Inflation in-line, Bank of Canada day, GM pulls back on Cruise, no Hershey’s kisses
We were so thrilled to see the kids last night that we let them stay up an hour past their bedtime thinking we could all enjoy a sleep-in this morning. Fools.
ABCs: Today is an alphabet soup of important catalysts: CPI and BOC. In the US we just got a read of inflation that picked up to 2.7% while core inflation came in at 3.3%. Futures popped as both numbers were in line with expectations. So just to clarify: inflation is the hottest since July, tariffs and tax cuts could stoke that even further, the markets are at an all time high, yet the Federal Reserve is still expected to cut rates next week. Got it. Worth noting, the market is pricing in the odds of a January pause.
BOC Day: In Canada it is all about the Bank of Canada. The rate decision comes down at 9:45amET with the press conference at 10:30amET. It is widely expected to cut interest rates by 50 basis points for a second time in a row. However, economists are warning that cutting by that much is not without risks. Scotia’s Derek Holt says he expects it, but he hates it. “…I truly hope for the sake of sensible monetary policy that the BoC stuffs markets with a quarter,” Holt wrote in a note to clients. He says that the bank usually only delivers outsized cuts in times of crisis like the dot com bust and the great financial crisis (chart). BMO’s Benjamin Reitzes also says the risks to a 50 basis point rate cut should not be ignored. A weaker Canadian dollar, highly-leveraged consumers, a widening spread between Canadian interest rates and US interest rates are all reasons for caution says Reitzes.
Cruise control: General Motors is up slightly after saying its Cruise business will abandon the robotaxi initiative. General Motors is still going to develop advanced driver assist programs and work toward a full autonomous vehicle, they are just not going to pursue robotaxis as a standalone business. Instead, the automaker will focus on applying the technology to their own vehicles. The move should save GM about a $1 billion per year. Shares of Tesla are rallying as another potential competitor in the robotaxi game bows out. Alphabet is only a little higher as the market continues to give it no credit for Waymo (which is already on the streets). GM bought the Cruise business in 2016 and has spent $10 billion trying to develop a fleet. RBC’s Tom Narayan says this is the right move for General Motors. “GM is focusing its capital allocation on core competency,” Narayan wrote in a note to clients, “We expect shares to react favorably on this news.”
Shopaholics in recovery: Shares of Macy’s are plunging 11% after cutting its profit forecast. Total sales fell this quarter yet again led by weakness at its namesake department store. On the plus side, their higher-end stores like Bloomingdale’s and Bluemercury posted stronger growth. Shares of Macy’s are down nearly 20% over the last year but have a new CEO attempting to turn things around. It looks like it might be working because even though they cut their profit forecast, Macy’s actually boosted its sales forecast. There is a lot happening around Macy’s. Just last month they had to delay their quarterly results because an employee hid millions in expenses. It also has two activist investors circling the company pushing for change either through selling off Bloomingdales/Bluemercury or unlocking value in real estate.
No kisses: Shares of Hershey’s are down 5% as it looks like Mondelez may not buy the company. Hershey’s shot up earlier this week on reports that rival candy maker Mondelez was reportedly interested in taking a run at the company. This morning, Mondelez announced a $9 billion share buyback which appears to lower the odds it would buy Hershey. The maker of Hershey chocolate, Twizzlers and Reese’s has been an underperformer over the last year. In part because of rising cocoa prices but also concerns about how weight-loss drugs could affect demand for junk food.
