Investors Await a Momentous Inflation Report

All eyes on C.P.I.

Wall Street is divided on the big question hanging over the market: Will the U.S. economy narrowly avoid recession or plunge into a messy downturn?

Bond yields, which have been on the rise over the past week, indicate tough times ahead. Meanwhile, the impressive rally in stocks through the first six weeks of 2023 signals the opposite — that equity investors are feeling confident.

Tuesday’s Consumer Price Index reading will go a long way toward settling which camp is on the right track.

The C.P.I. data, due at 8:30 a.m. Eastern, is expected to show inflation coming down for a seventh consecutive month. Economists forecast the headline inflation number for January climbing by 6.2 percent on an annual basis — high by historical standards, and well above the Fed’s target, but a big improvement from last summer.

The number to watch is core inflation, which strips out energy and food prices. That figure is expected to show a 5.5 percent annualized increase, and a 0.4 percent month-on-month jump. This core measure of inflation is showing that consumers are still briskly spending on things like cars, holiday travel and restaurants.

“Any core reading under 5.5 percent would likely be a short-term upward catalyst for stocks,” George Ball, chairman of Sanders Morris Harris, an investment firm, said in a client note this week. “Any reading above 5.5 percent would likely be viewed negatively by the markets over the very short-term.”

The concern on Wall Street is that inflation will fail to trend lower, forcing the Fed to become more aggressive in raising interest rates in an effort to dampen consumer spending. Raise rates too far and the recession risk grows.

A recent string of economic data — including a blockbuster payroll report and an uptick in used car prices — has reinforced the view that the Fed has more to do to fight inflation.

A C.P.I. reading that comes in above expectations could force equity investors to start paying more attention to the bond market.

HERE’S WHAT’S HAPPENING

President Biden is expected to name Lael Brainard as his top economic policy adviser. Brainard, vice chairwoman at the Fed, would replace the outgoing Brian Deese as the new head of the National Economic Council, The Wall Street Journal reports. In the role, Ms. Brainard would play an integral part in enacting the president’s infrastructure and microchips investment packages.

The Bank of Japan nominates a new governor. The nominee, Kazuo Ueda, an academic, is expected to shift the central bank’s course away from the easy-money policy favored by outgoing chief Haruhiko Kuroda. One prominent market watcher even forecasts the B.O.J. could end its negative-interest rate policy by year-end.

Secretary of State Antony Blinken reportedly could meet a top Chinese diplomat this weekend. According to Bloomberg, Blinken could speak with Wang Yi, China’s top diplomat, at the Munich Security Conference. It would be the first face-to-face talks since the spy balloon uproar, which has elevated diplomatic tensions between Washington and Beijing.

Lured by tax credits, a European E.V. battery maker mulls moving production to North America. Peter Carlsson, the C.E.O. of Sweden’s Northvolt, told Bloomberg that the “really, really big” subsidies offered by the Inflation Reduction Act are forcing it to consider postponing construction of a German factory in favor of a move across the Atlantic.

Walmart plans to close three of its U.S. technology hubs. The mega-retailer will also require hundreds of workers to relocate, and all of its technology workers will have to come to the office twice a week, according to The Wall Street Journal. Just a year ago, Walmart had announced plans to open new tech hubs in Atlanta and Toronto.

Crypto’s big day on the Hill

If there’s a silver lining in the epic fall of the crypto exchange FTX, it’s that it may have brought Congress’s crypto critics and its champions a bit closer together on the need to regulate digital assets.

A Senate Banking Committee hearing on Tuesday will be the first big test of whether lawmakers truly have a shared goal of protecting investors while affording the sector room to grow.

“People recognize that the status quo is untenable. My sense is that there’s a sincere desire on both sides of the aisle to get things done,” Lee Reiners, policy director at the Duke Financial Economics Center and a witness at the hearing, told DealBook.

Not everyone shares his optimism, however. Here’s what crypto types in Washington expect:

• Tim Scott, the ranking Republican on the committee, will be in the spotlight — with 2024 top of mind. The senator from South Carolina just took over committee leadership from Patrick Toomey of Pennsylvania, a prominent supporter of the crypto industry. Scott cited crypto regulation among his policy priorities in a recent memo, even if he has few policy achievements on the issue. (His sights have been set on a bigger job: he’s revving up for the 2024 presidential race.) He’ll most likely occupy familiar Republican territory. A spokesman for committee Republicans told DealBook that Scott wants to balance the need to protect consumers while promoting innovation, the same position as Toomey.

• The industry’s worst fears probably won’t come true. The committee’s chairman, Sherrod Brown of Ohio, has talked about banning cryptocurrency in the U.S. But he won’t go that far on Tuesday, according to Reiners, who has been working with Brown and his staff on a regulatory framework. They’ll propose applying limits that exist in traditional finance on crypto companies to prevent conflicts of interest — for example, preventing an exchange from also acting as a market maker and broker. This would mean big shifts for the industry. “If you bring crypto into the regulatory perimeter, many businesses won’t be able to operate as they do,” Mr. Reiners said.

• The left-right divisions run deep. Despite a shared sense of urgency, the gulf between party leaders on the details of any approach to crypto regulation is wide, said Miller Whitehouse-Levine, policy director of the DeFi Education Fund, a crypto lobbying group. “It’ll be a lot of work to get consensus,” he said, and he doesn’t foresee legislation passing any time soon.

Musk faces a new labor battle in Buffalo

Employees at Tesla’s self-driving technology facility in Buffalo reportedly plan to unionize, pitting the workers against a staunch union critic in Elon Musk, who has fended off such efforts in the past.

The employees seek improved pay and better labor conditions. “People are tired of being treated like robots,” Al Celli, a member of the union’s organizing committee, told Bloomberg. Among their complaints: That Tesla monitors their keystrokes and records how long they spend on certain tasks, forcing some employees to skip or forgo bathroom breaks.

The employees at the Buffalo factory, where 800 Autopilot data analysts work, informed Mr. Musk of their intention to unionize in an email this morning.

Despite various efforts over the years, Tesla’s work force is nonunion — not even at the company’s Berlin assembly factory — a rarity in the automotive industry.

Mr. Musk has tweeted in the past that workers are free to vote on unionization, but he has made it clear that he thinks it’s a bad idea. “Why pay union dues & give up stock options for nothing?,” he has said.

Tesla has run into trouble with regulators for ostensibly stifling such efforts. The National Labor Relations Board ruled last year that Tesla’s policy banning pro-union T-shirts at its Fremont, Calif. plant was unlawful.

“You’re seeing Tom Brady-like pay packages.”

— Colin Lancaster, a former Citadel executive who now works at Schonfeld Strategic Advisors, on the bidding war among hedge funds vying for top traders as the sector continues to outperform much of Wall Street.

Justices to take on social media algorithms

The Supreme Court will soon decide a case that asks if algorithms that recommend content to users should be defined as editors. The outcome could have a tectonic impact on social media, and the internet as we know it.

“The decision will determine if we still have user-generated content,” said Eric Goldman, an internet law expert at Santa Clara University who filed an amicus brief in the matter.

At issue is Section 230, a Clinton-era law that protects online platforms like Google, Facebook and Twitter from being held liable for content created by their users. “Engage in vigorous, even rude debate? Section 230 lets you do it, because the companies that publish what you have to say don’t need to fear getting dragged into a lawsuit,” Cato Institute co-authors wrote in a recent explainer about the case.

Critics say this shield law is too broad, and that it gives tech companies a free pass to host harmful content on their sites. (Republicans, meanwhile, don’t like the immunity that Section 230 affords social media platforms, and have long wanted it to be overhauled.) Supporters like Mr. Goldman say the law is essential to an open web. The case, which the justices will hear next week, pits Google against the parents of a victim of a 2015 terror attack in Paris, who are suing over YouTube recommendations that promoted Islamic State content.

The plaintiffs say “targeted” algorithms make content decisions. The algorithms in question curate content much like human editors, they argue, so the recommendations they make should not be protected by Section 230. Facebook whistle-blower Frances Haugen and the Giffords Law Center to Prevent Gun Violence both filed amicus briefs highlighting the dangers of targeted recommendations.

For Big Tech, the stakes are huge. The original drafters of Section 230, Representatives Christopher Cox and Ron Wyden — now a senator from Oregon — told the justices they feared that allowing an exception to Section 230 for targeted algorithms could make sites with user-generated content subject to lawsuits for every decision to present or not present third-party content. Whether on restaurant review sites, your social media feed or a marketplace, these decisions power much of the modern internet. The U.S. Chamber of Commerce urged the court to find that Section 230 protected targeted recommendations “to safeguard core and ubiquitous conduct in a vital sector of the economy.”

A decision is expected by late June.

THE SPEED READ

Deals

• Ford will build an electric vehicle battery plant in Michigan, relying heavily on Chinese technology. The carmaker also plans to cut 3,800 positions across Europe as it transitions to E.V. production. (NYT, Reuters)

• A Qatari investment group will reportedly make a bid this week to buy the Premier League club, Manchester United. (Bloomberg)

• John Malone’s Liberty Group has taken a minority £1.2 billion ($1.46 billion) stake in Vodafone, betting the firm’s battered share price is ripe for a rebound. (FT)

• NBCUniversal is reportedly planning an aggressive bid to buy back N.B.A. broadcast rights after a 20-year hiatus. (CNBC)

Policy

Best of the rest

• Amazon’s Andy Jassy vows to double down on grocery stores despite stumbles. (FT)

• Greening the grid amid increasingly extreme weather is no mean feat. (Politico)

• In her new book, the economist ​​Mariana Mazzucato argues that consultancies like McKinsey hobble governments. (FT)

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