What you need to know in markets this week

After a very busy week that saw the Federal Reserve raise interest rates for the third time since December, Uber issue a long-awaited report about its internal culture, and Amazon (AMZN) announce a blockbuster $13.7 billion deal to acquire Whole Foods (WFM), the calendar in the week ahead should be more tame.

On the economic front, highlights are likely to include reports on existing and new home sales, slated for Wednesday and Friday, respectively. Elsewhere we’ll also get a number of speeches from prominent Fed officials, though we are not scheduled to hear from Fed Chair Janet Yellen.

And on Wednesday, summer will officially begin in the northern hemisphere, with the solstice marking the longest day of the year.

On Friday, Minneapolis Fed president Neel Kashkari, the lone dissenter in the Fed’s vote to raise interest rates on Wednesday, published a post on Medium explaining his decision to vote against a rate hike.

Kashkari wrote that, “For me, deciding whether to raise rates or hold steady came down to a tension between faith and data.”

On the faith side, Kashkari said his view that tight labor markets would push up the cost of labor, and thus the cost of goods, remains intact. The data, however, do not currently support a view that this is set to happen imminently.

“When I’m torn between faith and data, I look at decisions from a risk management perspective,” Kashkari added. And right now, keeping rates low is the less risky option, in this view.

In its latest set of economic projections published this week, the Fed said it expected to raise rates once more this year.

Economic calendar

  • Monday: No major economic data set for release.
  • Tuesday: No major economic data set for release. Fed vice chair Stanley Fischer speaks in Amsterdam.
  • Wednesday: Existing home sales, May (-0.4% expected; -2.3% previously); First day of summer, northern hemisphere
  • Thursday: Initial jobless claims (240,000 expected; 237,000 previously); FHFA home price index, April (+0.5% expected; +0.6% previously); Leading index of economic indicators, May (+0.4% expected; +0.3% previously); Kansas City Fed manufacturing index, June (10 expected; 8 previously)
  • Friday: Markit flash manufacturing PMI, June (52.9 expected; 52.7 previously); Markit flash service PMI, June (53.5 expected; 53.6 previously); New home sales, May (+3.8% expected; -11.4% previously)

Amazon, Amazon, Amazon

In case you missed it, Amazon announced it would buy Whole Foods for $13.7 billion.

The deal, which followed a report in Bloomberg back in April which said Amazon had looked at the organic grocery chain last year, has implications for a number of industries.

For one, shares of basically any retailer that sells food were down sharply on Friday. As malls and department stores and bookstores have found out, when Amazon comes into your industry, things get worse.

Pharmacy stocks were also lower as investors saw Amazon’s aggressive play into the grocery space as a warning sign to the sector — which has yet to really feel the disruption of online retailing — that Amazon may yet look to become a player in the space.

Meanwhile, Amazon’s chief rival — Walmart (WMT) — announced a deal to acquire online menswear retailer Bonobos for $310 million. Walmart, which gets half of its revenue from grocery sales, saw shares fall almost 5% to end the week.

But as Gordon Haskett analyst Chuck Grom said in a note on Friday following news Amazon would buy Whole Foods, “The ramifications for all of retail are seismic — not just retailers that sell grocery, but for everyone.”

For one thing, by buying Whole Foods, Amazon is saying that physical retail is not dead. Whole Foods operates north of 450 stores, according to its latest annual report filed with the SEC. And so while Amazon just became the owner of a major grocery chain that has struggled with growing sales, it also bought a network of 450-odd warehouses, located in many upscale zipcodes across America.

We’ve seen Amazon begin to open physical retail locations, most recently in New York City, making clear that the company thinks in-person shopping is not dead, despite the abandoned retail outlets the company has left in its wake. Its acquisition of Whole Foods is a further affirmation of this view.

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