— China Unexpectedly Cuts Benchmark Rate; US Retail Sales Beat Forecasts; Target Sales Drop, Investors Exit; Tesla Cuts Model S and X Prices Again; Buffett Buys $814M in Homebuilder Stocks; Apollo to Lend $4B to PE Firms; NYC Office Recovery Outpaces Other Cities
1. China Unexpectedly Cuts Benchmark Rate
On Tuesday, the People’s Bank of China (PBOC) lowered the medium-term lending facility (MLF) rate by 15 basis points to 2.5%, marking the second rate cut since June.
Out of 15 economists surveyed by Bloomberg, 14 had expected no change in rates.
Data showed that in July, Chinese consumer spending, industrial output, and total investment all declined, while the unemployment rate rose.
The National Bureau of Statistics stated that weak domestic demand and an unstable recovery foundation require adjustments to macroeconomic policy, with a renewed focus on stimulating internal demand and consumer confidence.
This surprise rate cut was the largest since 2020.
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2. US Retail Sales Beat Forecasts
The U.S. Department of Commerce reported today that retail sales in July rose by 0.7%, exceeding expectations and highlighting the strength of American consumers.
Sales increased in 9 of the 13 retail categories, including sporting goods stores, apparel outlets, restaurants, and bars.
Non-store retail sales, including e-commerce, also jumped 1.9%—the biggest gain this year—helped by Amazon’s Prime Day promotions.
With consumers playing a key role in the economy, their resilience may help the U.S. avoid a recession.
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3. Target Sales Drop, Investors Exit
On Wednesday, retail giant Target Corp. is expected to report its first revenue decline in four years.
Home goods and apparel—Target’s mainstay categories—have seen declining demand as consumers cut back on non-essential purchases.
In May, Target launched a Pride-themed product line for the LGBTQ community, which sparked backlash and calls for boycotts.
CEO Brian Cornell, now over a decade in the role, plans to stabilize the company by focusing on groceries, cutting costs, and curbing theft.
Investors, however, remain unconvinced. Target’s stock has erased all of its pandemic-era gains over the past 18 months.
Target’s stock has declined for two straight years, giving back all its pandemic gains.
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4. Tesla Cuts Model S and X Prices Again
Tesla’s website shows that it has launched new variants of the Model S and Model X with $10,000 lower starting prices.
The new standard-range Model S and X start at $78,490 and $88,490, respectively, with ranges of 320 miles and 269 miles.
Although the S and X were Tesla’s earliest and most expensive models, the Model 3 and Model Y remain more critical to overall revenue.
Compared to earlier this year, base prices for the Model S and Y have fallen 25% and 27%, respectively—not good news for Tesla’s top line.
Last month, Elon Musk warned that if interest rates continue to rise, Tesla would be forced to keep lowering prices. He also said he’s willing to sacrifice margins to maintain growth.
Tesla’s Q2 gross margin dropped to its lowest level in four years.
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5. Buffett Buys $814M in Homebuilder Stocks
On Monday, Warren Buffett’s Berkshire Hathaway disclosed an $814 million investment in three U.S. homebuilders.
Berkshire purchased 6 million shares of DR Horton, 152,572 shares of Lennar, and 11,112 shares of NVR.
This year, builders and construction companies have rebounded from 2022 struggles, with share prices steadily rising.
While high interest rates have hurt existing home sales, new home sales have held up due to limited inventory.
Berkshire also reduced stakes in Activision Blizzard, Chevron, GM, and Globe Life.
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6. Apollo to Lend $4B to Private Equity Firms
New York private equity giant Apollo Global Management plans to launch a new net asset value (NAV) lending program to offer loans to other private equity firms facing liquidity problems.
NAV loans are backed by the value of portfolio companies and allow PE firms to return capital to investors.
With banks increasingly risk-averse and traditional financing harder to secure, NAV loans are becoming more popular.
Apollo’s insurance arm Athene has grown rapidly in recent years, and the firm has launched numerous direct lending and structured credit products.
In 2021, Apollo lent $4 billion to SoftBank backed by Vision Fund 2.
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7. NYC Office Recovery Outpaces Other Cities
A new report from Placer.ai shows that New York City’s office recovery is outpacing other U.S. cities, although Midtown and Lower Manhattan are still well below pre-pandemic levels.
In Q2, weekday visits to Midtown offices were down 30% from 2019, and the Financial District saw a 16% decline. However, both areas have improved slightly from 2022.
Outside of offices, Penn Station commuter traffic is nearly back to pre-pandemic levels, down just 20% from 2019.
Compared to August 2022, office use in downtown San Francisco is up 38%, though it remains 56% below 2019 levels.
San Francisco’s office usage has hit a post-pandemic high.
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This content is sourced from Financial Times, Bloomberg, and The Real Deal, among other financial news outlets.