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Inflation data, Disney earnings: What to know this week

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Welcome to Finance Post on Inflation data, Disney earnings: What to know this week and beyond.

Investors have a packed slate of economic data to look forward to this week, with new reports on consumer and producer price inflation set for release. More corporate earnings results will also trickle in.

One of the closely watched economic data points this week will be the U.S. Bureau of Labor Statistics’ consumer price index. This print will reflect the extent of consumer price increases over the past month, with outsized demand during the recovery still exerting upward pressure on prices.

The consumer price index, excluding volatile food and energy prices, is expected to have risen by 4.3% in July over last year, pulling back just slightly from June’s 4.5%, or the fastest pace in three decades. Core consumer prices are also expected to have advanced for the fourteenth consecutive month, or by 0.5% after June’s 0.9% monthly gain.

A central debate for investors, however, will be about how long-lasting these price increases ultimately prove to be. Many of the categories of goods that saw the biggest price increases were in areas considered “transitory,” or those closely tied to the rebound in economic activity and reopening of the economy. Prices for used cars and trucks, for instance, surged by 10.5% in June to comprise more than a third of the increase across all items.

“Core CPI averaged an extremely hot 0.8% month-over-month over the prior three months, boosted by skyrocketing used car prices,” Bank of America economist Michelle Meyer wrote in a note Friday. “We expect used car prices to see a slight pullback this month after year-to-date gains in June surpassed the peak year-to-date gain in wholesale prices, suggesting that retail prices may have gotten a little overstretched.”

Airline fares and apparel prices have also been some of the biggest contributors to the overall gains, with demand for these products expected to moderate as a flood of pent-up consumer demand for travel and going back out begins to settle.

And as economists and policymakers including Federal Reserve Chair Jerome Powell have reiterated, many of the increases in the year-over-year inflation data have been exacerbated by base effects, given that this year’s data is being compared to last year’s pandemic-depressed levels.

But other economists are less convinced about the transitory nature of inflation, especially given the magnitude of the price increases so far this year. According to data from Bank of America, mentions of inflation on second-quarter corporate earnings calls have already hit a record high, surging by about 1,100% over last year. Within the Institute for Supply Management’s Services index, the prices paid subindex raced to the highest level since 2005 last month. And wage inflation, which can be stickier than price increases in other categories, has also been a key focus, with companies competing for workers as labor scarcities linger.

“With the U.S. CPI due next week, particular attention should be paid to the 4% wages growth figure despite increased hiring in areas that would ordinarily drive down average wages,” said Josh Mahony, IG senior market analyst, in a note, referring to the 4% increase in average hourly earnings reported in the Labor Department’s July jobs report. “It seems employers are having to pay higher wages in a bid to take advantage of the spike in demand seen in recent months.”

This week’s inflation report will also take on additional emphasis as one of the last economic prints before the Federal Reserve’s conference at Jackson Hole, which is set to take place August 26-28. Central bank officials have suggested they are looking especially closely at the pace of the labor market’s recovery to ascertain whether the economy has reached the “substantial further progress” threshold that would trigger a pivot on monetary policy.

Still, however, the inflation data will provide another data point as to how quickly the Federal Reserve may need to step in to temper a hot economy.

Disney earnings/ Inflation Data

This week, quarterly earnings season continues with a number of closely watched names, including relatively newly public companies like Coinbase and Bumble.

Dow component Disney (DIS) will be one of the biggest reports this week, with both the company’s parks and streaming businesses in focus. Disney reports earnings Thursday after market close.

Over the course of the pandemic, growth at Disney’s streaming platform Disney+ helped placate investors as the company’s lucrative parks and resorts saw business dry up.

But with the reopening now under way, expansion of the company’s streaming business has started to decelerate while theme parks recover. Still, Disney shares have fallen 2% so far for the year-to-date and underperformed against the S&P 500’s 18% rise, with investors hoping for more growth from the company’s nascent streaming business.

A streaming slowdown has also been reflected in results at Netflix, the incumbent leader among U.S.-based internet streaming platforms. The company added just 1.5 million new members in the second quarter of this year, tumbling from more than 10 million in the same quarter last year, when consumers turned in droves to find entertainment during the height of stay-in-place orders.

Disney+, which launched late 2019, has also seen weaker quarters recently. In May, Disney+ posted its weakest quarter for user growth since its debut, with new subscribers rising by 8.7 million. Still, the company has grown formidably since its debut, with subscribers already topping 100 million in less than two years.

Amsterdam, The Netherlands, 02/03/2020, Disney+ startscreen on mobile phone. Disney+ online video, content streaming subscription service. Disney plus, Star wars, Marvel, Pixar, National Geographic.

The recent spread of the Delta variant has also posed an additional hurdle to Disney’s parks businesses, potentially deterring customers once more from visiting theme parks globally.

“While rising COVID rates in Florida and potential for incremental restrictions in California bear watching, we don’t think investors will overreact to changes, and expect DIS to grow into its multiple as that business recovers eventually,” BMO Capital Markets analyst Daniel Salmon wrote in a recent note.

“We continue to look to the DTC streaming business for catalysts, and we think they remain elusive,” he added. “We think the amount of new rights options for ESPN+ is impressive, and positions DIS well for the eventual acceleration to streaming live sports broadly (for now, [outperform]-rated AMZN is carrying that narrative). We think Hulu with Live TV remains an underappreciated asset that allows DIS greater control of linear ESPN’s destiny.”

Other pundits have also suggested Disney+ would be the linchpin to the overall company’s success going forward. Dan Loeb, the activist investor and CEO of the hedge fund Third Point, wrote in a letter to investors on Friday that he believed Disney should lean further into Disney+ by providing an “all-you-can-eat DTC [direct-to-consumer’ offering on a single platform under the Disney+ brand,” combining sports, general entertainment and theatrical content “day-and-date with no additional fee to subscribers.”

Economic calendar

Monday: JOLTS Job openings, June (9.260 million expected, 9.209 million in May)

Tuesday: NFIB Small Business Optimism, July (102.0 expected, 102.5 in June); Non-farm productivity, Q2 preliminary (3.5% expected, 5.4% in Q1); Unit labor costs, Q2 preliminary (0.9% expected, 1.7% in Q1)

Wednesday: MBA Mortgage Applications, week ended August 6 (-1.7% during prior week); CPI month-on-month, July (0.5% expected, 0.9% in June); CPI excluding food and energy, month-on-month, July (0.4% expected, 0.9% in June); CPI year-on-year, July (5.3% expected, 5.4% in June); CPI excluding food and energy year-on-year, July (4.3% expected, 4.5% in June); Monthly budget statement, July (-$255.0 billion expected, -$274.2 billion in June)

Thursday: PPI Final Demand, month-on-month, July (0.6% expected, 1.0% in June); PPI excluding food and energy, month-on-month, July (0.5% expected, 1.0% in June); PPI Final Demand, year-on-year, July (7.1% expected, 7.3% in June); PPI excluding food and energy, year-on-year, July (5.6% expected, 5.6% in June); Initial jobless claims, week ended August 7 (375,000 expected, 385,000 during prior week); Continuing claims, week ended July 31 (2.900 million expected, 2.930 million during prior week)

Friday: Import price index, month-on-month, July (0.6% expected, 1.0% in June); Import price index excluding petroleum, month-on-month, July (0.7% in June); University of Michigan Sentiment, August preliminary (81.2 expected, 81.2 in July)

Inflation data- Earnings calendar

Monday: Dish Network (DISH), Tyson Foods (TSN), Workhorse Group (WKHS) before market open; The RealReal (REAL), Planet Fitness (PLNT), Chegg (CHGG), SmileDirectClub (SDC), AMC Entertainment (AMC) after market close

Tuesday: Coinbase (COIN), ThredUp Inc. (TDUP), Poshmark (POSH), Chesapeake Energy (CHK) after market close

Wednesday: Bumble (BMBL), Vroom (VRM), eBay (EBAY), Sonos (SONO), Clover Health Investment Corp. (CLOV), Hims & Hers Health Inc. (HIMS), Lordstown Motors Corp. (RIDE), Duolingo Inc. (DUOL) after market close

Thursday: Organon & Co. (OGN), GoodRx Holdings (GDRX), Palantir Technologies (PLTR) before market open; DoorDash (DASH), Disney (DIS), ContextLogic (WISH), Rocket Cos. (RKT), SoFi Technologies (SOFI), Airbnb (ABNB), Figs Inc. (FIGS) after market close

Friday: FuboTV (FUBO), 23andMe (ME) before market open

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