Last week, the Fitch credit rating agency downgraded US long-term debt from AAA to AA+ which stimulated a negative week for the Nasdaq 100, S&P 500, and the DJIA 30 indices. The US 10-year bond yields rallied to 4.1006% as bond prices fell.
Fitch also downgraded Kenya’s credit rating to B- from B citing increased external financing challenges. Sovereign external debt service (amortization and interest) for Kenya is expected to rise sharply to $4.3 billion in the financial year ending June 2024 which includes a $2 billion Eurobond repayment that’s due in June 2024.
Fitch cited that inflation has remained stubbornly high in Kenya and that inability to secure external financing has forced the government to over-rely on internal financing which is pushing bond yields higher.
The US job market report released last Friday showed a mixed outlook as the number of jobs created in July slowed to 187k but wages increased by 0.4% while unemployment slowed to 3.5%. The dollar index weakened as investors speculated that the Fed may likely hold rates level at 5.25%-5.50% range on its next meeting in September.
This week, the focus shifts to the US consumer price index (CPI) data which is expected to be released on Thursday at 3:30 pm EAT. Analysts estimate that there was a sudden rise in consumer prices in July and expect that annual inflation jumped to 3.3% from a previous 3.0%. A spike in inflation is expected to pressure the Fed to be more aggressive with quantitative tightening and may likely lead to a stronger dollar.
The US will also report producer price index data on Friday at 3:30 pm EAT. This leading indicator of consumer inflation is expected to shed more light on the Fed’s progress in its fight against inflation.
China is expected to report inflation data on Wednesday at 4:30 am EAT. Analysts estimate that China is entering a period of disinflation and that July consumer prices may have dropped by 0.5%.
GBP traders will be focused on the UK’s gross domestic product (GDP) report on Friday at 9:00 am EAT. Analysts estimate that UK real GDP may have recovered in June following a 0.1% contraction in May. UK’s GDP growth seems to have stagnated somewhat but fears of a recession this year are resurfacing following a weaker-than-expected manufacturing sector and stagnated services sector.
Although earnings season is winding down, better-than-expected results from AMD, Apple, and Amazon this week kept prospects of a prolonged bull market alive. Amazon was the most uncharacteristically high stock after reporting an 89.54% earnings beat with earnings per share of $0.65 versus an expected $0.34 on $134.38 billion in revenue. Following the positive results release, the stock rallied 8.27% on Friday.
This week starts hot with Palantir’s earnings report expected on Monday after market close. Palantir has built an AI fortress and is expected to gain a significant advantage in this AI boom cycle. The stock is up 184% year-to-date and the quarter two earnings report is expected to share more insights on the company’s financial health and outlook.
Notable companies reporting earnings this week include United Parcel Service (UPS), Walt Disney, BioNTech, Blink Charging, Bumble, Paramount Global, iRobot, Li Auto, Lyft, Rivian Automotive, Under Armour, Alibaba, Take-Two Interactive, Twilio, Lions Gate Entertainment, Roblox, and Wendy’s.
Investors will be paying close attention to earnings in the entertainment sector to see the impact of AI in streaming, movie production, and distribution. They will also be following the earnings calls closely to understand the impact of the current Hollywood strikes.
Walt Disney will be on focus after spending almost $1 billion on four movies that flopped earlier this year. The company splashed the cash on Antman And The Wasp: Quantumania, The Little Mermaid, Indiana Jones and the Dial of Destiny, and Secret Invasion but they did not sell as expected. Even though the films were profitable, investors need to see the earnings report for deeper insights into the company’s performance.
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