For those of us trying to use the past few weeks of retail earnings reports to distill what consumers are now focused on with their spending, here is what Costco said in its earnings call about what they are seeing: “The best performing categories in Q3 were candy, sundries, toys, jewelry, kiosks, home furnishings, apparel, bakery and deli.” So, food, home, stuff for the kids and some jewelry with people back out in their social lives. “Underperforming departments were liquor, office, sporting goods and hardware, all of which were quite strong a year ago.” So, a bit of a give back as some of these purchases don’t need to get repeated each year and I guess the liquor thing is mostly likely due to more eating out at restaurants and bars. Also, less spending on sporting goods is because all the gyms have reopened and with many back in their offices, less need for spending again on the home office.
This is what Costco said on the inflation front. “First of all, it continues. Pressures from higher commodity prices, higher wages, higher transportation costs and supply chain disruptions all still in play. For Q1, we estimate price inflation was in the 4.5% to 5% range. For Q2, we had estimated 6%-ish, if you will. And for Q3 (the one just reported) and talking to our merchants, estimated price inflation was in the 7%-ish range.” They did not give guidance on what they expect for their current fiscal Q4.
On the container shipping market and with Shanghai slowly reopening again, the World Container Index Shanghai to LA price looks like it has bottomed out for now as of yesterday’s close. At $8,720, it is off the pre 2021 holiday peak of $12,424 but is still more than 4x where it was pre covid.
WCI Shanghai to LA
Consumer prices in Tokyo in May rose 2.4% headline, 1.9% ex food and .9% ex food and energy. All were about as expected and keep in mind that the 2% BoJ inflation target is the ex food line item. Now that we are there, I’m sure Kuroda and the BoJ will just blame it solely on energy prices and maintain their current monetary stance. As there was no upside surprise, the 10 yr JGB yield fell almost 1 bp overnight to .233%. The 10 yr inflation breakeven was down 2 bps to .83%, the lowest since mid April, coincident with the pullback in inflation expectations elsewhere on economic growth fears. The yen is higher as the dollar index sits at a one month low after the recent run. The Nikkei was up 2/3 of a percent but still down 7% ytd. I still find Japanese stocks very attractive with the broad Topix index trading at just 12x 2022 earnings.