Wall Street Breakfast: Trouble In Europe

Trouble in Europe

Facing headwinds and crises on all sides, the European Central Bank is likely to begin a super aggressive phase of monetary policy today, with the largest hike in the institution’s 24-year history. Most economists see a jumbo-sized 0.75 percentage point increase in the cards, after the bank raised interest rates by a half percentage point in July. That hike was its first in more than a decade (and the first since the pandemic), and highlighted how severely the ECB is behind its central bank peers.

Bigger picture: Playing catch-up won’t be easy, with the eurozone staring down the barrel of a severe economic crisis. The common currency is plunging amid surging inflation, which hit a new all-time high of 9.1% in August, while a damaging recession is in the works due to an energy crisis. Things aren’t getting any better as Russia threatens to cut off all gas supplies to the “collective West” ahead of what might be a harsh winter, and retaliate if the G7 imposes a price cap on Russian oil.

“At Jackson Hole, ECB executive board member Isabel Schnabel acknowledged a trade off between taming inflation and maintaining growth,” noted Jean Boivin of BlackRock Investment Institute. “Yet she stressed a ‘robust control’ approach to monetary policy, focused on getting inflation down at whatever cost.”

Thought bubble: Many are wondering if the ECB can even play catch-up, or if it is caught in a Catch-22. Raise rates to stave off entrenched inflation, only to find that energy prices are keeping costs elevated and weighing on economic output. In that situation, inflation may not decline, or can at least take quite a while to decline, risking a nightmare stagflation scenario. The ECB will announce its policy decision and growth projections at 8:15 ET, followed by President Christine Lagarde’s news conference a half-hour later. (8 comments)

Meet the new iFamily

Apple (AAPL) unveiled updates to its iPhone, AirPods and Apple Watch product lines on Wednesday, including the new Apple Watch Series 8 and iPhone 14 with satellite connectivity. Chief Executive Tim Cook kicked off the event, noting that all three products are “essential in our lives,” and work seamlessly together. “This type of integration is something only Apple can do and we’re going to make these products and experiences even better,” he related in a pre-recorded video.

The biggest surprise? No price hikes. The new iPhone 14 and iPhone 14 Plus start at $799 and $899, respectively, while the iPhone 14 Pro and iPhone 14 Pro Max start at $999 and $1,099. While the fresh iPhone lineup looks similar to existing models, it adds features like Globalstar (GSAT) satellite messaging for emergency use. Most of the upgrades were on the new high-end models, including 48MP camera sensors, and a pill-like space at the top of the screen – known as the Dynamic Island – that changes based on the type of notification or action that is occurring, like charging or playing music.

“They did enough to keep iPhone growth going,” said Gene Munster, managing partner with Loup Ventures. “Maintaining pricing is the new price cut, and that should be good for demand.”

Far Out: The new Apple Watch Series 8 ($399 for GPS and $499 for cellular) comes with a new temperature sensor and additional cycle tracking features for women’s health, along with new accelerometers that can detect if a person has been in a car crash and call for help. Apple also took the wraps off of the widely anticipated Apple Watch Ultra ($799 for GPS and cellular), geared towards extreme fitness and sports enthusiasts. New versions of the tech giant’s wireless earphones, the AirPods Pro 2 (costs $249), have a new H2 chip inside, giving users new audio experiences, including better sound quality, a custom amplifier and spatial audio. (194 comments)

Moment of truth

There’s some trouble circling former President Donald Trump’s media company and the SPAC aiming to take it public. The two have so far failed to complete a merger, while federal investigations surrounding the deal are making headlines. However, results of a shareholder vote that will be announced today at 12 p.m. ET could provide some clarity on what’s next for Digital World Acquisition Corp. (DWAC), whose stock has gone on a wild ride since it first debuted in October 2021.

What’s at stake? A failure to approve the deal’s extension deadline could result in DWAC’s liquidation, and while it’s possible to postpone the merger without 65% of shareholder approval, it would cost some big bucks. SPAC sponsor ARC Global Investments II, led by CEO Patrick Orlando, said if the vote fails to lead to an extension it plans to contribute $2.88M to DWAC’s trust account for a three-month period, until December 8, with the contribution being made as a loan.

“Google is coming along nicely (I think?). SEC trying to hurt company doing financing (SPAC),” Trump wrote to his 4M Truth Social followers. “Who knows? In any event, I don’t need financing, ‘I’m really rich!’ Private company anyone???”

Go deeper: Shareholders should want to vote in favor of an extension, with DWAC trading above $20, nearly double the value of cash held in trust and $10 SPAC level. However, a large portion of DWAC is held by retail investors, who usually have lower voter turnout compared to the institutions. Truth Social was created in the aftermath of the Jan. 6 U.S. Capitol attack, which saw Trump first restricted, and then banned, by social media giants like Twitter (TWTR), Facebook (META), Snapchat (SNAP) and YouTube (GOOG, GOOGL). (2 comments)

Wallet watching

Inflation is changing spending patterns in the U.S., with some 40% of consumers expecting to start their holiday shopping by the end of October, according to a YouGov survey commissioned by Bankrate.com. The distribution of timing for when consumers predict to begin shopping ranges from the 11% that already started by the end of August to the 12% that say they’ll wait until December to start their gift buying. The survey was carried out online between Aug. 17-19, 2022, with a total sample size as 2,415 adults.

Details: Overall, 40% of consumers said inflation will change the way they shop, with the biggest proportion (45%) being in the lowest-income bracket (under $50K in annual household income). 41% of shoppers with annual income of $50K-$79,999K said they’ll change how they shop because of inflation.

More than 4 out of 5 (84%) holiday shoppers said they’ll also use money-saving tactics this year, including coupons, sales and discounts (41%), buying fewer items (40%), starting shopping earlier (27%); buying cheaper brands (21%), using credit card rewards to offset costs (17%), shopping at stores where they have loyalty accounts or store-specific cards (17%), making gifts or crafts (14%), and obtaining second-hand items (11%).

Payment method: Some 21% will pay for purchases with a credit card over time and 10% plan to use “buy now, pay later” options. While the latter services are interest-free loans, they can eventually turn into late fees, deferred interest or other penalties. Overall, the most popular payment method for holiday shoppers is by credit card (54%), with 38% planning to pay in full and 21% in multiple billing cycles. 50% will use debit cards, 43% cash, and 7% checks (but respondents could choose more than one answer for how they’ll pay for purchases).

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