Two of the world's most important shipping lanes have been gummed-up by the Iran War. A third, the Panama Canal, is now having its own problems, because of weather. The canal is poised to reduce its capacity because of the onset of El Niño, a weather pattern that can cause severe droughts and other extreme weather events in various parts of the world.
The canal authority has warned clients that the chances of a severe El Niño system had risen to 81% from 25%. For now the canal authority is taking the first steps toward cutting capacity to around 34 vessels a day, down from its normal 36.
But more severe restrictions could be in store, given the history of how El Niño impacts the Panama Canal. In 2023 and 2024, the last time there was an El Niño pattern, transports were sometimes cut in half to 18 a day. This El Niño could be even more extreme than the last one.
The canal restrictions come at a time when global shipping is already under stress. Traffic through the Strait of Hormuz and the Bab al-Mandeb Strait in the Middle East has been severely curtailed. The upshot? A new round of inflation could come sailing into view.
Write to Avi Salzman at avi.salzman@barrons.com
Last Week
Markets
Chip stocks were hammered to start the week, but Tuesday was stellar, with a majority of S&P 500 index stocks up. Stocks tumbled on Wednesday after the Federal Reserve left interest rates unchanged and bond yields moved higher. Economic growth slowed in the second quarter, while household spending increased at its strongest pace since the third quarter of last year. Blowout earnings from Microsoft helped energize the tech sector. On the week, the Dow industrials rose 1%, the S&P 500 gained 1.1%, and the Nasdaq Composite was up 1.6%.
Companies
Cracker Barrel Old Country Store CEO Julie Masino is stepping down after her initiatives to modernize the restaurant chain backfired. David Deno, former CEO of casual-dining company Bloomin' Brands, replaces her. Jersey Mike's Subs IPO started trading at $23, giving it a valuation of $7.3 billion. UBS Group said it plans to buy back $3 billion of its own stock by mid-2027. Microsoft's earnings boosted its stock to the largest single-day percentage increase since 2008. Chevron's earnings per share more than tripled in the second quarter, as it pumped more oil and benefited from rising oil prices.
Deals
Nvidia is in talks to provide $250 billion for an OpenAI data center in Ohio... Brookfield Asset Management and power company NextEra Energy are teaming up to build a $100 billion AI data center in Kentucky...AI-focused hedge fund Situational Awareness sold the bulk of its stock portfolio to Ken Griffin's Citadel, according to The Wall Street Journal.
Next Week
Monday 8/3
Roughly 60% of S&P 500 index companies have reported results so far, with nearly 90% beating earnings-per-share estimates, and about three-quarters surpassing revenue expectations. This week, Palantir Technologies announces earnings on Monday, followed by Advanced Micro Devices, Booking Holdings, Caterpillar, McDonald's, Merck, and SpaceX on Tuesday. CVS Health, Eli Lilly, Sandisk, Uber Technologies, Walt Disney, and Western Digital report quarterly results on Wednesday, while Airbnb, Constellation Energy, and ConocoPhillips do the same on Thursday.
The Institute for Supply Management releases both its Manufacturing and Services Purchasing Managers' Indexes for July. Consensus estimate for the Manufacturing PMI, released on Monday, is a 53.9 reading, while the Services PMI, released on Wednesday, is expected to be 54.5. This compares with readings of 53.3 and 54, respectively, in June.
Friday 8/7
The Bureau of Labor Statistics releases the jobs report for July. Economists forecast a 83,000 increase in nonfarm payrolls, after a 57,000 gain in June. The unemployment rate is expected to remain unchanged at 4.2%. Fed Chairman Kevin Warsh described the labor market as solid and steady this past week.
The Numbers
450 B
Microsoft's gain in market value on July 30, the largest ever one-day increase for a U.S. company.
$270 B
The supply of new bonds from AI companies this year through early July, almost double the total for all of 2025.
$500 B
Estimated cash haul for oil and gas producers in 2026, more than double earlier projections for the year.
6.6%
Average rate for 30-year fixed-rate mortgages, highest in a year, another hurdle for the housing market.
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