Last week's set of macroeconomic data releases restored confidence that the Federal Reserve (FED) has the road paved to manage a cut in the monetary policy rate, currently at 5.5%, at its next monetary policy meeting under a scenario in which the economy is recording a soft landing with lower growth and inflationary pressures gradually easing towards the 2% target. 

This week we will have two instances in which the issuing institution will intervene by aligning its messaging before the next monetary policy meeting to be held by the FED on September 17 and 18, where it will publish its growth and inflation estimates for this and next year. This more benign scenario led investors to retake positions in equities, generating an average weekly rebound in the US of +4.1%. Thus, the Dow is up +7.9% so far this year, while the S&P 500 and Nasdaq are up +16.4% and +17.5%, respectively. For now, the 10-year sovereign rate remains at 3.90% pending the release of the Fed minutes this Wednesday and Fed Chairman Jerome Powell's speech on Friday at the Jackson Hole Wyoming World Economic Symposium, an event Powell has used to manage relevant announcements in previous years. In the corporate world, the event that generated a stir was the announcement by Starbucks announcing the arrival of Brian Niccol as CEO to replace Laxman Narasimhan, which we will discuss in more detail below.

This week, as previously mentioned, will be marked by the Fed's interventions, which will set the tone for stock market behavior as the repositioning of investment portfolios continues. Next week the focus will be on PCE inflation data with September 3rd marking the close of the US summer period with the Labor Day holiday. On the corporate front, retail companies including Estee Lauder, Lowe's, Macy's, Target and TJX among others will continue to report, formally closing the second quarter earnings period. According to Factset, the season posted +5.2% sales growth and +10.9% profit growth. For the third quarter, it is estimated that sales will expand +4.9% and profits +5.2%, marking a slowdown from previous periods. Walmart, through its CFO, John David Rainey, stated the following: 

We see, among our members and customers, that they continue to be selective, discerning, value-seeking, focusing on essentials rather than discretionary items, but more importantly, we see no further deterioration in consumer health.

Adding, further, that: 

In this environment, it is responsible or prudent to be a little cautious with the outlook, but we are not projecting a recession.

This after the company corrected upward its sales and earnings expectations for the remainder of the year. This partly confirms the position of Warren Buffett, who chose to take a position in the retail company Ulta Beauty.

On the macroeconomic front, we start with last month's inflation data where headline inflation closed at 2.9% (from 3.0%) while core inflation closed at 3.2% (from 3.3%). At the same time, industrial production contracted slightly -0.2% year over year, however, retail sales expanded +2.7% beating all expectations. This set of data brought relative calm and harmonizes with the scenario described by Walmart, for now, no recession as inflation returns to the 2% range. Expect Powell this Friday to pave the way for the first 25 basis point cut in the policy rate with market expectations pointing to a 75% chance of this occurring at the mid-September meeting. However, the Fed will have one more PCE inflation reading (Friday, August 30) and employment (Friday, September 6) to determine the course of action. For now, and as we mentioned in our previous edition, there is no indication that the economy will have a hard landing unless we see an escalation of war in the Middle East and oil prices register an unexpected sharp jump from their current level of US$77 a barrel. 

For now, Israel continues to wait for a frontal attack by Iran, an event that has not occurred as US Secretary of State Anthony Blinken arrives in the region in search of a peace agreement.  

On the corporate front, the trend-setting news was the replacement of the CEO of Starbucks generating a US$20 billion rally in market capitalization by climbing almost +25%. The new CEO has a successful track record in charge of the Chipotle food chain, having succeeded in reversing the company's declining pre-covenant sales. Brian Niccol successfully implemented an online sales strategy allowing Chipotle's market value to increase eight-fold in recent years. Niccol's task will be to reverse Starbucks' declining sales and improve service through online sales, something Narasimhan was unable to manage. The board's decision came as a surprise and was led among others by Starbucks founder Howard Shultz, who has already taken leadership of the company on several occasions after its sales slowed. Meanwhile, the microprocessor company AMD announced the purchase of ZT Systems for almost US$5 billion, seeking to consolidate artificial intelligence hardware components in order to compete with the giant Nvidia.

On the political front this week begins the Democratic convention, an event in which they will formally introduce Vice President Kamala Harris as a candidate for president without her having yet given any formal interviews to the press. Meanwhile Elon Musk had a nearly two-hour conversation with candidate Donald Trump on the X platform that had a massive audience not recorded by any press outlet with more than one billion plays. Musk invited Harris to manage the same open dialogue with no response from the candidate.

In conclusion, this week much of the stock market behavior will revolve around the Fed announcements looking to determine whether or not the road is paved for a rate cut at its mid-September meeting. For now there should be no surprises other than to give the economy a little breathing room as inflation eases.  

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