Core Inflation Gives the Fed Concern, U.S. Consumer Confidence Hits 2 Year High and BlackRock Eyes Opportunities in this Week's Edition...
Take a Lap Around the Industry
'Barbenheimer' Premiere Drives Weekend Box Office to Highest Numbers in Four Years (Bloomberg)
Financial Giants PacWest and Banc of California Merge in All-Stock Deal to Reshape Industry Landscape (Reuters)
FAA Implements Stricter Airliner Design Regulations Following Boeing 737 Max Tragedies (Bloomberg)
Big Tech Faces Scrutiny as Microsoft's AI Costs Come into Focus (Reuters)
Energy Costs Fluctuate, While Core CPI Rise Raises Questions for the Fed
In a significant development, the Fed raised interest rates yesterday in response to ongoing inflation concerns. As attention shifts to the Consumer Price Index (CPI) and its potential trajectory for the remainder of 2023, the Federal Reserve remains cautious and contemplates further interest rate hikes. Projections from the Cleveland Fed indicate that July's CPI report may not be as favorable as June's data, with both headline and core inflation expected to increase. The Fed is particularly worried about rising inflation in the services sector, which is outpacing other inputs. However, there is hope in slower growth in housing costs and some help from decreasing energy costs, though the Fed usually examines inflation trends without energy fluctuations. Moving into the second half of 2023, the absence of favorable base effects from the first half could make inflation dependent on maintaining flat or declining current prices. As the situation evolves, close attention will be paid to services prices, home prices, and energy costs, with the upcoming July CPI numbers on August 10 providing vital insights into the Fed's potential interest rate decisions.
"Looking ahead, we forecast US inflation to hover around 2.5-3.0% through the end of 2023, and to reach around 2% by the summer of 2024. As we expect gradual pick-up in the oil price and unfavorable base effects, energy inflation is set to become less negative in coming months, pushing up headline inflation."
Allianz SE
Private Funding Pulse Check
Whop, a marketplace that helps entrepreneurs sell their digital products, has recently raised $17M in their Series A funding round, with the participation of Zinal Growth and Thiel Capital
Dan Friedkin's Family Office, The Friedkin Group, has invested in a $17M Seed funding round in Terminal Industries, a platform combining RFID and computer vision to automate the retail store process
In a recent Series A round, Knollwood Investment participated in an investment totaling $35M in Protect AI, a cybersecurity company focused on AI & machine learning systems
Thirty Five Ventures has joined a $5M Seed investment round in ScorePlay, a New York, NY-based all-in-one AI-powered media hub designed for sports organizations
U.S. Consumer Confidence Soars to a Two-Year High Despite Lingering Recession Fears
In July, U.S. consumer confidence reached a two-year high, providing a boost to the economy amid tight labor market conditions and receding inflation. However, concerns about a looming recession persist. The Conference Board's survey revealed mixed signals, with more consumers planning to buy homes and vehicles in the coming months, but fewer expected to purchase major household appliances. Consumers also expressed caution in discretionary spending, such as travel and recreation, while healthcare and streaming services saw an expected increase in spending. Economists noted that consumer spending appeared to plateau after a rapid surge in the first quarter, attributed to lower inflation driving increased confidence. Despite the optimism, consumers remained wary, trimming their spending and focusing on increasing savings. The survey's positive sentiment was evident across all age groups and income brackets. The Federal Reserve's expected interest rate hike, coupled with rising inflation, could continue to influence consumer behavior in the months ahead. Additionally, the housing market, facing affordability challenges and tight supply, may encounter a 'W-shaped' pattern in the market as inventory increases later in the year.
"We seem to be in an unusual eddy in this expansion, with consumer confidence up but consumer spending clearly leveled off...Lower inflation is why confidence has surged, but Americans have become cautious, trimming spending and increasing savings."
Robert Frick, Navy Federal Credit Union
BlackRock Seizes Lucrative Opportunities in Banking Assets Amid Industry Turmoil
BlackRock Inc. is eyeing an enticing prospect amid the upheaval faced by the banking industry. The largest money manager globally sees a "huge opportunity" in purchasing assets that banks are eager to offload in order to bolster their capital and liquidity. This comes in the wake of high interest rates, stringent new regulations, and potential consolidation, which have led to an abundance of assets being offered daily by lenders. Gary Shedlin, a vice chairman at BlackRock, is leading the charge to position the company's funds as reliable sources of capital for banks looking to sell asset-backed securities or large loan portfolios. Shedlin points to a long-term trend where private capital will play an increasingly significant role in supporting lenders. Despite facing competition from other financial giants, BlackRock's flexible capital and established investment funds make it well-placed to capitalize on this evolving landscape, further strengthening its position in the financial market.
"It’s a huge opportunity for BlackRock. It’s a huge opportunity for our clients..."
Gary Shedlin, BlackRock
Silicon Valley Bank Makes Cautious Comeback to Lending Landscape
Recently acquired by First Citizens BancShares, Silicon Valley Bank (SVB) has cautiously resumed lending to the startup and venture market, adopting a less aggressive approach compared to its past strategies. This slowdown in SVB's lending activities has contributed to a notable deceleration in the venture-debt market, creating a scarcity of financing sources just when startups need them the most. With an expected 8% decline in its loan book by year-end, SVB is witnessing a contraction in borrowing by venture and private-equity funds, unlike the previous years of loan expansion. The cautious lending climate is driven by tightened credit standards and the risk-averse nature of venture investors in the current market conditions. As venture debt dwindles as a share of total venture funding, experts warn that this contraction could have long-term implications for the startup market, impacting their runway during economic downturns.
"The economy and the fundraising environment are headwinds on loan origination...Fewer companies are able to clear that key underwriting bar—do you still have the support of venture investors behind you."
Guggenheim Partners hires Homer Parkhill to strengthen their restructuring team
Parkhill brings 21 years of experience from Rothschild Partners & Co., where he co-led the restructuring group
Guggenheim's move is well-timed due to the anticipated 1.3% increase in the global default rate for speculative-grade firms in 2024
Guggenheim has been actively involved in significant debt workouts throughout the year, advising companies like Rite Aid Corp., Instant Brands Holdings, and Mallinckrodt Plc. (Bloomberg)
Written by:
Andrew Popp | Sr. Research Associate
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