Skip to content 
In today’s edition
- Delta’s summer fare war
- Spotify’s social network expansion
- PepsiCo’s revenue miss
- PBoC intervenes in the bond market
- SEC ends Paxos probe
Market Snapshot
Despite a disappointing June wholesale prices report, Wall Street reached new intraday record highs, signaling a rally extending beyond tech-focused mega caps.
The Producer Price Index (PPI) rose 0.2%, surpassing the expected 0.1%, while core PPI increased by 0.4%, and the annual headline PPI reached 2.6%, the highest since March 2023. Although these figures were worse than anticipated, the underlying components contributing to the Personal Consumption Expenditures (PCE) index slowed, indicating ongoing progress toward reducing inflation.
This broader market rally has significantly increased the number of stocks trading above their respective 50-day moving averages. The small-cap Russell 2000 Index, which underperformed in the first half of the year, reached its highest level in over two years on Friday. This widespread market strength highlights the expanding rally beyond the dominant tech stocks.
Stock market closing data for the week of Jul 8th to Jul 12th, 2024
News Summaries
Delta Air Lines (Explore: DAL) reported disappointing financial results and a cautious outlook, impacted by a fare war due to excess capacity in the summer travel season. Revenue growth is expected to be capped at 4%, below the 5.3% analyst expectation. CEO Ed Bastian noted that capacity exceeding demand by 3-4% has led to significant ticket price reductions, affecting profits across the industry. This caused Delta’s shares to drop 9.1%, with similar declines for United and American Airlines. Despite a 13% rise in corporate travel volumes and a 10% increase in premium product sales, Delta faces high costs, including a $500 million rise in labour expenses and a $350 million increase in maintenance spending. The company is focusing on targeted promotions and cost management to navigate these challenges while maintaining its full-year revenue and free cash flow forecasts.
Spotify (Explore: SPOT) is gradually evolving from a music-streaming app into a comprehensive social network centred around audio by adding features like podcast comments, polls, Q&As, and artist profiles for promoting merchandise and concert tickets. The introduction of comments on podcast episode pages suggests potential future extensions to music artists’ pages, leveraging the larger and more active fanbases of musicians. This move aligns with Spotify’s 2023 revamp, which added a TikTok-inspired discovery feed and in-app video feeds, enhancing user engagement by catering to Gen Z’s preferences. Unlike Apple’s past attempts with Ping and Connect, which lacked sustained user interest, Spotify’s incremental approach reflects a careful study of user behaviour and market trends to keep users engaged longer, thereby increasing the potential for ad revenue. This strategy is designed to ensure users are not just consuming content but actively interacting, sharing, and staying within the app ecosystem.
PepsiCo (Explore: PEP) reported a 1.9% rise in organic revenue for Q2, falling short of the 2.9% analyst estimate due to budget-conscious consumers and a significant Quaker Foods recall. Food product volume decreased by 2% year-over-year, driven by notable declines in Frito-Lay and Quaker Foods in North America as consumers opted for cheaper supermarket brands amid persistent inflation. The snack segment struggled with changing consumer preferences towards nutrition and affordability. Internationally, organic sales grew by 2% in Latin America and 1% in Asia Pacific but still missed expectations due to shrinking food volumes. To address these issues, PepsiCo plans to focus on targeted promotions and increased marketing while also enhancing productivity through digitalization and simplification. Despite these challenges, the company maintained its full-year forecast with a 4% organic revenue growth target.
The People’s Bank of China (PBoC) has begun direct market intervention to counter a potential bubble in the sovereign bond market, borrowing and selling several hundred billion renminbi of long-dated bonds to satisfy demand and prevent a sharp rebound in record-low yields. Yields on 10-year debt, which recently hit an all-time low of 2.18%, rose above 2.3% following the PBoC’s announcement of temporary bond repurchase operations. Analysts, however, question the long-term impact of these measures, given structural factors like China’s slow economic growth, a property market downturn, and weak loan demand. While the PBoC’s strategy resembles the Bank of Japan’s yield curve control, it aims to set a floor for yields rather than a ceiling. This intervention reflects the central bank’s broader challenge of managing liquidity in a deflationary environment and balancing competing interests with the finance ministry, which benefits from lower yields for cheaper bond issuance.
From the World of Crypto
The SEC’s decision to end its investigation into Paxos over the BUSD stablecoin indicates that stablecoins may not be classified as securities, providing significant relief to the crypto industry.
On July 9, the SEC informed Paxos it would not recommend enforcement action, over a year after issuing a Wells notice regarding BUSD. This move follows a court ruling favouring Binance, which argued that BUSD sales did not constitute securities offerings, impacting the SEC’s stance.
Paxos, which launched BUSD with Binance in 2019, faced regulatory uncertainty that hindered partnerships and growth, particularly affecting deals with major companies like PayPal. The SEC’s initial concern was that BUSD generated profits through its reserves, making it an investment contract despite being dollar-backed. However, the court ruling on June 28 supported Binance’s view, prompting the SEC to cease its probe. This decision may bolster the U.S. stablecoin sector by encouraging firms to develop offerings domestically, reducing the need to look abroad amid ongoing regulatory ambiguity.
