Macrosynthesis

‍

China Economy Showing Cracks

In July 2023, China’s banks issued new yuan loans amounting to 345.9 billion, marking the lowest figure since November 2009 and falling far short of the market predictions of CNY 800 billion. This portrays a substantial decline from the previous year's 679 billion and June's 3.05 trillion, following a record 15.73 trillion in loans during the first half of the year.

‍

This downward trend highlights a faltering economic recovery in China. July saw significant reductions in household and corporate loans.

‍

Markets have reacted sharply to this trend, with the Shanghai Composite plunging 2.01% on Friday and declining 3% over the week. Major firms like Ping An Insurance, Kweichow Moutai, Contemporary Amper, and Bank of China led the losses. The index has been burdened by concerns over the Chinese property market and signs of a weakening economy, including the first consumer deflation in over two years, falling factory-gate prices, and unsatisfactory trade data.

‍

This economic uncertainty is also affecting U.S. stock futures and sparking speculation about further interest rate hikes by the Federal Reserve. Meanwhile, China's unemployment rate for 16- to 24-year-olds in urban areas reached a record 21.3% in June, and the July figures are anticipated to be even higher.

‍

Further emphasizing China's economic challenges, Country Garden, the last major Chinese real estate giant to avoid default, recently announced that it expects a loss of up to $7.6 billion for the first half of the year. The company's Hong Kong-traded shares subsequently plummeted, pulling it to new lows. The combination of these factors has generated an atmosphere of caution, reflecting broader concerns about China's economic stability.

‍

China's long lasting zero COVID-19 policies which required much longer quarantining than other countries led to the failures of many businesses. In addition, as the Chinese government curtailed exports during COVID, many large companies reevaluated their supply chain and began diversifying orders to India, Vietnam, Thailand, and Mexico. The passage of the Chips Act and the Inflation Reduction Act has spurred huge companies to reshore their manufacturing in the U.S., taking jobs and money away from China.

Gassing Up

UK natural gas futures are trading at around 94 p/t, reflecting a complex interplay of factors including a rise of over 24% last week and a 3.45% retreat on Friday. Influences include potential supply disruptions, threats of strikes at three major Australian LNG facilities, more profitable U.S. LNG exports to Asia, increased UK reliance on natural gas due to low wind power, and reduced capacity at Norway's Vesterled pipeline. These factors, combined with record-high EU fuel reserves, have created a multifaceted picture for the natural gas market in the UK and across the globe.

‍

In contrast, gasoline costs per gallon in the US reached  $3.85 per gallon last week, driven by a larger-than-anticipated decrease in inventory. This is good news for energy companies, bad news for the Fed's battle with inflationary drivers.

‍

‍

Last Week's Recap

‍

U.S. stocks ended mixed on Friday, influenced by new inflation data and speculation about the Federal Reserve's future moves. The Dow Jones rose 105 points, buoyed by gains in Chevron +2% and Merck & Co +1.8%, while the S&P 500 dropped slightly by 0.1%. The Nasdaq fell about 0.7%, primarily due to a sell-off in shares of AMD -2.4%, Nvidia -3.6%, and Micron -1.6%.

‍

On the inflation front, producer prices increased 0.3% for the month, suggesting that the Fed may need to maintain higher interest rates for an extended period. Even though both headline and core consumer inflation were lower than expected, they still exceeded the Fed's 2% target.

‍

For the week, the Dow slightly decreased by 0.1%, the S&P 500 fell by 0.7%, and the Nasdaq declined by 1.8%, marking its second consecutive week of losses.

‍

The Week Ahead

‍

Investors will closely monitor the release of the FOMC minutes next week for further insights into the Federal Reserve's plans for the rest of the year. In the U.S., attention will be on retail sales and industrial production data. Internationally, the week will be marked by key economic releases, including China's industrial production and retail sales; Eurozone's GDP and inflation; Japan's GDP growth and inflation; and Germany's economic sentiment.

‍

‍

Last Week's Top Events

‍

‍

‍

Noteworthy Events  

‍

Good News for Newscorp  

News Corp's shares surged nearly 7% Friday following an earnings beat in the fiscal fourth quarter, with adjusted earnings of 14 cents per share. Despite this, the company's revenue of $2.43 billion fell short of analysts' forecast of $2.49 billion.

‍

No BS @UBS

Shares climbed 5% Friday following UBS's termination of a roughly $10 billion loss protection agreement and a public liquidity backstop with Credit Suisse. Additionally, it was confirmed that Credit Suisse has fully repaid a 50 billion Swiss franc emergency liquidity loan to the Swiss National Bank.

‍

Yield with Caution

Short-term Treasury yields advanced toward 5%, while the 30-year inflation-protected Treasuries neared 2% for the first time in over a decade, creating uncertainty and tension among bond investors about whether it will reach that threshold and what might follow if it does.

‍

(App)Lovin It!

Shares of the game developer, AppLovin, surged more than 24.1% on Thursday, following the announcement of solid second-quarter results and stronger-than-expected revenue guidance.

‍

Down from the Stratosphere

Maxeon Solar Technologies' shares fell sharply by -31.9% Friday after the company reported second-quarter revenue of $348.4 million, missing analysts' expectations of $374.3 million. This shortfall is attributed to weakening demand in the market.

‍

If You're Going to San Francisco...

California approved expanded rollout of self-driving cars for Alphabet's Waymo and General Motors' Cruise. Both companies can now take passengers day or night through the streets of San Francisco. GM launched its robo-taxi service in Austin, Texas at the end of last year. Despite its robo rollout, 6 million vehicles sold in 2022 (~5X more than Tesla), military contracts, and plans for building flying taxis, GM is still valued like a legacy gas automaker with a P/E under 5.

‍

BJ's stock did exactly as expected, surging to almost 70 since our Level 2 alert Aug. 1 which gave the idea of buying the Sept 70 calls as the stock rises to 70. Those calls are up 94 percent, meeting our target of around a 100% gain.

‍

CELH earnings shattered expectations, with net income up 460% and revenue doubling year over year. Level 2 members who have been with us since April when we recommended the stock as one of our favs at 95/share, are sitting on an +84% gain in 4 months.

‍

CASE STUDY: CANO Health -73% in 1 day

‍

Not all layoffs are created equally, as we've noted in past issues. Companies with poor cash flow, negative earnings, and questionable business models that perform mass layoffs usually tank. Stocks of large, stable companies with positive earnings usually rise. Cano Health is the former type.

‍

At the end of Q1, the company reported $28 million is losses and $28 million remaining in cash. To stay afloat, they had to fire 17% of their workforce.

‍

The stock sold off an astounding -73% as the news diffused over the next two days.

‍

Upcoming Catalysts:

Notable Earnings

‍

Monday

• JinkoSolar (JKS)

‍

Tuesday

• Home Depot
• Tencent Music (TME)
• Agilent (A)

‍

Wednesday

• Cisco (CSCO)
• Jack in the Box (JACK)
• The Trade Desk (TDD)

‍

Thursday

• Walmart (WMT)
• Applied Materials (AMT)
• Ross Stores (ROST)

‍

Friday

• Deere (DE)

‍

This is not financial advice. All information represent opinions only for informational purposes.

‍

‍

‍

The LevelFields Team