concentrated in small and mid-sized companies with up to 249 employees. Beyond that, larger companies eliminated positions. Wage growth also continues to decelerate in the absence of broad job losses. In a positive sign for lower inflation, annual pay increases for job-stayers and job-switchers slowed to 6.2% and 10.2%, respectively. Both are the slowest in nearly 2 years.

For the first time in 2 and a half years, the US Treasury has increased the size of its quarterly sale of long-term debt. In a move sparked by Fitch’s downgrade earlier this week, the Treasury now plans to sell $103 billion in bonds at its upcoming auctions. That’s up $7 billion from the previous quarter. Further gradual increases are likely. With a wave of long-term securities hitting the bond market, yields could see continued upward pressure.

Rising mortgage rates are keeping potential homebuyers sidelined. Per the Mortgage Bankers Association (MBA), the average 30-year fixed rate rose to 6.93% (from 6.87%) last week. Consequently, applications for mortgages dropped 3% week-over-week. On an annual basis, applications are down 26%. High rates even have foreign buyers thinking twice about US home purchases: international buyers (58% of which require mortgages) purchased 14% fewer homes in the past year compared to the previous one.

Stocks

@MacroCharts

The S&P 500 had not dropped by more than 1% in 47 straight trading days. That was before yesterday’s session when the index fell by the most (-1.4%) since April. Leading (?) the way were tech stocks (XLK), which saw their biggest one-day drop (-2.5%) since December. Treasury yields, meanwhile, surged to reflect the US Treasury’s new issuance plans noted above. The yield on 10-year Treasuries rose to its highest since early November as investors priced in greater perceived risk ahead.

Amazon’s share of the ~$1.5 trillion US grocery market is less than 5%. For now…the company is working on a plan to pump those rookie numbers up. In the biggest overhaul to its grocery business since acquiring Whole Foods, Amazon is revamping stores, automating warehouses, and offering food delivery to non-Prime members. It’s also consolidating its various e-commerce grocery offerings (like Whole Foods, Fresh, and Amazon.com) into one online shopping cart for consumers. The company began implementing the new changes yesterday.

Energy

Bloomberg

Data from the Department of Energy confirms US crude oil inventories experienced their biggest weekly draw ever last week. Stockpiles of crude dropped by more than 17 million barrels, bringing total inventories down to their lowest level since January. Oil prices dropped nonetheless, however, as the effects of a Fitch downgrade outweighed supply concerns.

Earnings

Yesterday’s highlights:

Qualcomm QCOM: $1.87 EPS (vs. $1.81 expected), $8.44 billion in sales (vs. $8.5 expected).

• A 24% drop in the company’s largest chips division sales led to a 52% plunge in net income.

• On the positive side, its automotive business saw a 13% increase in revenue.

• The company issued guidance for the current quarter that fell below Wall Street’s expectations.

CVS Health CVS: $2.21 EPS (vs. $2.11 expected), $88.9 billion in sales (vs. $86.5B expected).

• Wide cost-cutting measures helped the healthcare giant to a double beat.

• More cuts are on the way too: about 5,000 jobs (less than 2% of workforce) will soon be eliminated as well.

• The company reiterated full-year guidance for earnings.

What we’re watching today:

• Apple AAPL

• Amazon AMZN

• ConocoPhillips COP

• Amgen AMGN

• Anheuser-Busch BUD

• Booking BKNG

• Stryker SYK

• Gilead Sciences GILD

• Airbnb ABNB

• Cigna Group CI

• Regeneron REGN

• Becton-Dickinson BDX

• Southern Company SO

• EOG Resources EOG

• Air Products & Chemicals APD

• Canadian Natural Resources CNQ

• Monster Beverage MNST

• Fortinet FTNT

• Parker-Hannifin PH

• Microchip Technology MCHP

• Ambev ABEV

• Apollo Global APO

• Block SQ

Top Headlines

• Doesn’t matter: JPMorgan CEO Jamie Dimon thinks Fitch’s US downgrade is “ridiculous”.

• Not worried: Warren Buffett on the downgrade: “There are some things people shouldn’t worry about. This is one.”

• SEC overhaul: New SEC rules for the private-funds industry could impact the businesses and returns of companies like Blackstone and Millenium.

• Treasuries hedge: Bill Ackman is betting big on a decline in 30-year US Treasuries.

• Weak reactions: Companies are beating earnings estimates at the highest rate in almost 2 years, but investors don’t care.

• CapEx: Corporate America is shifting its cash allocation from share buybacks to reinvesting in expansion projects.

• Crypto taxes: Lawmakers can’t figure out how to implement rules to catch crypto tax cheats and it could cost them billions.

• Producers blink: Hollywood producers want a sit-down with writers in the first sign of progress towards a deal.

Deals

• Jet talks: American Airlines may be buying at least 100 jets from Boeing in a potential $6 billion order.

• Sports stakes: Bob Iger wants to find minority partners to take equity in stakes in ESPN.

• ETF market: TCW Group will acquire Engine No. 1’s $619 million ETF business.

• Euro IPOs: European IPOs hit their lowest level since 2009 in the first half of the year.

• Cricket rights: Amazon and Alphabet will be among the bidders for national media rights to India’s cricket.