What’s Up? (Oct. 16-22)
Uncertainty in Britain
Investors did not have a strong reaction on Thursday to Liz Truss’s announcement of her resignation as British prime minister. The pound edged only slightly higher, and bond yields briefly fell, then reversed course. It was, perhaps, an anticlimactic conclusion to Ms. Truss’s six weeks in office, which were marked by big market swings in response to her corporate tax cut proposals — plans she later reversed in the face of overwhelming backlash. But her exit doesn’t necessarily mean the end of the tumult. Andrew Bailey, the governor of the Bank of England, has warned that despite the central bank’s brief interventions to soothe markets, it will continue to raise interest rates to tame inflation. At the end of the month, Jeremy Hunt, the new finance minister, is set to present the government’s fiscal statement, which he said would include “difficult” spending cuts. And sometime before then, the Conservative Party will appoint a new prime minister, who may have different ideas about taxes and government spending.
Inflation Tightens Its Grip
Two of the world’s largest consumer-facing companies are seeing signs that Americans may be tightening their purse strings. Last week, Nestlé and Procter & Gamble reported higher sales in the third quarter even as they increased the costs of their products by 9 percent or more to keep up with more expensive raw materials, labor and transportation. But the two consumer giants said they sold fewer goods as customers cut back on buying cereal, yogurt, detergent and other items. Other companies have observed a similar trend: This month, PepsiCo said its third-quarter revenue rose 9 percent from a year earlier and that profit grew by more than 20 percent as consumers followed the company “to higher price points.” But its sales volumes also fell. Expected earnings reports from Coca-Cola and Chipotle will give more of an idea of how widespread that tendency is.
An Appetite for Air Travel
Americans eager to get away after delaying vacations earlier in the pandemic are taking advantage of the flexibility of remote work and combining business and leisure travel. And that is boosting airlines’ profits even as high inflation and volatile markets threaten the business. Customers’ appetite for air travel after Labor Day largely kept pace with the boom over the summer, and executives at the country’s major airlines were optimistic as they discussed their third-quarter earnings reports last week. The chief executive of American Airlines, Robert Isom, said the company was feeling “very bullish about overall demand, even in an uncertain economic environment.” But high demand, while good for airlines’ bottom lines, translates to higher fares for travelers, who may get sticker shock as they book holiday flights.
What’s Next? (Oct. 23-29)
A Tech Slowdown
The country’s biggest tech companies are expected to tell a discouraging story about the direction of the economy with their third-quarter earnings reports this week. Perhaps you were already bracing yourself: Last month, Mark Zuckerberg announced that Meta would freeze most hiring and cut budgets. Shortly after, Amazon said it would freeze corporate hiring in its retail business for the rest of the year, and last week, Snap reported its slowest-ever quarterly growth, noting the “volatile macroeconomic environment.” Once relatively resistant to economic swings, tech companies are increasingly feeling the pinch of inflation and cooling demand. (Apple may be one notable exception, with Wall Street analysts predicting earnings higher than the same period last year.) These factors are compounding other challenges like the strong dollar, which is hurting some companies’ business overseas, and changes to privacy policies that have affected advertising.