| | | | | | | Presented By Aon | | | | Axios Markets | | By Sam Ro ·Aug 18, 2021 | | Today's newsletter is 1,212 words, 5 minutes. 💬 of the day: "Parents deserve a shout-out as well for their part in helping reconstruct something as enormous and consequential as our entire education system." - Federal Reserve chair Jerome Powell | | | | | | 1 big thing: Retail's mixed bag |  | | | Illustration: Shoshana Gordon/Axios | | | | Retail sales fell by a lot more than experts expected in July. However, the shopping trends underlying the data don't paint a picture of nervous consumers pulling back amid renewed COVID concerns. Why it matters: The recent spike in COVID cases amid the spread of the Delta variant has taken a toll on consumer sentiment. Should that drop in sentiment translate into a significant downturn in actual spending, the U.S. economic recovery could be thrown off track. By the numbers: Retail sales in July declined by 1.1% from June levels, according to a Tuesday Census report. That was much worse than the 0.3% decline expected. - Leading the decline was a 3.9% drop in motor vehicle and parts dealers sales. The auto industry, however, is working through well-known supply chain issues.
- Yet excluding autos, retail sales still unexpectedly fell by 0.4%, which was also worse than the 0.2% gain expected by economists.
Between the lines: Online retailer sales fell by 3.1% during the month. The category accounts for about 14% of total retail sales. - Multiple economists Axios follows, however, noted this reflected Amazon's Prime Day, which occurred in June. The event, which even had Amazon's online competitors offering aggressive deals, had the effect of pulling demand forward, depressing sales in the subsequent month.
- "The miss was largely in online retailing," Renaissance Macro economist Neil Dutta said of July's retail sales report.
Zoom out: If there's one bigger picture theme that explains the report, it's that consumers are spending more on services and less on goods, reversing behavior adopted during the lockdowns. - "The largest declines were in Covid-advantaged categories," Morgan Stanley chief U.S. economist Ellen Zentner said, pointing to sporting goods, books, building materials and furniture.
- Spending at restaurants and bars jumped 1.7%, which conflicts with the idea that the Delta variant wave has caused consumers to spend less.
Yes, but: "Data on mobility is starting to show a pull back, especially in hot spots in the South," GrantThornton chief economist Diane Swonk said. The bottom line: July economic data doesn't conclusively signal that the spike in COVID cases is leading to a retrenchment in spending. However, it also doesn't suggest the economy is in the clear. - "Fear acts as its own deterrent on congregating," Swonk said. "Spread of the Delta variant and vaccine hesitancy have begun to collide. We are in for a rockier second half of the year."
|     | | | | | | 2. Catch up quick | | Fed chair Jerome Powell said COVID still casts a shadow on the economy, but businesses are adapting. (Reuters) Data analytics company Palantir bought $50.7 million worth of gold bars in August. (CNBC) New Zealand's central bank unexpectedly refrained from raising interest rates. (Bloomberg) | | | | | | | | 3. The 💯 stock market |  Date: FactSet; Chart: Axios Visuals Bad news has been bouncing off the Teflon-like stock market over the past nine months — making selloffs like Tuesday's appear to more and more investors like buying opportunities. Why it matters: The S&P 500 closed at 4,479.71 on Monday, marking a 100% gain from its March 23, 2020 closing low of 2,237.40. But at some point, there could be enough bad news about the economic backdrop that stock prices fall sharply. State of play: The doubling of the S&P in 353 days is the fastest that the market has gone up twofold since World War II. - Year to date, the S&P has closed at new all-time highs on 49 days, the most since 1995.
- Also, the last time the S&P had a pullback of 5% or more was in October. Since 1929, the S&P has experienced nine-month streaks like this only 12 other times.
What they're saying: "The strength of corporate earnings and unprecedented monetary and fiscal stimulus have made for a one-way trade in the equity market for quite some time now," Yung-Yu Ma, chief investment strategist for BMO Wealth Management, tells Axios. - "The presence of a new raft of 'buy the dip' retail investors may well be one reason we've not seen the usual August US equity market volatility," DataTrek Research co-founder Nicholas Colas said in an email.
Threat level: Some measures of bullishness appear to be quite stretched. And extreme bullishness is generally considered a contrarian indicator for markets. - According to Morgan Stanley data cited by the Financial Times, 56% of all stock recommendations came with "buy" ratings, the most since 2002.
- Bank of America's Sell Side Indicator, which tracks the average Wall Street strategists' recommended allocation toward equities, was near heights last seen in 2007 going into the global financial crisis.
Zoom out: At this stage of the bull market, it would be quite normal to see stock prices tumble even as much as 10% over a short period of time before recovering quickly. The bottom line: The stock market may very well be overdue for a sharp short-term pullback. But that would not necessarily signal the beginning of a protracted bear market. | | | | | | | | A message from Aon | | Collaboration is crucial to combat cyber crime | | |  | | | | Cyber threats are no longer an emerging risk. Partnerships between the public and private sectors are necessary to counter the rise in ransomware attacks and bolster the ability for organizations to prepare and recover. Find out what Aon is doing to prepare and protect companies. | | | | | | 4. Report: Cryptocurrency adoption skyrockets 880% |  Data: Chainalysis; Chart: Axios Visuals The cryptocurrency bug is real, Axios' Kate Marino writes. - Crypto adoption by consumers around the world soared by 880% in the last year, according to a new index created by Chainalysis, a blockchain analysis company.
Why it matters: The increasingly widespread use of crypto tells different stories about the dynamics within different countries. Taken together, it shows that digital assets are becoming deeply embedded in the global financial system. - Adoption is an estimate weighted toward per capita use of crypto, as opposed to a measure of absolute trading volumes, within each country.
- The index reading for each quarter is a sum of all 154 countries' index scores. (Read more about Chainalysis' methodology at the index web page.)
Progress on technology and exchanges has underpinned much of the growth in crypto adoption, Chainalysis' director of research, Kim Grauer, tells Axios. Zoom in: Vietnam took the top ranking for most widespread adoption. Usage there tends to be heavily speculative, Grauer says. - "There's a really technologically savvy population of young people" who have limited access to investments like stocks and ETFs, she adds.
- Nigeria is also a top adopter. Usage there is more weighted toward actual commerce — especially for avoiding capital controls in order to import goods from trading partners like China, says Grauer.
| | | | |  | | | | If you like this newsletter, your friends may, too! Refer your friends and get free Axios swag when they sign up. | | | | | | | | 5. Afghanistan's developing currency crisis |  | | | People line up outside AZIZI Bank to take out cash amid a money crisis in Kabul, Afghanistan, Aug. 15, 2021. Photo: Haroon Sabawoon/Getty Images | | | | Afghanistan's financial system was plunged into chaos this week as the Taliban took over the nation's government, Kate writes. What happened: The country's currency, the Afghani, fell to its weakest value on record after numerous government officials — including President Ashraf Ghani and central bank governor Ajmal Ahmady — fled the country, Bloomberg reported. - Ahmady tweeted a searing first-person account of the events of the past week that culminated in his boarding a military plane at the Kabul airport on Sunday.
- Ahmady wrote that on Friday his office was notified they would not receive any more dollar shipments, which meant that the central bank had less currency to supply to the markets — which "further increased the panic."
Amid fears that the Taliban may get its hands on the Afghan central bank's $9.4 billion in international reserves, the Biden administration froze access to the bank's assets held in the U.S., as we wrote Tuesday. - Treasury Secretary Janet Yellen and officials in the Treasury Department's Office of Foreign Assets Control made that decision over the weekend, the Washington Post reports.
- Of Da Afghanistan Bank's $9.4 billion in reserves, billions are thought to be kept in the U.S., according to the Post.
| | | | | | | | A message from Aon | | How financial institutions are reimagining their cybersecurity | | |  | | | | Only 2 in 5 organizations report that they are prepared to navigate new cybersecurity exposures arising from rapid digital evolution, according to Aon's 2021 Cyber Security Risk Report. In the face of new risks, financial institutions must reimagine their approach to cybersecurity. Learn more. | | |  | | It'll help you deliver employee communications more effectively. | | | | | | Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here.
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