The integrity of US financial instruments is beginning to show cracks.
Rising debt profile and less convincing governance to effectively manage the debt ceiling have led to a downgrade of US bonds.
This is amidst an inflation that is forcing more than half of Americans to live paycheck to paycheck, and beer drinkers to consume less. Even Apple is reeling from the effects of rising consumer prices as the tech behemoth just posted declining revenue for a third straight quarter.
Here is a rundown of some of the financial news that made headlines this week.
Fitch downgrades US bonds
Fitch downgraded the US’s long-term grade bond by one step, from triple A to double A plus. This is because the country’s debt is getting worse and its “governance” is getting worse, especially when it comes to money.
Fitch’s downgrade comes two months after the United States narrowly averted a default due to political disputes over the federal borrowing limit.
Fitch raised a red flag because, “governance standards have been steadily getting worse over the last 20 years,” even though the new deal to suspend the debt limit until January 2025 was a good sign.
Fitch also thinks that the general government deficit will go up from 3.7% of GDP in 2022 to 6.3% of GDP in 2023.
The Biden administration was angry about the downgrade. In a press release, they quoted pundits who said the move was “wrong,” “ridiculous,” and “widely and rightly laughed at.”
Apple’s revenue declined for the third straight quarter
Apple’s revenue fell for the third consecutive quarter, marking the company’s longest sales downturn since 2016.
The Cupertino, California-based tech colossus posted quarterly sales of $81.8 billion, down 1.4% from the prior year. The annual increase in net income was 2.3%, or $19.9 billion.
The company’s crucial iPhone sales decreased 2.4% to $39.7 billion, falling short of analyst expectations of $40.2 billion. The iPhone currently accounts for approximately 50% of Apple’s total revenue.
It’s been about seven years since Apple’s sales dropped for three straight quarters. At the end of its fiscal year 2016, sales were down 7.7% yearly, mostly because iPhone sales were down.
The same thing is causing Apple to fall in 2023, but investors and analysts still think the company will find a way to keep and grow its dominant place in consumers’ lives.
Meme stocks return
Meme stocks trading have returned to the markets. In the last 2 weeks, companies that are underperforming financially saw their shares spike at an alarming rate, but it’s not the usual GameStop, AMC, or Bed Bath & Beyond.
This year’s new inductees to “memedom” are Tupper brands, Yellow and Rite Aid.
In the last two weeks, shares of Tupperware Brands have gone up by 700%. The stock went up 36% on Friday after word of a plan to restructure came out.
Trucking company, Yellow, which shut down operations about 2 weeks ago has seen its shares rise by 400% since then. In the same manner, shares of cash-strapped grocery chain Rite Aid, have gone up 68% in the last week for no clear reason.
The recent huge gains in these stocks highlight a divergence from the rest of the market. The S&P 500 just posted its worst showing in a single week since March. This shows that investors are still eager to take big risks again after taking a break during last year’s market downturn.
61% of Americans are living paycheck to paycheck
More than half of all U.S. consumers struggle to afford their day-to-day expenses, causing some to rely more on credit cards or deplete their savings, leaving them vulnerable financially.
Despite the decline in inflation, 61% of American adults continue to live paycheck to paycheck. According to studies, lower-income workers have been struck the hardest by price increases, particularly for food and other essentials, because these expenses account for a larger portion of the budget.
In June, approximately 75% of consumers earning less than $50,000 annually and 65% of those earning between $50,000 and $100,000 lived paycheck to paycheck.
Barbie expected to gross $1 billion by next week
“Barbie,” a film produced by Warner Bros., Discovery, and Mattel, has grossed $916 million. It is anticipated to surpass the coveted billion-dollar mark within the week.
The success of “Barbie” occurs during a period in which studios have struggled to communicate with moviegoers. In recent months, a string of adult-oriented blockbusters have underperformed, prompting many in the industry to query whether consumer preferences have shifted away from Hollywood.
“Barbie” demonstrates that moviegoers are still willing to leave their sofas for quality films and distinctive communal experiences.
Inflation forces beer drinkers to consume less
Heineken has lowered its predictions for its annual profit, as higher prices caused by inflation are forcing drinkers to consume less.
The second-largest brewer in the world said on Monday that its sales dropped by 5.4% in the first half and by 7.6% in the second quarter. This was due to “the cumulative effect of pricing actions,” which means that the price changes added up.
In the first half of the year, Heineken’s sales went up 6.3% to $19.1 billion, but its operating profit fell 22% to $1.76 billion because it had to pay more for raw materials and energy, spend more on marketing, and write down its Russian business.
Heineken said that it now expects its operating profit growth for the whole year to stay steady in the mid-single digits. This is a change from its earlier prediction that it would be in the mid- to high-single digits.
Airlines hike workers pay to avert travel chaos
About 24,000 British Airways workers have agreed to a deal that will raise their pay by 13%.
Union Unite, the union which represents airline workers said that the rise will be spread out over 18 months and be accompanied by a one-time payment of £1,000.
The agreement, which did not include pilots or managers and was reached after several months of talks, said that pay could go up even more if inflation stays high.
Airline companies have been trying to make sure that last year’s travel chaos doesn’t happen again. Last year, there were staff shortages across the industry because companies didn’t hire new workers quickly enough when borders reopened after the peak of the coronavirus pandemic.
Lufthansa, Germany’s biggest airline, also gave its pilots a big pay rise in a bid to keep them from going on strike during the busy summer holiday season.
Lufthansa said in an internal letter that the offer was the same as a 25% pay rise for captains and between a 33% and 50% pay rise for co-pilots. The pilots of the ship have until August 10 to vote on an agreement.
Photo by Mattias Diesel on Unsplash