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Today marks the unofficial start of the holiday shopping season as investors size up Black Friday to determine the current mood of the U.S. consumer. With an inflationary backdrop overshadowing the shopping bonanza, consumers will be looking around for bargains to take advantage of the value pricing. While strong balance sheets are said to be the norm for many households, others will supplement spending with savings and credit, in a holiday season cycle that is being described as anything but typical.
Snapshot: There are many economic indicators out there for gauging the power of the consumer, like retail sales data, corporate retail earnings and the closely-followed University of Michigan Consumer Sentiment Index. All these can help forecast the future trajectory of the sector and broader economic landscape following a bruising year for the industry. The S&P 500 Consumer Discretionary Index Sector (SP500-25) - a group of companies that reflect spending on items from apparel and home improvement to restaurants and vacations - is down 33% YTD, more than double the 16% decline of the broader S&P 500 Index (SP500). "These stocks are a clue as to how fast the economy is slowing and whether slowing inflation is lifting confidence on Main Street," noted Jim Paulsen, chief investment strategist at the Leuthold Group.
Holiday shopping trends are also flashing mixed signals this year, with 166.3M people (almost 8M more people than last year) expected to shop from Thanksgiving Day through Cyber Monday. That's according to the latest report from the National Retail Federation, which estimates consumers will shell out an average of $832.84 on gifts and holiday items, down from the $997.73 seen in 2021 (and less purchasing power because of inflation). Holiday retail sales during November and December are forecast to grow between 6% and 8% over 2021, compared to the 13.5% jump seen last year, though some of the results may be skewed as deals and promotions continue to be pulled forward.
Black Friday schedule: The stock market will shut early at 1 p.m. today, bond markets will close an hour later, while metals and U.S. crude oil will settle at 12:30 p.m. and 1:30 p.m., respectively. Some history... Back in 1992, the major U.S. exchange operators called for a 2 p.m. Eastern close for the Friday after Thanksgiving, two hours earlier than the regular close at 4 p.m. The following year, the NYSE and Nasdaq chose to shutter markets at 1 p.m., a schedule that is currently observed. (4 comments)
Stocks had a happy session going into Thanksgiving and the sentiment may hold up after the turkey. Futures are inching up on the idea that central banks will have to respond to a growth slowdown as risks of financial system instability grow louder. The need to moderate on aggressive monetary policy was also present in Wednesday's release of the minutes from the Fed's latest meeting, though some caution that it was the same usual chatter and only a perceived shift in tone.
Quote: "A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate," according to records from the Nov. 1-2 gathering. "A slower pace in these circumstances would better allow the Committee to assess progress toward its goals of maximum employment and price stability."
"Various" Fed officials still said the persistence of inflation meant that the federal funds rate may have to go higher than they previously expected to achieve the central bank's goal of bringing down price pressures. The word "inflation" was even mentioned 95 times in the minutes, remaining the primary focus on the gathering. While the Consumer Price Index rose less than expected in October (headline inflation +7.7% Y/Y and core at +6.3% Y/Y), only time will tell if the central bank has really decided it's time to loosen the belt.
Commentary: "The big picture remains in our view that the Fed intends to slow down in order to allow more time for lags to operate and cumulative tightening to date to show up in the data," wrote Krishna Guha, head of central bank strategy at Evercore. "The hawkish talk from Powell in the press conference and many Fed officials subsequently is intended to provide air cover for the slowing to take place without an excessive easing of financial conditions." (30 comments)
Binance is aiming for a roughly $1B fund for the potential purchase of distressed assets in the crypto sector and will make another bid for bankrupt lender Voyager Digital, according to CEO Changpeng "CZ" Zhao. The move comes at a time when the crypto market is teetering from the collapse of FTX, which is seeking Chapter 11 bankruptcy protection in the U.S. Binance also said it intends to ramp up its commitment amount to $2B in the near future "if the need arises."
Will more dominoes fall? "I think we will see a little bit of contagion," CZ told Bloomberg in an interview. "Whenever one big player goes down, especially a trading platform, there are many other people or institutions with money on the platform... but overall the industry is fine."
Called the "Industry Recovery Initiative," the new fund will be structured via a "loose" approach, meaning industry players can contribute as much as they wish. It will also be "public," meaning those that want to get involved will move the funds to a blockchain crypto address that people can look at to protect and rebuild the industry. Around 150 companies have already applied for support from the fund, which is "flexible on the investment structure" and is accepting contributions in token, fiat, equity, convertible instruments, debt, credit lines, etc.
Go deeper: This year's crypto collapse has shaved about $80B off Zhao's personal fortune, but at $15B it still far exceeds anyone else in the industry, according to the Bloomberg Billionaires Index. (23 comments)
It has now been three years since the first COVID-19 case was reported in Wuhan, but China doesn't seem to be letting up on its strict coronavirus policies. In fact, quarantine facilities and makeshift hospitals are expanding across the mainland to deal with the largest surge of cases on record. Meanwhile, panic buying is taking place among supermarket delivery apps as lockdown-like restrictions take hold in Beijing, while Nomura estimates that more than a fifth of the country is under some sort of restricted movement.
Discontent is growing: Apple (NASDAQ:AAPL) supplier Foxconn's (OTCPK:FXCOF) iPhone factory in the city of Zhengzhou has drawn outsized attention as videos of worker riots were shared on social media. Foxconn has since offered a 10,000 yuan payment, equivalent to $1,400, to workers who want to leave, as well as free transportation to return home. It's unclear how many of the 200,000 employees at "iPhone City" were involved, but Apple has flagged "lower iPhone 14 Pro and iPhone 14 Pro Max shipments" due to prior curbs at the complex, which includes dormitory accommodations and is responsible for 70% of global iPhone output.
"The real hurdle for the economy lies in local officials' more zealous implementation of COVID restrictions rather than insufficient loanable funds," wrote Ting Lu, chief China economist at Nomura. Concerns are growing as infections rise in the manufacturing province of Guangdong and megacity of Chongqing, as well as the financial hub of Shanghai and the logistics heavy Zhengzhou. At the end of the third quarter, China's GDP was up by only 3% Y/Y, well below the official target of around 5.5% announced in March.
Thought bubble: China's central leaders have seen the zero-COVID policy as a source of national pride, which could showcase the superiority of their system, compared with the death tallies and infections seen in many Western nations. There are also fears that any major outbreaks could overwhelm China's healthcare system (especially given the population's low natural immunity), mobilizing public anger and undermining confidence in the government. Earlier this month, officials said they would be more specific and targeted in implementing pandemic controls, but there would be no fundamental change to the overall zero-COVID stance. (12 comments)
In Asia, Japan -0.4%. Hong Kong -0.5%. China +0.4%. India flat.
In Europe, at midday, London +0.3%. Paris +0.2%. Frankfurt +0.1%.
Futures at 6:30, Dow +0.2%. S&P +0.2%. Nasdaq flat. Crude +2.3% to $79.69. Gold +0.5% to $1754. Bitcoin -0.1% to $16,520.
Ten-year Treasury Yield unchanged at 3.71%
Today's Economic Calendar
4:30 PM Fed Balance Sheet
Companies reporting earnings today »
What else is happening...
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