Macrosynthesis

The Black Sea Deal and the Dollar

The global financial structure may be facing a seismic shift as the dominance of the U.S. dollar is increasingly questioned. The term "dollar imperialism" has been used to describe the system in which the U.S. dollar is the default currency for international transactions, maintaining a hegemony that has recently been under scrutiny.

In particular, the rise of the BRICS nations (Brazil, Russia, India, China, and South Africa) and their interest in a gold-backed currency represents a move away from dollar dependency. This shift seeks to counterbalance U.S. economic and political influence.

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These developments occur in parallel to other geopolitical frictions, such as Russia's withdrawal from the Black Sea Grain Deal. The action was an effort to get reconnected to the SWIFT international payment system, which it was severed from last June. The wheat ETF (WEAT) rose 2% in response.

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Russia's decision has disrupted the global grain trade, with consequences for global food security, and may represent another challenge to the influence of the U.S. and its dollar.

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The potential shift from dollar dominance to a gold-backed or digital currency could drastically reshape the global financial system. Such a shift would limit leveraging currencies for geopolitical purposes. However, the path toward such a transformative change is fraught with uncertainties and potential upheavals.

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FedNow is Live Now

The Federal Reserve has launched FedNow, a real-time payments system that operates alongside RTP, The Clearing House's system. FedNow enables instant transactions like issuing paychecks or settling invoices.

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The government hopes the system will cut down on check cashing, overdraft, and wire fees that disproportionately impact lower income Americans. Hourly workers stand to benefit by being able to receive payments as they accrue earnings, instead of waiting until the end of a billing cycle. Thus far, 35 banks, including JPMorgan Chase and Wells Fargo, have adopted FedNow.

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UPS workers are threatening to strike. If the 340,000 deliverers of things do, we'll all be impacted in major ways and it will add to inflation. One think tank put a 10-day cost of the strike in lost commerce at $7 billion. The strike will go into effect August 1st unless a deal is reached with the Teamster's union. While Amazon has built up its own logistics empire, it still relies heavily on UPS for long-haul transit.

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Last Week's Recap

US stocks showed a mixed performance for the week with the S&P 500 flat, the Nasdaq down 1% and the Dow up 2%.

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The Week Ahead

US Federal Reserve policymakers are expected to announce a .25% rate increase this Wednesday, which many investors believe could be the last hike in the current tightening cycle. This sentiment is driven by significantly reduced inflationary pressures.

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US GDP growth for Q2 is expected to be 1.6%, the slowest since the technical recession in the first half of 2022.

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Investors will also be tuned into the earnings announcements from 150 companies, including the biggest names in the S&P 500. Expectations are for slowing earnings growth. Any major surprises will add fuel to the rally.

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Last Week's Top Events

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Noteworthy Events  

Scholastic Pops

‍Scholastic, the publishing company, saw an approximate 11.5% surge in its stock after announcing a $100 million increase in its share buyback program on Friday. The company's quarterly results were also positively received by the market, with earnings reported at $2.26 per share on a revenue of $428.3 million.

American Express Slips

American Express shares dropped around 3.9% following its second-quarter earnings report Friday morning. The company reported revenue of $15.05 billion, which fell below the anticipated $15.48 billion, according to analysts polled by Refinitiv. Despite the revenue miss, American Express' earnings per share surpassed expectations.

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AutoNation Drops

AutoNation shares fell by 12.3% during midday trading Friday despite posting second-quarter results that surpassed expectations. The car dealer reported falling pricing power as demand for cars waned and the need to cut prices for cars is rising. This is good news for car buyers and inflation. Adjusted earnings came in at $6.29 per share on revenue of $6.89 billion, beating analyst expectations of earnings per share of $5.91 on revenue of $6.78 billion.

Tesla Disappoints

Shares of electric car manufacturer Tesla dropped by over 7% on Thursday, following warnings from CEO Elon Musk and other executives that Q3 production would decrease due to shutdowns for factory enhancements. Initially, positive results were overshadowed by vague comments from Musk and other executives concerning the company's latest vehicle, Cybertruck, and a planned robotaxi-ready car, leading to investor dissatisfaction.

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‍CASE STUDY: Pepsi Up +14%

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Feb. 9th, our bullish Dividend Increase scenario picked up that Pepsi (PEP) increased their dividends by 10%. The price action was fairly muted, with just a 1% increase in the stock price that day.

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Over the next few months, Pepsi stock continued to rise as the market understood its pricing power, which was represented by the confidence to increase its dividends substantially on a dividend that was already $4.60 per share.

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What's important to note is that the market reaction was not immediate. Pepsi is a giant company with a lot of shares and trading volume. Large asset managers allocate capital in large quantifies and cannot deploy all their capital at once, or they will increase the share price on themselves.

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PEP stock rose +14% gradually over the next few months, following the alert. In this way, the alert for this scenario can be used for longer-term entry points into stocks.

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Upcoming Catalysts:

Notable Earnings

Monday

• Dominos Pizza (DPZ)
• F5 Networks (FFIV)
• Medpace (MEDP)
• Whirlpool (WHR)

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Tuesday

• Google (GOOGL)
• Microsoft (MSFT)
• 3M (MMM)
• Chubb (CB)
• Biogen (BIIB)
• General Electric (GE)

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Wednesday

• AT&T (T)
• Coca-Cola (KO)
• e-Bay (EBAY)
• Fiserv (FI)
• General Dynamics (GD)
• O'Reilly Auto Parts (ORLY)

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Thursday

• Amazon.com (AMZN)
• AbbVie (ABBV)
• Boston Scientific (BSX)
• STMicroelectronics (STM)

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Friday

• Chevron (CVX)
• Exxon Mobil (XOM)
• WisomTree (WPC)

Economic Reports

Wednesday

• FOMC Interest Rate Decision

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Thursday

• GDP

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Friday

• PCE
• Consumer Sentiment

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

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The LevelFields Team