The Week Ahead on Wall Street
Today, the Federal budget for August is released. This tracks spending on the part of the Federal government each month. In July the government reported a $302 billion deficit, which was a record for the month. Continued COVID-19 relief spending was the main cause of the shortfall.
On Tuesday, the Commerce Department releases the consumer price index (CPI) for August. In July the CPI jumped 5.4% year-over-year, driven by pent-up demand for goods and services. For August, investors will be paying close attention to see if demand is slowing as the Delta variant of COVID-19 continues to spread. Also Tuesday, the Core CPI and the NFIB small business index for August is released.
On Wednesday, be on the lookout for the import price index for August. This tracks the average changes in the prices of goods and services imported and exported in a given month. In July, US import prices saw 0.3% growth, marking the smallest gain since November. August is expected to show more of the same.
On Thursday, initial and existing unemployment claims for the week prior are released. Unemployment has steadily declined even as COVID-19 cases continue to rise. Investors will be paying close attention to make sure the trend continues. Also Thursday, retail sales for August are released. If the decline is more than the 1.1% expected, it will raise concerns for investors about the Delta variant’s impact on the retail industry.
On Friday, the University of Michigan releases its preliminary Consumer Sentiment Index numbers for September. This metric tracks how consumers are feeling about their finances and the economy. In August the index came in at 70.3 which was a lot lower than the 81.2 reading in July.
Today, Oracle (ORCL), the software giant, reports quarterly earnings. Last week, Tensesee agreed to pay Oracle $65 million in tax incentives to move its headquarters to the state. Earlier this year Oracle vowed to spend $1.2 billion on its new headquarters in Tennessee.
On Tuesday, be on the lookout for earnings from FuelCell Energy (FCEL), a company which designs, manufacturers, and manages fuel cell power plants. Early this month Hyundai Motor announced its intention to develop hydrogen fuel cell-powered commercial vehicles by 2028. That follows an announcement from BMW, which in June said it was testing cars with hydrogen fuel cell drivetrains. It will be interesting to hear what FuelCell Energy has to say about the recent developments in the market when it reports earnings.
On Wednesday, Jinko Solar (JKS) reports quarterly earnings. The solar module manufacturer, which distributes panels in China, the US, Japan, the UK, and a host of other countries, recently inked a multi-year polysilicon supply agreement with Wacker Chemie. The deal helps Jinko Solar address polysilicon supply shortages, which have driven up the price of solar panels. Investors will be looking for any signs supply shortages are abating when it reports quarterly earnings.
On Friday, be on the lookout for insurer Progressive (PGR) to report quarterly earnings. The personal auto insurer has been facing loss ratio pressures as the number and size of claims rise. That may prompt Progressive to cut back on the amount it spends on advertising, with larger decreases coming in states where it can’t raise premiums. Investors will want to hear more about how it will respond to loss ratio pressures in the coming months when it reports earnings.
The Week Ahead at SoFi
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Food Delivery Apps Push Back on Fee Caps
Grubhub, Uber, and DoorDash Sue New York City
Grubhub (GRUB), Uber (UBER), and DoorDash (DASH), are suing New York City, arguing that caps placed on the fees they charge restaurants for delivery are unconstitutional. The lawsuit is in response to a law put on the books in New York which permanently limits the commissions delivery apps can receive. Grubhub, Uber, and DoorDash say the law has cost them hundreds of millions of dollars.
The lawsuit comes amid more scrutiny of food delivery companies, which gained in prominence during the pandemic. With restaurants shut down, many turned to delivery to survive. Now, some cities want to ensure that Grubhub, DoorDash, UberEats, and other servicers aren’t harming restaurants by charging too much for their services. This is why caps have been put in place.
New York Makes Fee Cap Permanent
During the pandemic, New York City capped the amount the apps could charge restaurants for delivery at 15% in an attempt to help restaurants stay afloat. In July the city made the cap permanent. Prior to that, the food delivery companies could charge restaurants as much as 30% of orders. The law also limits the fees for listing on the app to 5% and caps payment processing on apps at 3%.
Grubhub, Uber, and DoorDash are seeking an injunction to stop New York from enforcing the caps. The companies are also seeking monetary damages and a jury trial. The food delivery companies argue that the law also interferes with contracts already negotiated with restaurants.
Consumers Could Stand to Lose
With restaurants reopened, app companies also contend that caps are no longer necessary. Many cities lifted the caps as restaurants reopened for business, while others, including New York and San Francisco, made them permanent. In June San Francisco became the first city to limit commissions on food delivery to 15%. In response GrubHub, Uber, and DoorDash sued.
The app companies are not the only ones that stand to lose if caps stay in place. Grubhub, Uber, and DoorDash said in the lawsuit they have been forced to pass on the cost to consumers when commissions are capped. That trend, the companies warned, will continue in New York and elsewhere where limits are in place. The outcome of the lawsuit will have big implications on Grubhub, Uber, and DoorDash’s bottom lines. It will be interesting to see what the court decides.
Wind Turbine Stocks Hit by Rising Costs
Wind Turbine Stocks Sit Out Stock Market Rally
Vestas Wind Systems (VWDRY) and Siemens Gamesa Renewable Energy (GCTAY) have been left out in the wind during this year’s stock market rally. Supply chain slowdowns, rising commodity prices, and a decline in orders are keeping investors on the sidelines. Year-to-date, both Vesta Wind Systems and Siemens Gamesa Renewable Energy are down, underperforming the broader market.
Part of the decline in shares can be attributed to the bursting of the green stock bubble. Shares of clean energy stocks, including wind, had a strong run in 2020, but they have been selling off more recently. However, a bigger problem is rising cost inflation which makes it expensive for these companies to conduct business.
August Inflation Soars
Take the producer inflation index, which surged in August, as evidence. Prices producers get for their goods and services increased 8.3% year-over-year last month, marking the biggest increase in more than a decade. In July the index jumped 7.8%. The data point is dashing hopes inflation will ease as we move through the remainder of the year.
For Vestas Wind Systems and Siemens Gamesa, raw materials costs are hurting their bottom lines. In July, Siemens Gamesa said rising raw material costs will reduce its earnings by $271 million. The company has a multi-year order book, but because suppliers will only contract for as long as 15 months, it was exposed to higher raw material costs for newer projects.
Shipping Costs Weigh on Wind Turbine Makers
In addition to rising raw material costs, wind turbine companies are contending with supply chain delays and higher shipping costs created by the pandemic. In the past year, logistics costs, which account for 15% of a turbine’s price, have nearly doubled. Those inflated prices are expected to remain in place through 2021. In addition to that, the wind turbine companies are facing a lull in demand after a strong 2020 driven by the end of incentives in China and the US.
The wind turbine market has not participated in the stock market rally of 2021 as the industry faces a perfect storm of rising raw material costs, supply chain delays, and a slowdown in sales.