Sub-3% US inflation cements Fed cut bets

Good morning. Here's what happened overnight and what you need to know today.

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1.

Below 3%: Annual US consumer inflation eased in July, falling below 3% for the first time in three years, reinforcing expectations that the Federal Reserve will cut interest rates at its mid-September meeting. The Bureau of Labor Statistics (BLS) said the Consumer Price Index (CPI) rose 2.9% from a year earlier, down from June’s 3%. Core CPI, which excludes food and energy, increased 3.2%, a slight decline from June’s 3.3%. The monthly increase was 0.2%, in line with economists’ expectations. Shelter costs, which rose by 0.4%, accounted for nearly 90% of the CPI's increase. Economists expect the Fed will cut rates by a quarter-percentage point in September, although a half-point cut is still possible if labour market data released before the Fed’s meeting weakens. The unemployment rate rose to 4.3% in July, sparking concerns about an economic slowdown. The data sent the S&P 500 towards its fifth straight day of gains, its longest winning period in more than a month. (Capital Brief)(BLS)(Bloomberg)

2.

Future blocked: Labor’s flagship Future Made in Australia (FMIA) plan is at risk just months before the election, Capital Brief reported. The Coalition has formally decided to oppose the bill, arguing that it would give the minister too much power over the $22.7 billion in new spending, including a $1.7 billion innovation fund and $13.7 billion in tax breaks for green hydrogen and critical minerals. Labor needs crossbench support, but key senators are hesitant. The Greens want a moratorium on new fossil fuel projects, while other crossbenchers, like Jacqui Lambie, fear the plan could spike inflation and give too much discretion to the government. Independent economist Saul Eslake said Treasury’s advice to avoid government spending on solar panels and batteries has been ignored. With key votes uncertain, the plan's future remains unclear. (Capital Brief)

3.

Fund fumbles: The National Reconstruction Fund (NRF), a cornerstone of Prime Minister Anthony Albanese’s "Future Made in Australia" agenda, is under fire for its slow progress and lack of transparency. Capital Brief reports that nine months after its launch, the $15 billion fund has yet to make any investments, drawing criticism from investors and industry players. Alon Greenspan, a digital health fund manager, described the application process as vague and frustrating, while a prominent climate tech investor labelled the NRF a "black box." Concerns have also been raised about the NRF's apparent risk aversion, which critics say contradicts its mandate to support innovative projects. The fund has already incurred $8.7 million in expenses and despite receiving over 300 proposals, its first investments are still pending. The NRF is also facing political challenges, with doubts over the passage of the Future Made in Australia bill and criticism from the opposition for its inaction. (Capital Brief)

4.

Swift Swiss: UBS pleased Wall Street with the best second-quarter performance from its global markets unit since 2013 and cost savings from its Credit Suisse acquisition. The bank posted a net profit of USD1.1 billion ($1.67 billion) for Q2 2023. That’s down on last year's bumper USD27.3 billion profit from the CS deal, but was almost double analysts' forecasts of USD528 million. The beat sent shares as much as 6% higher in New York to USD31.03 each, outperforming the European banking sector. UBS said it made progress in reducing non-core assets, achieving USD0.9 billion in additional savings and lowering risk-weighted assets by 42% since Q2 2022. It had agreed to sell CS’s US mortgage-servicing unit to an unnamed buying consortium. The investment banking division made up for its flagship Global Wealth Management unit’s underperformance in the second quarter, which was primarily driven by higher-than-expected compensation costs for advisers. (Capital Brief)(UBS statement)(Bloomberg)

5.

Sweet deal: Mars has agreed to acquire Pringles-maker Kellanova for nearly USD36 billion ($54.46 billion), including debt, in the largest packaged-food deal in nearly a decade and the year’s biggest. In a statement, Mars said it will pay USD83.50 per share in cash, representing a 33% premium over Kellanova’s closing price (a 1-year record high) on Friday, 2 August. That was before the deal talks were first reported by media over that weekend. Kellanova CEO Steve Cahillane told CNBC in an interview that he doesn’t expect antitrust concerns from regulators regarding the deal, although there is a USD1.2 billion termination fee payable by Mars if the deal fails to gain regulatory approval. The acquisition will be financed through Mars’ cash reserves and a USD29 billion bridge loan arranged by Mars’ adviser on the deal, Citi, and JPMorgan. Goldman Sachs and Lazard advised Kellanova. (Capital Brief)(MarsKellanova statements)

6.

Lilly’s threat: Drug maker Eli Lilly sent cease-and-desist letters to healthcare providers in the US, demanding they stop promoting compounded versions of its blockbuster weight-loss drugs Mounjaro and Zepbound as they were no longer in short supply. Bloomberg reported the letters, drafted by Kirkland & Ellis, were sent to clinics, telehealth companies, wellness centres and medical spas, claiming the company’s pricey brand-name drugs were now available and that state-licensed facilities should cease selling compounded versions. The legal threats came even as the US Food and Drug Administration (FDA) still lists Zepbound as being in shortage, allowing compounders to produce copycat versions under federal law, the publication said. Rivas Medical Weight Loss told the publication that Lilly's drugs remain hard to find. The FDA said it was evaluating whether the current supply of tirzepatide meets its definition of a resolved shortage. (Bloomberg)

7.

AI rights: The Hollywood actors' union SAG-AFTRA announced a landmark deal with online talent marketplace Narrativ, enabling actors to sell rights for AI-generated voice replicas as they seek to maintain control over their likeness. Reuters reports that under the agreement, actors can set prices for digital voice replication, with a minimum pay matching SAG-AFTRA standards for audio commercials. Brands must obtain consent for each use of the digital voice replica. SAG-AFTRA said the deal sets a standard for ethical AI use in advertising, amid rising concerns over the technology’s impact on performers' rights. The issue gained attention earlier this year when Scarlett Johansson accused OpenAI of copying her voice for its system. The deal comes as the NO FAKES Act, currently before Congress, plans to make AI replication without permission illegal, with support from SAG-AFTRA, Disney, and other industry bodies. (Reuters)

8.

Credit watch: A new Senate inquiry led by Liberal senator Andrew Bragg will investigate the role of private credit in boosting home ownership in Australia. As banks retreat from certain lending markets, non-bank players, including private credit providers, are becoming more prominent. The inquiry, driven by the Senate Economics References Committee chaired by Bragg, will scrutinise whether current financial regulations support home ownership effectively. It will explore lending practices, deregulation opportunities, and the involvement of institutional funds in housing development. Concerns about the systemic risks of private credit, particularly noted by the Council of Financial Regulators, will also be examined. While private credit plays a significant role in US commercial property lending, its impact on Australia's market is under increasing scrutiny. (Capital Brief)