Weekly Update 10/18/2024: Earnings Season Ramps Up
- ECB accelerates rate cuts
- Travelers reports super-sized quarter
- JNJ lowers guidance
- Retail sales rise
Economic Releases
According to the Commerce Department, retail sales rose 0.7% in September from the month prior excluding auto sales and gasoline. That was above the 0.3% estimate suggesting consumers remain resilient as we approach the holiday shopping season. Ten of the report’s 13 categories registered an advance led by miscellaneous retailers and apparel & grocery stores. Auto sales, however, barely rose which shows that frugality remains in vogue as interest rates have not fallen quite enough to support lavish spending.
That spending will be heavily influenced by the state of the labor market over the next few months. The Labor Department reported that initial jobless claims in the week ending October 12 fell by 19,000 to 241,000. The median forecast in a Bloomberg survey of economists called for 259,000 applications so the result was a surprise to the downside. The data for this week and the next few weeks will be affected by the double whammy Hurricanes Helene and Milton put on the U.S. southeast with special focus on Florida. Some people may be unable to file claims, and some jurisdictions may not be able to fully tabulate results. Thus, in the near term, weekly filings will be potentially lumpy and less accurate than usual. The data is also affected by a large drop in Michigan, on an unadjusted basis. The previous two weeks saw large increases due to layoffs in manufacturing which resulted in this week’s figure exhibiting the biggest decline since February 2022. The four-week moving average, which helps smooth out volatility, rose to 236,250, the highest since August. The next unemployment report will be released in two weeks.
International News
The European Central Bank (ECB) lowered interest rates, dropping its key factor from 3.50% to 3.25%. This pivot represents the ECB becoming more worried about growth in its various economies versus the previous goal of reducing inflation. This is the first time the ECB has made cuts at consecutive meetings since 2011. While incomes continue to rise, the EU faces contracting manufacturing, sluggish services and slowing consumer spending. China’s weak growth is a headwind considering it is a key export destination. And the continuing Ukraine war blankets the region with uncertainty. “We certainly do not see a recession. We are still looking at that soft landing,” commented ECB President Christine Lagarde during her post-meeting news conference. Another rate cut at the next meeting, on December 12, remains well within the realm of possibility especially if future economic data point to continued weakness. The next U.S. Federal Reserve Open Market Committee meeting is scheduled for November 7. Futures markets are expecting two more 25 basis points reductions before the end of the year.
Company Events
SGK writes additional weekly commentary for clients of the firm detailing recent events and earnings of core equity holdings.
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