Market 06/27: Q1 GDP continues to be revised confirming slowing consumer trend

Q1 GDP confirms slowing consumer trend

Q1 GDP slightly revised up but still lowest in 2 years

• Q1 GDP adjusted down +1.4% (QoQ figure converted to Y/Y growth - annualized), previously 3.4%,

  • slightly up from initial estimate 1.3% but still lowest since June 2022.

Consumer spending revised down lower than initial estimate

• Consumer spending growth in GDP adjusted down from +2% QoQ - annualized to +1.5% QoQ - annualized (lower than expected 2%).

• Personal consumption contributes +0.98% to 1.41% GDP growth - sharply down nearly half from first estimate! (1.68%)

• Fixed investment still at good level.

• However Net exports expected to drop sharply in Q2 data (due to strong USD).

Corporate profits slightly down from peak but margins rebound

• As %GNP, corporate profits slightly down to 11.8% but still at fairly high level.

• Corporate profit margins rise to 15.2%.

Economy shows signs of slowing via production and orders indices

Kansas City Fed manufacturing index down in June

• Kansas FED reports manufacturing index down to -8 (previous month -2).

  • Where all indices: orders, deliveries, output and capacity all declined.

    • …except delivery times and prices.

Durable goods orders decline - companies cautious amid weak demand

• May durable goods orders up: +0.1% MoM (estimate: -0.5% & previous: +0.2%)

• Non-transportation orders decline -0.1% MoM (estimate: +0.2% & previous: +0.4%).

→ Companies are trending towards cautious investment amid high interest rates and weak demand.

• Previous month's data continues to be revised down from +0.6% to +0.2% - this is the 8th downward adjustment in the past 12 months.

• Capital goods orders excluding aircraft decline -0.6% MoM (much lower than the expected +0.1%).

• However, on a year-over-year basis, core capital goods orders are turning negative, signaling caution for a deeper downturn.

• Both defense and non-defense spending slowed.

Auction of $44 billion 7Y Treasuries

• High Yield: 4.276% (market yield: 4.279%| previous session: 4.65%)

  => Stop-through: 0.3bps.

  • High Yield bid success rate: 87.68% (previous session: 65.55%)

• Bid-to-Cover: 2.58 (previous session: 2.43)

• Competitive award components:

  • Dealers: 11.87% (previous session: 17%)

  • Indirect bidders: 69.65% (previous session 66.88%)

• Treasury bond ETF TLT just recorded inflows of up to $2.7 billion on Monday - the highest in history.

• This week's bond auctions were also quite positive.

Fed official Bostic's remarks

• Expects 1 rate cut this year, Q4.

• Upward momentum has slowed.

• Expects inflation to reach 2% target in 2025 (or later).

Continuing jobless claims last week highest since 2021

• Initial jobless claims last week at 233,000, lower than estimate 235,000 and 239,000 previously.

  • …possibly due to the Juneteenth holiday.

• However, continuing claims surged to 1.839 million, higher than the estimate of 1.828 million and previous 1.821 million.

→ Warning that workers may take longer to find jobs.

• The 4-week average of initial claims rose to 236,000 - the highest since September.

Pending home sales hit historic low due to high interest rates

• Pending home sales (pending home sales) continued to decline -2.1% MoM - equivalent to -6.6% YoY.

→ Higher mortgage rates + home prices reduce people's desire to buy homes.

• This monthly decline pushed pending home sales to a record low 70.8 - the lowest since 2001.

Company earnings reports: Walgreens, Micron, Levi's

Walgreens ER: Stock plunges 25% after warning of weak consumer situation

• Adjusted EPS: 0.63 USD (estimate 0.68 USD).

• Revenue: up +2.6% YoY, reaching 36.35 billion USD (estimate 36 billion USD).

• FY 2024 EPS forecast: 2.80-2.95 USD (previous: 3.20-3.35 USD).

  • The company said the pharmaceutical industry is facing many challenges as people cut spending on non-essential items → Forcing the company to cut product prices.

  • Plans to adjust 25% of 9000 stores, with significant closures in the next 3 years.

Micron ER: Stock down 7% despite better-than-expected quarterly report

• Revenue: 6.81 billion USD (estimate 6.66 billion USD)

  • Micron stock has more than doubled thanks to the AI wave last year.

• EPS: 0.62 USD (estimate 0.48 USD)

Q4 forecast:

• Revenue: 7.60 billion USD (estimated 7.58 billion USD)

• EPS: 1.08 USD (estimated 1.04 USD)

Levi's ER: Weak sales despite denim craze

• Adjusted EPS: 16 cents (estimated 11 cents).

• Revenue: 1.44 billion USD (estimated 1.45 billion USD).

• The company also warns that consumers are spending cautiously, cutting back on non-essential items.

• Levi's is working to reduce dependence on department stores and build its own web/stores.

Crypto market: VanEck files for first Solana ETF listing in the US

1. VanEck files for first Solana ETF listing in the US.

2. SEC may approve Ethereum Spot ETF to launch trading on July 4.

Some other news:

1. Fed announces bank Stress Test results:

Stress test evaluates the operational capacity and recovery of major banks under the worst economic conditions.

• Banks suffer higher losses than in the 2023 stress test.

• Major banks are capable enough to weather a recession and maintain above the minimum capital requirements.

2. Industrial companies call on Biden for support due to concerns that strikes between workers and port operators on the East Coast and Gulf Coast could disrupt supply chains.

   • Container freight rates to the East Coast are rising.

3. Japan announces Q1 GDP revision following upcoming construction orders data (07/01).

   • According to analysts, this unscheduled Q1 GDP revision could lead to a downgrade and affect future monetary policy.

• Yen plunges to record lows, bond market concerns persist even as conditions improve.

4. New York Community Bank (NYCB) approves implementation of reverse stock split previously conducted.

This is the process of consolidating existing shares into fewer shares, but the share price will increase → Does not change total market capitalization.

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