FOMC May Have Achieved A Soft Landing

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In his podcast addressing the markets today, Louis Navellier offered the following commentary.

Hindering Algos

An interesting development is that low market volatility is now apparently hindering algorithmic trading firms. Specifically, Virtu on Wednesday announced a 23% drop in net trading income in the second quarter, so its earnings declined 49.3% to 37 cents per share, down from 73 cents per share in the same quarter a year ago.

Citadel Securities, which is a private company, announced that trading revenues declined by 29% in the second quarter according to the Financial Times. Both Citadel and Virtu are active in options trading.

Now that there are daily as well as weekly options, these new options are not apparently boosting the bottom line for Citadel and Virtu, despite very obvious algorithmic trading programs, especially on Fridays when weekly options are expiring.

Soft Landing Achieved

The Federal Open Market Committee (FOMC) on Wednesday raised the federal funds rate 0.25% and to a new target range of 5.25% to 5.5%, which is at a 22-year high. Although the language in the FOMC statement did not change much, at his press conference, Fed Chairman Jerome Powell confirmed that the Fed would be “data dependent” moving forward, which is dovish. 

The 2-year Treasury note yield fell dramatically, which is a clear sign that the bond market thinks the Fed is done raising key interest rates. The Fed also removed any reference to a recession being possible in the upcoming months. As a result, it appears that the FOMC may have achieved a “soft landing.”

The Commerce Department on Thursday announced that its preliminary estimate for second-quarter GDP growth was an annual pace of 2.4%, up from a 2% annual pace in the first quarter. Consumer spending grew at a 1.6% annual pace in the second quarter.

The great news in the GDP report is that the Fed’s favorite inflation indicator, the Personal Consumption Expenditure (PCE) index, rose at only a 2.6% annual pace through the second quarter. The core PCE, excluding food and energy, rose at a 3.8% annual pace through the second quarter. Overall, GDP, consumer spending and PCE were all better than economists expected.

The European Central Bank (ECB) raised its key interest rate 0.25% on Thursday, despite the fact that many countries in the European Union (EU) are in the midst of a recession. Inflation is worse in the EU since their agriculture sector is less efficient and many countries strive to protect their farmers.

Furthermore, the EU is largely dependent on foreign energy imports. Rising crude oil and natural gas prices are problematic for the EU since energy inflation remains stubbornly high. As a result, the EU may remain in a recession for the foreseeable future.

Cheaper VW EVs

Volkswagen (OTCMKTS:VWAGY) announced on Wednesday that it is investing $700 million in Xpeng, which is a Chinese EV company that has been plagued by a dramatic decline in revenue. Xpeng’s sales peaked in the fourth quarter of 2021 and since then, its revenue has declined over 50% as BYD has broken out as the leading EV company in China.

Interestingly, VW may use Xpeng’s EV platform to capture more worldwide market share for lower-priced EVs. Although VW has no problem making expensive premium EVs like the ID.Buzz, cheaper EVs are where the sales are booming, so the Xpeng platform should help VW capture more market share.

Coffee Beans: iShoes

An ultra-rare pair of Apple-branded trainers, featuring the vintage rainbow Apple logo adopted in 1977, has gone up for sale for a whopping $50,000. The shoes were custom-made for company employees in the 1990s and given away at a sales conference. Source: Sky News. See the full story here.