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The automaker’s U.S. dealer network hits out at management in an open letter. (0:15) PPI revisions bolster smaller rate cut predictions. (1:24) McDonald’s extends its $5 menu. (3:52)
This is an abridged transcript of the podcast.
Our top story so far. The dealer network for automaker Stellantis (NYSE:STLA) has criticized CEO Carlos Tavares for the “rapid degradation” of its brands, accusing him of “short-term decision-making” that boosted profits and his own compensation. That’s according to an open letter viewed by Bloomberg.
The automaker has been laying off employees and reducing U.S. production to cut costs amid weak sales. It has also cut prices and brought back incentives to clear bloated vehicle inventories.
But dealers fear Stellantis is shrinking its market share even further and hurting its Jeep, Ram, Dodge, and Chrysler brands. They also believe Stellantis needs to spend more money to clear inventories.
“For over two years now, the U.S. Stellantis National Dealer Council has been sounding this alarm to your executive team that the course you set for Stellantis was going to be a disaster in the long run,” the group wrote in the letter. “A disaster not just for us, but for everyone involved—and now that disaster has arrived.”
Management pushed back against the group’s claims, saying, “At Stellantis, we don’t believe that public personal attacks, such as the one in the open letter from the NDC president against our CEO, are the most effective way to solve problems.”
On the economic front, more inflation data arrived, this time on wholesale prices. The Producer Price Index and the core PPI came in a little hotter than expected in August, but downward revisions took annual rates down on both.
The PPI rose 0.2% last month, higher than expectations for a +0.1% rise, with July revised to flat vs. a 0.1% initial print. The core PPI rose 0.3%, topping the 0.2% forecast, with July revised to a -0.2% decline from flat.
The annual PPI fell to 1.7% and the annual core PPI fell to 2.4%, both lower than anticipated.
Pantheon Macro says the latest numbers have them lowering their estimate for the August core PCE price index, the Fed’s favorite inflation gauge, to a 0.1% rise, based on the PPI components that feed into PCE.
We “continue to think that a combination of declining inflation expectations, slowing growth in consumer demand, and slightly elevated levels of inventory will compel retailers to compete more keenly on price,” they said.
In the swaps market, the upshot is that traders are a little more confident in that the Fed cuts by 25 basis points next week instead of 50, with chances at 87%.
Earlier in the day, the European Central Bank cut interest rates for the second time this year, lowering its benchmark rate by a quarter point to 3.5%.
Among active stocks, Alaska Air Group (ALK) rallied after the airline company provided a business update.
Alaska Air boosted its Q3 EPS guidance to a range of $2.15 to $2.25 vs. $1.61 consensus and a prior outlook for $1.40 to $1.60.
Dow (DOW) is under pressure after the chemical company said it expects third-quarter revenue of about $10.6 billion, compared with the consensus estimate of $11 billion.
Dow also foresees operating EBITDA of about $1.3 billion for the third quarter. In the prior three-month period, its operating EBITDA was $1.5 billion.
Kroger (KR) issued results for the latest quarter, reporting that identical-store sales excluding fuel rose 1.2%, ahead of expectations for a rise of 1%.
Looking ahead, Kroger still sees full-year EPS of $4.30 to $4.50 (midpoint $4.40) vs. $4.43 consensus. It also anticipates capital expenditure spending of $3.6 billion to $3.8 billion.
And Philip Morris (PM) boosted its per-share quarterly dividend $1.35 from the prior dividend of $1.30.
In other news of note, McDonald’s (MCD) announced that its $5 Meal Deal will stay around at a majority of its restaurants through the end of December. The $5 promotion features a choice of a McDouble or McChicken sandwich, small fries, 4-piece Chicken McNuggets, and a small soft drink.
McDonald’s is also offering a $2 McCrispy sandwich in honor of National Fried Chicken Sandwich Day on November 9 and will continue to celebrate Free Fries Fridays, where customers can get free medium fries with any $1 minimum purchase.
Looking ahead, the chain is planning a large rollout in the U.S. of the Big Arch sandwich that could add incremental competition for other burger chains such as Wendy’s (WEN), Burger King (QSR), Sonic, Jack in the Box (JACK), Whataburger, Culver’s, Five Guys, Hardee’s, Carl’s Jr., Smashburger, Habit Burger (YUM), In-N-Out Burger, Arby’s, Rally’s, BurgerFi (BFI), Fuddruckers, and Shake Shack (SHAK).
Across the restaurant sector, McDonald’s overall aggressive stance on promotions could pressure other chains to follow suit, including Yum Brands’ (YUM) Taco Bell and KFC.
And in the Wall Street Research Corner, CFRA’s Chief Investment Strategist, Sam Stovall, says there are five factors keeping volatility elevated in the stock market.
The latest CPI cements the idea of a 25 bps Fed cut rather than the “hoped for” 50 bps.
The most recent job reports have further raised the risk of recession.
The expectation for the Japanese central bank to continue hiking rates should lead to a continuation of the yen (USD:JPY) carry trade unwind.
The greater likelihood of the Democrats retaining the White House after this week’s debate.
And the “market continues to be buffeted by uncertainty in this traditional period of pre-election seasonal softness that will abate once the election is over.”
“History reminds us that the S&P 500 gained an average of nearly 3% in the final two months of election years since 1992, along with price increases for all sizes, styles, and sectors,” Stovall added.
Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
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