International News 06/05

May 06, 2024 No. 70

Starbucks has announced a reduction in sales projections for the year, citing the impact of the Boycott Effect.

Starbucks has revised its annual sales forecast following a decline in average sales per store for the first time in three years. Global sales for Starbucks have declined, with the United States and China, the company's largest markets, experiencing a decline in demand for coffee. Average sales per store in China declined by 11%, while in the United States, the figure fell by 3%. In the United States, the decline can be attributed to the cold weather in January and the unstable macroeconomic conditions affecting the sales of expensive drinks. Furthermore, Starbucks has experienced adverse effects from boycott campaigns in Middle Eastern and other countries due to its perceived support of Israel. Consequently, Starbucks anticipates that sales growth globally and in the United States will be in the single digits or flat for the full year. The company's operating margin in the first quarter also declined to 12.8%. Starbucks must adapt its strategy and identify ways to drive demand in the challenging second quarter.


Following the Federal Reserve's decision to maintain the interest rate target, US yields declined.

On May 1, U.S. Treasury yields declined as the Federal Reserve (Fed) opted to maintain its benchmark interest rate, while indicating potential for future rate reductions. The Federal Reserve expressed disappointment at the lack of progress in meeting its 2% inflation target. Despite the Fed's assertion that it would not lower rates until it is confident that inflation is moving towards the target, the implication was that the next rate move would be a cut. The market was taken aback by the larger-than-anticipated reduction in the tapering of bond holdings under the Fed's quantitative tightening program, which contributed to the decline in bond yields. Effective June 1, the Federal Reserve will reduce the limit on Treasury bonds allowed to mature without being replaced to $25 billion per month, down from the previous limit of $60 billion per month. However, the limits for mortgage-backed securities will remain unchanged at $35 billion per month and $60 billion per month, respectively.


The Bank of Japan's intervention has been unable to provide support for the yen.

The Japanese yen declined in value following the Bank of Japan's (BOJ) intervention in the currency market. The yen had previously reached its weakest level in 34 years, but the intervention resulted in a further weakening. The BOJ is estimated to have spent approximately ¥5.5 trillion to affect the yen exchange rate. As of yesterday, the yen had weakened 0.08% to ¥157.94 per US dollar. This weakening is due, in part, to the US dollar gaining strength following an increase in the US Labor Cost Index and the perception that the US central bank will delay an interest rate cut. Market participants anticipate that the US dollar will remain stronger than the yen. As a result, investors are advised to buy back the US dollar during any declines. The Japanese government has also indicated its readiness to take appropriate measures to address any economic contraction.