Well, it certainly feels like summer.
If it weren’t for the Fed’s increasingly schizophrenic policy banter we’re not sure there’d be much to talk about.
Thankfully there are a few notables today. First off there’s Wal-Mart which is riding high Thursday after reporting its eighth consecutive quarter of rising same store sales. That may sound kind of bland as far as news goes, but in the current environment it’s actually a big deal.
Remember, rival Target said yesterday that sales at its existing stores fell for the first time in two years and there are very real concerns about the health of the US consumer as retail sales came in flat in July, missing consensus estimates widely. Some have suggested Amazon’s “Prime Day” was the culprit.
Getting back to Wal-Mart, the company has of course embarked on an ambitious (and hugely expensive) campaign to raise wages for employees and make its stores more inviting. For their part, Deutsche Bank is excited. Here’s an excerpt from a note out this morning that carried the subtle title “Firing On All Cylinders”:
“As we highlighted in our recent “Low-End Theory” report, WMT’s strong 1Q performance was not a unique event. 2Q comps accelerated particularly in grocery, despite 100 bps of food deflation; GPM rose double-digits once again despite price investment; comp inventory in the U.S. is down MSD; ecommerce sales accelerated sequentially; int’l markets produced robust execution; and FY guidance was raised despite a $0.05 hit from the Jet.com acquisition. We believe WMT could continue to be a beat & raise story nearterm as CEO Doug McMillon is pushing all the right buttons. Our estimates remain well above the Street for next year and we are now applying a 17x multiple for a PT of $79. Upside risks include better than expected U.S. SSS and expense management. Conversely, downside risks include merchandise margin pressure from price investments without the benefit of increased sales.”
(Tables: Deutsche Bank)
Ok, got it. 17X. Why not, right? The S&P as a whole is at 17.3 times.
Moving on there’s also oil and the dollar to talk about with the former still pressing higher on this whole ridiculous OPEC freeze rumor which has served as a catalyst for like three straight days now. Meanwhile, the dollar is sitting at a seven week low, which we suppose is good for emerging markets and especially for the PBoC, but it certainly doesn’t say much for Fed communication:
Speaking of the Fed, Bloomberg’s Richard Breslow had some characteristically brilliant commentary out early this morning. Here are a few of the best soundbites:
“What the Fed is doing with its ping-pong communication style is using your money to buy itself the perceived peace of mind that goes with the members being long the economy straddle. And have convinced themselves that they are doing it for the greater benefit of everyone. The Fed doesn’t want to commit to any particular course of action. They can’t. They don’t have enough confidence in their models, and their forecasting track record is nothing to write home about. They aren’t really equipped to predict international events in a fully globalized world. But at this late stage, they are loath to admit they aren’t taking a position. After all, what are they getting paid for? Everyone around them is involved to the max, be it other central banks or investors. None of whom believe they have the luxury to channel their inner economist with, “on the one hand...”
“The sell-off in U.S. short-end yields or the volatility in the currency markets following comments taken as hawkish on September by the usually reliable dove Dudley were hardly insignificant. Nor was the snap-back after the latest minutes were released. Their optionality, your P&L.”
Dudley was on the tape again today (not to be crass, but they just won’t shut up) dropping gems like this at a press conference:
"For the first time in quite a while, gains in middle-wage jobs actually outnumber gains in higher- and lower-wage jobs nationwide. I believe this is an important development in the economy, because, if it were to continue, it would create more opportunities for workers and their families who have been struggling up to now."
Right. “More opportunities” to shop at Wal-Mart, where fantastic comps certainly suggest that consumers are “moving on up” when it comes to prosperity. Pardon the sarcasm.