☕ $1T in credit card debt

Markets

Stocks experienced a downturn in the previous day following a cautionary note from Moody's directed towards the banking industry, indicating its precarious position. Moody's took the step of lowering the credit ratings of 10 smaller and medium-sized banks. The agency pointed to challenges stemming from elevated interest rates, the looming possibility of a recession in 2024, and difficulties faced by commercial real estate assets. The regional banking sector is yet to fully recover from the shockwaves of SVB's downfall in March.

Stocks Resume Slide After Bank Downgrades

Dismal Chinese export data, a less optimistic financial outlook from United Parcel Service (UPS), and a credit rating downgrade affecting 10 smaller U.S. banks collectively contributed to a decline in stock indexes on Tuesday. The S&P 500 experienced a 0.4% loss, while the Dow Jones Industrial Average dipped by approximately 0.5%, equivalent to a decrease of 159 points. Concurrently, the Nasdaq Composite faced a 0.8% drop. These declines effectively offset the gains driven by blue-chip stocks on Monday and renewed the downward trajectory that stocks have been following since the beginning of August.

As a response, government bond prices saw an increase, leading to a decrease in yields. Notably, the yield on the 10-year U.S. Treasury dropped below 4%, eventually settling at 4.024% after starting at 4.076% on Monday.

Finance

Credit card debt reaches 1 trillion in the U.S.

Americans are displaying spending habits reminiscent of Isla Fisher's character in a romantic comedy from 2009. A recent report from the Federal Reserve Bank of New York reveals that Americans charged more to their credit cards than ever before in the last quarter, driving credit card debt to surpass $1 trillion for the first time.

This surge in credit card debt can be attributed to a combination of factors, including inflation-induced higher prices, escalating interest rates, robust consumer confidence, and the issuance of 24 million new credit cards in the previous quarter.

As the level of debt has risen, so has the rate of late payments. The report discloses that during the second quarter, 7.2% of credit card accounts were overdue by 30 days—a peak not witnessed in 11 years. Additionally, delinquency rates increased to 3.18% from 3%, underscoring the upward trend in late payments.

However, the Federal Reserve emphasizes that neither of these figures is particularly startling. Delinquency rates are merely reverting to levels seen before the pandemic, as they had sharply declined in 2020 when stimulus checks were distributed and savings increased.

Looking at the broader perspective, although the accumulation of $1 trillion in credit card debt may seem concerning, economists remain relatively unperturbed, much like the individual holding up the line at Chipotle. Consumer debt accounts for just 6% of the overall deposits that Americans have in their bank accounts, marking the lowest proportion in the past two decades, according to Axios. Furthermore, researchers from the New York Fed stress that there's limited evidence of widespread financial hardship among consumers.

Health

Wegovy drug might do more than help people lose weight

Novo Nordisk's highly anticipated anti-obesity medication has demonstrated a remarkable 20% reduction in the risk of major cardiovascular incidents, such as heart attacks and strokes, according to the company's recent announcement. These significant findings, derived from an advanced-stage clinical trial, hold dual significance:

Firstly, they suggest that Wegovy, the drug in question, could transcend its role as a mere weight loss aid and evolve into a treatment with substantial advantages for heart disease, the foremost cause of mortality in the United States.

Secondly, given the broader health benefits identified, pressure could mount on insurance companies and Medicare to include this costly yet increasingly popular medication in their coverage. Wegovy's price tag of over $1,300 per month for weekly injections has caused insurers to shun it due to its perceived lack of essential status for overall well-being.

Industry reactions have been fervent. An analyst from Barclays likened Wegovy's success to a home run in baseball, though humorously acknowledged that the sport isn't prominent in Denmark, Novo Nordisk's home country. Others took an even more enthusiastic stance, deeming these findings akin to a grand slam. Some experts predict that both Wegovy and a similar drug from Eli Lilly, named Mounjaro, are poised to become the best-selling pharmaceuticals in history.

The financial markets reflected this optimism, with Novo Nordisk's market capitalization surging by $60 billion in a single day, bringing it close to Europe's most valuable company, LVMH, according to Bloomberg. Concurrently, Eli Lilly, the world's largest healthcare corporation, experienced a substantial 15% increase in share price, reaching an all-time high, thanks to a bullish earnings report and the positive Novo Nordisk results.

On a larger scale, the emergence of a new category of superdrugs that not only significantly reduce weight but also minimize the risk of heart attacks and offer other unexplored benefits, like addressing addiction, could mark an exciting new chapter in public health.

However, it's important to remain cautious. Supply constraints due to overwhelming demand, potential severe side effects, and the fact that the most recent study showcasing cardiovascular advantages has not yet undergone peer review all contribute to the need for careful consideration before assuming full success.

Economy

Sputtering Trade Fuels Fears for a Connected World

The decline in global trade, highlighted by a drop in Chinese exports and reduced U.S. imports, primarily reflects a phase of sluggish worldwide economic expansion. This situation prompts considerations about potential deeper shifts, indicating that the era of heightened global economic interconnectedness spanning decades might be evolving into a new period characterized by increased business interactions between the West and China's allies, while bilateral trade decreases.

Amidst the backdrop of geopolitical tensions exacerbated by Russia's incursion into Ukraine, there is a growing inclination in the U.S. and Europe to impose more restrictions on trade with China. However, due to the extensive and intricate nature of global trade and investment networks, any process aimed at disentangling the world economy into groupings of like-minded nations is likely to be a gradual and incomplete endeavor.

Economists suggest that the current weakness in global trade is primarily attributed to subdued demand for goods. The imposition of higher interest rates in economies such as the U.S. and Europe, as they grapple with inflation, has led to a widespread deceleration in the global economy.

Furthermore, consumers who previously allocated a significant portion of their disposable income to goods during and after the Covid-19 pandemic are now diverting more of their spending towards services. Apart from certain exceptions like tourism, services tend to be produced locally. This shift is particularly impacting economies with a heavy reliance on manufacturing in Asia.

In contrast to the decline in goods trade, trade in services is experiencing more activity, notably due to the recovery in international travel and tourism. Forecasts suggest that the travel and tourism sector will regain much of its pre-pandemic level this year, contributing to the vibrancy of service-oriented trade.

Entertainment

Oppenheimer still breaking records

Christopher Nolan's film "Oppenheimer" has achieved the status of being the highest-grossing World War II-themed movie ever, surpassing the earnings of "Dunkirk" and "Saving Private Ryan" with a global box office collection exceeding $500 million, as reported by CNN. It's worth noting that when considering inflation, "Oppenheimer" still falls short compared to the other two films, but that's a less exciting comparison. Now, onto a thought-provoking question: Regardless of box office earnings, which WWII-themed movie do you believe is the best? Is it "Inglourious Basterds"? Or perhaps "Schindler's List"?