Joachim Nagel, president of Deutsche Bundesbank, during the central bank’s “Annual Report 2023” news conference in Frankfurt, Germany, on Friday, Feb. 23, 2024.Â
Bloomberg | Bloomberg | Getty Images
Losses incurred by the German central bank rocketed into the tens of billions in 2023 due to higher interest rates, requiring it to draw on the entirety of its provisions to break even.
The Bundesbank on Friday reported an annual distributable profit of zero, after it released 19.2 billion euros ($20.8 billion) in provisions for general risks, and 2.4 billion euros from its reserves. That leaves it with just under 700 million euros in reserves, the central bank said.
Net interest income was negative for the first time in its 67-year history, declining by 17.9 billion euros year on year to -13.9 billion euros.
“We expect the burdens to be considerable again for the current year. They are likely to exceed the remaining reserves,” Bundesbank President Joachim Nagel said at a news conference.
The central bank will report a loss carryforward that will be offset through future profits, he said.
Nagel added: “The Bundesbank’s balance sheet is sound. The Bundesbank can bear the financial burdens, as its assets are significantly in excess of its obligations.”
The German central bank â and many of its peers â have significant securities holdings exposed to interest rate risk, which have been significantly impacted by the European Central Bank’s unprecedented run of rate hikes.
The ECB on Thursday posted its first annual loss since 2004, of 1.3 billion euros, even as it also drew on its own risk provisions of 6.6 billion euros. It follows the euro zone central bank’s near decade of financial stimulus, printing money and buying large amounts of government bonds to boost growth, which are now requiring hefty payouts.
Central banks stress that annual profits and losses do not impact their ability to enact monetary policy and control price stability. However, they are watched as a potential threat to credibility, particularly if a bailout becomes a risk, and they impact central banks’ payouts to other sources.
In the case of the Bundesbank, there have been no payments to the federal budget for several years and, it said Friday, there are unlikely to be for a “longer” period of time. The ECB, meanwhile, will not make profit distributions to euro zone national central banks for 2023.
Nagel further said Friday that raising interest rates had been the right thing to do to curb high inflation, and that the ECB’s Governing Council will only be able to consider rate cuts when it is convinced inflation is back to target based on data.
On the struggling German economy, he said: “Our experts expect the German economy to gradually regain its footing during the course of the year and embark onto a growth path. First, foreign sales markets are expected to provide tail winds. Second, private consumption should benefit from an improvement in households’ purchasing power.”
Correction: The Bundesbank is 67 years old. An earlier version misstated its age.
A construction site with new apartments in newly built apartment buildings.
Patrick Pleul | Picture Alliance | Getty Images
Germany’s housebuilding sector has gone from bad to worse in recent months.
Economic data is painting a concerning picture, and industry leaders appear uneasy.
“The housebuilding sector is, I would say, a little bit in a confidence crisis,” Dominik von Achten, chairman of German building materials company Heidelberg Materials, told CNBC’s “Squawk Box Europe” on Thursday.
“There are too many things that have gone in the wrong direction,” he said, adding that the company’s volumes were down significantly in Germany.
In January both the current sentiment and expectations for the German residential construction sector fell to all-time lows, according to data from the Ifo Institute for Economic Research. The business climate reading fell to a negative 59 points, while expectations dropped to negative 68.9 points in the month.
“The outlook for the coming months is bleak,” Klaus Wohlrabe, head of surveys at Ifo, said in a press release at the time.
Meanwhile, January’s construction PMI survey for Germany by the Hamburg Commercial Bank also fell to the lowest ever reading at 36.3 â after December’s reading had also been the lowest on record. PMI readings below 50 indicate contraction, and the lower to zero the figure is, the bigger the contraction.
“Of the broad construction categories monitored by the survey, housing activity remained the worst performer, exhibiting a rate of decline that was among the fastest on record,” the PMI report stated.
The issue has also been weighing on Germany’s overall economy.
German Economy and Climate Minister Robert Habeck on Wednesday said the government was slashing its 2024 gross domestic product growth expectations to 0.2% from a previous estimate of 1.3%. Habeck pointed to higher interest rates as a key challenge for the economy, explaining that those had led to reduced investments, especially in the construction sector.
Ifo’s data showed that the amount of companies reporting order cancellations and a lack of orders had eased slightly in January, compared to December. But even so, 52.5% of companies said not enough orders were being placed, which Wohlrabe said was weighing on the sector.
“It’s too early to talk of a trend reversal in residential construction, since the tough conditions have hardly changed at all,” he said. “High interest rates and construction costs aren’t making things any easier for builders.”
Heidelberg Materials’ von Achten however suggested there could be at least some relief on the horizon, saying that there could be good news on the interest rate front.
“I’m positive inflation really comes down now in Germany, maybe the ECB [European Central Bank] is actually earlier in their decrease of interest rates than we all think, lets wait and see, and if that comes then obviously the confidence will also come back,” he said.
Even if interest rate cuts are a slow process, von Achten says as soon as “people see the turning point” confidence should return.
Speaking to the German Parliament about the economic outlook on Thursday, Habeck said the government was expecting inflation to continue falling and return to the 2% target level in 2025.
The European Central Bank said at its most recent meeting in January that discussing rate cuts was “premature,” even as progress was being made on inflation. While the exact timeline for rate cuts remains unclear, markets are widely pricing in the first decrease to take place in June, according to LSEG data. Â Â
Christopher Waller, governor of the US Federal Reserve, during a Fed Listens event in Washington, D.C., on Friday, Sept. 23, 2022.
Al Drago | Bloomberg | Getty Images
Federal Reserve Governor Christopher Waller said Thursday he will need to see more evidence that inflation is cooling before he is willing to support interest rate cuts.
In a policy speech delivered in Minneapolis that concludes with the question, “What’s the rush?” on cutting rates, the central bank official said higher-than-expected inflation readings for January raised questions on where prices are heading and how the Fed should respond.
“Last week’s high reading on CPI inflation may just be a bump in the road, but it also may be a warning that the considerable progress on inflation over the past year may be stalling,” Waller said in prepared remarks.
While he said he still expects the Federal Open Market Committee to begin lowering rates at some point this year, Waller said he sees “predominately upside risks” to his expectation that inflation will fall to the Fed’s 2% goal.
He added that there are few signs inflation will fall below 2% anytime soon based on strong 3.3% annualized growth in gross domestic product and employment, with few signs of a potential recession in sight. Waller is a permanent voting member on the FOMC.
“That makes the decision to be patient on beginning to ease policy simpler than it might be,” Waller said. “I am going to need to see at least another couple more months of inflation data before I can judge whether January was a speed bump or a pothole.”
The remarks are consistent with a general sentiment at the central bank that while further rate hikes are unlikely, the timing and pace of cuts is uncertain.
The inflation data Waller referenced showed the consumer price index rose 0.3% in January and was up 3.1% from the same period a year ago, both higher than expected. Excluding food and energy, core CPI ran at a 3.9% annual pace, having risen 0.4% on the month.
Reading through the data, Waller said it’s likely that core personal consumption expenditures prices, the Fed’s preferred inflation gauge, will reflect a 2.8% 12-month gain when released later this month.
Such elevated readings make the case stronger for waiting, he said, noting that he will be watching data on consumer spending, employment and wages and compensation for further clues on inflation. Retail sales fell an unexpected 0.8% in January while payroll growth surged by 353,000 for the month, well above expectations.
“I still expect it will be appropriate sometime this year to begin easing monetary policy, but the start of policy easing and number of rate cuts will depend on the incoming data,” Waller said. “The upshot is that I believe the Committee can wait a little longer to ease monetary policy.”
Markets just a few weeks ago had been pricing in a high probability of a rate cut when the Fed next meets on March 19-20, according to fed funds futures bets gauged by the CME Group. However, that has been pared back to the June meeting, with the probability rising to about 1-in-3 that the FOMC may even wait until July.
Earlier in the day, Fed Vice Chair Philip Jefferson was noncommittal on the pace of cuts, saying only he expects easing “later this year” without providing a timetable.
Governor Lisa Cook also spoke and noted the progress the Fed has made in its efforts to bring down inflation without tanking the economy.
However, while she also expects to cut this year, Cook said she “would like to have greater confidence” that inflation is on a sustainable path back to 2% before moving.
CNBC’s Leslie Picker and Bank of America CEO Brian Moynihan join ‘Squawk on the Street’ to discuss the state of the economy, strength of the consumer, the Fed’s rate path outlook, the impact of Capital One-Discover deal, regional bank turmoil, and more.
David George, Baird senior research analyst, joins ‘Squawk Box’ to discuss news of Capital One Financial acquiring Discover Financial Services in a $35.3 billion all-stock deal, what the deal means for consumers and the banking sector at large, and more.
Traders work on the floor of the New York Stock Exchange during morning trading on January 31, 2024 in New York City.
Michael M. Santiago | Getty Images
The so-called “Magnificent 7” now wields greater financial might than almost every other major country in the world, according to new Deutsche Bank research.
The meteoric rise in the profits and market capitalizations of the Magnificent 7 U.S. tech behemoths â Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla â outstrip those of all listed companies in almost every G20 country, the bank said in a research note Tuesday. Of the non-U.S. G20 countries, only China and Japan (and the latter, only just) have greater profits when their listed companies are combined.
Deutsche Bank analysts highlighted that the Magnificent 7’s combined market cap alone would make it the second-largest country stock exchange in the world, double that of Japan in fourth. Microsoft and Apple, individually, have similar market caps to all combined listed companies in each of France, Saudi Arabia and the U.K, they added.
However, this level of concentration has led some analysts to voice concerns over related risks in the U.S. and global stock market.
Jim Reid, Deutsche Bank’s head of global economics and thematic research, cautioned in a follow-up note last week that the U.S. stock market is “rivalling 2000 and 1929 in terms of being its most concentrated in history.”
Deutsche analyzed the trajectories of all 36 companies that have been in the top five most valuable in the S&P 500 since the mid-1960s.
Reid noted that while big companies eventually tended to drop out of the top five as investment trends and profit outlooks evolved, 20 of the 36 that have populated that upper bracket are still in the top 50 today.
“Of the Mag 7 in the current top 5, Microsoft has been there for all but 4 months since 1997. Apple ever present since December 2009, Alphabet for all but two months since August 2012 and Amazon since January 2017. The newest entrant has been Nvidia which has been there since H1 last year,” he said.
Tesla had a run of 13 months in the top five most valuable companies in 2021/22 but is now down to 10th, with the share price having fallen by around 20% since the start of 2024. By contrast, Nvidia’s stock has continued to surge, adding almost 47% since the turn of the year.
“So, at the edges the Mag 7 have some volatility around the position of its members, and you can question their overall valuations, but the core of the group have been the largest and most successful companies in the US and with it the world for many years now,” Reid added.
Could the gains broaden out?
Despite a muted global economic outlook at the start of 2023, stock market returns on Wall Street were impressive, but heavily concentrated among the Magnificent Seven, which benefitted strongly from the AI hype and rate cut expectations.
In a research note last week, wealth manager Evelyn Partners highlighted that the Magnificent 7 returned an incredible 107% over 2023, far outpacing the broader MSCI USA index, which delivered a still healthy but relatively paltry 27% to investors.
Daniel Casali, chief investment strategist at Evelyn Partners, suggested that signs are emerging that opportunities in U.S. stocks could broaden out beyond the 7 megacaps this year for two reasons, the first of which is the resilience of the U.S. economy.
“Despite rising interest rates, company sales and earnings have been resilient. This can be attributed to businesses being more disciplined on managing their costs and households having higher levels of savings built up during the pandemic. In addition, the U.S. labour market is healthy with nearly three million jobs added during 2023,” Casali said.
The second factor is improving margins, which Casali said indicates that companies have adeptly raised prices and passed the impact of higher inflation onto customers.
“Although wages have risen, they haven’t kept pace with those price rises, leading to a decline in employment costs as a proportion of the price of goods and services,” Casali said.
“Factors, including China joining the World Trade Organisation and technological advances, have enabled an increased supply of labour and accessibility to overseas job markets. This has contributed to improving profit margins, supporting earnings growth. We see this trend continuing.”
When the market is so heavily weighted toward a small number of stocks and one particular theme â notably AI â there is a risk of missed investment opportunities, Casali said.
Many of the 493 other S&P 500 stocks have struggled over the past year, but he suggested that some could start to participate in the rally if the two aforementioned factors continue to fuel the economy.
“Given AI-led stocks’ stellar performance in 2023 and the beginning of this year, investors may feel inclined to continue to back them,” he said.
“But, if the rally starts to widen, investors could miss out on other opportunities beyond the Magnificent Seven stocks.”
Torsten Slok, Apollo Global Management chief economist, joins ‘Closing Bell Overtime’ to talk falling housing starts, the Federal Reserve and the state of inflation.
DUBAI, United Arab Emirates — China is facing a confidence deficit as its economy undergoes massive transition and concern grows over its ongoing property crisis, a top banking CEO said while onstage at Dubai’s World Governments Summit.
“China’s biggest problem to me is a lack of confidence. External investors lack confidence in China and domestic savers lack confidence,” Bill Winters, CEO of emerging markets-focused bank Standard Chartered, told CNBC’s Dan Murphy Monday during a panel discussion.
“But I think China is going through a major transition from old economy to new economy,” Winters added. “If you visit the new economy, which many of you have — I have — it’s booming, absolutely booming, well into double-digit growth rates and in everything EV-related, the whole supply chain, everything sustainable finance and sustainability related, etc.”
Investors are closely watching China, whose stock market gyrations, deflation problem and property woes are casting a shadow over the global growth outlook. According to an International Monetary Fund report completed in late December 2023, demand for new housing in China is set to drop by around 50% over the next decade.
Decreased demand for new housing will make it harder to absorb excess inventory, “prolonging the adjustment into the medium term and weighing on growth,” the report said. Property and related industries account for about 25% of China’s gross domestic product.
IMF Managing Director Kristalina Georgieva, speaking to CNBC in Dubai on Sunday, stressed what she saw as the need for reforms from Beijing in order to stem its economic challenges.
The international lender has discussed with China “longer-term structural issues that the country needs to address,” Georgieva said. “Our analysis shows that without deep structural reforms, growth in China can fall below 4%. And that will be very difficult for the country.”
“We want to see the economy genuinely moving more towards domestic consumption, and less reliance on exports … but for that, [they need] confidence of the consumer,” she said, echoing Winters’ sentiments on domestic confidence. “And that means fix the real estate, get the pension system in place, as well as these longer-term improvements in the fundamentals of the Chinese economy, would be necessary.”
Standard Charters’ Winters, meanwhile, is ultimately optimistic about the world’s second-largest economy, pointing out that every society that’s undergone major economic transition inevitably experiences some level of tumult and growing pains.
“They’re trying to manage this transition without disrupting the financial system, which in the West, we’ve never managed to do,” the CEO said. “Every big industrial transition has had a major depression associated with it, or global financial crisis. They’re trying to avoid that which means it gets dragged out. I think they’ll get through the back end just fine.”
Many Chinese developers have halted or delayed construction on presold homes due to cash flow problems. Pictured here is a property construction site in Jiangsu province, China, on Oct. 17, 2022.
Its property market is crumbling, deflationary pressures are spreading across the nation, and its stock market has weathered a turbulent ride so far this year, with the country’s CSI 300 index erasing some 40% of its value from its 2021 peaks.
The slew of downbeat data has consequently triggered a wave of skepticism toward the world’s second-largest economy. Allianz for one, reversed its buoyant view of China, now forecasting Beijing’s economy to grow by an average 3.9% between 2025 to 2029. That’s down from a 5% forecast before the Covid-19 pandemic broke out.
Ex-International Monetary Fund official Eswar Prasad also told Nikkei Asia that “the likelihood of the prediction that China’s GDP will one day overtake that of the U.S. is declining.”
Meanwhile, top economist and Allianz advisor Mohamed El-Erian highlighted China’s dismal stock market performance against those in the U.S. and Europe in a chart on X, saying it shows the stark divergence between all three equity markets.
China itself, however, isn’t willing to confess its economy is in tatters. Chinese leader Xi Jinping said on New Year’s Eve that the nation’s economy had grown “more resilient and dynamic this year.”
Feeding on such optimism, it’s fair to say there’s been some signs of hope for the beleaguered economy, but perhaps not enough to sway the bears. For instance, factory activity in China expanded for a third-straight month in January, while the nation’s luxury sector appears to be snapping back.
Such data has prompted bullish chatter among investors, suggesting consensus on China clearly lacks uniform.
Nobel laureate Paul Krugman has been among some of the most bearish voices toward China, saying the country is entering an era of stagnation and disappointment.
China was supposed to boom after it lifted its stringent “zero-Covid” measures, Krugman wrote in a recent New York Times op-ed. But it did the exact opposite.
From bad leadership to high youth unemployment, the country is facing headwinds from all corners, Krugman argued. And the country’s economic stumble isn’t isolated, Krugman warns, potentially becoming everyone’s problem.
China’s well-known property troubles have been the crux of Wall Street bearishness toward the Asian nation.
The International Monetary Fund said it expects housing demand to drop by 50% in China over the next decade.
Speaking at the World Economic Forum in Davos last month, IMF chief Kristalina Georgieva said China’s real estate sector needs “fixing,” while Beijing needs structural reforms to avoid a decline in growth rates.
“This is just like the U.S. financial crisis on steroids,” Bass said, referring to China’s default-ridden property market.
“China is going to get much worse, no matter how much their regulators say, ‘we’re going to protect individuals from malicious short-selling,’” he added.
“The basic architecture of the Chinese economy is broken,” Bass continued.
A gloomy picture for China, however, isn’t shared by all.
The Institute of International Finance said Beijing has the policy capacity to push China’s economy toward its growth potential and stuck to its above consensus forecast for 2024 growth at 5%, in a recent blog post. That view, however, depends on sufficient demand-side stimulus. The latest GDP numbers out of China for the last three months of 2023 missed analysts’ estimates, with a figure of 5.2%.
At the same time, Clocktower Group partner and chief strategist Marko Papic took an optimistic short-term view toward Chinese equities. In a Feb. 7 CNBC interview, Papic said he forecasts China stocks to jump at least 10% in the coming days as officials signal support efforts to bolster its flailing stock market.
A “10% to 15% rally in Chinese equities is likely in coming trading days,” Papic said.
JPMorgan Private Bank also outlined bull case scenarios for China in a recent post. “Despite the stock market’s slipping sentiment and persistent problems with the property market, certain segments of the Chinese economy have also proved their resilience,” it said.
The bank said China’s crucial role as a global manufacturer is unlikely to abate, adding that cyclical demand for its exports could remain intact.
Looking ahead, China has hurdles to overcome. Whether it has the firepower to do so, however, remains to be seen.
Damped Spring Advisors CEO Andy Constan joins ‘Fast Money’ to talk fallout from NYCB’s recent downturn and the state of the banking and financial sector.
A logo on the UniCredit SpA headquarters in Milan, Italy, on Saturday Jan. 22, 2022.
Bloomberg | Getty Images
Shares of Italian bank UniCredit hit their highest level since 2015 on Monday, after announcing that it would return 8.6 billion euros ($9.2 billion) to investors on the back of higher-than-expected profits.
The Milan-based bank shared details of the planned payout after reporting fourth-quarter profits of 1.9 billion euros, almost three times analysts’ expectations.
Shares of the stock were up 10% by 11 a.m. London time.
The payout, which will be delivered through a combination of buybacks and dividends, follows a strong year for the bank, which has been buoyed by higher interest rates.
The bank added that it would adopt a 90% payout policy from this year. UniCredit’s “stated” net income in the October-December period came in at 2.8 billion euros, more than double a 1.2 billion euro ($1.3 billion) average analyst consensus forecast provided by the bank.
Revenues also surpassed expectations, while UniCredit booked lower than forecast costs and provisions against loan losses.
Italy’s second-largest lender has tripled its value since Chief Executive Andrea Orcel took the reins in 2021, leading gains among European banks.
A group of renters in the U.S. say their landlords are using software to deliver inflated rent hikes.
“We’ve been told as tenants by employees of Equity that the software takes empathy out of the equation. So they can charge whatever the software tells them to charge,” said Kevin Weller, a tenant at Portside Towers since 2021.
Tenants say the management started to increase prices substantially after giving renters concessions during the Covid-19 pandemic.
The 527-unit building is located roughly 20 minutes away from the World Trade Center, on the shoreline of Jersey City, New Jersey. A group of tenants at the tower is involved in a sprawling class-action lawsuit against RealPage and 34 co-defendant landlords. The U.S. Department of Justice filed a statement of interest in the case in December 2023, arguing that the complaints adequately allege violations of the Sherman Antitrust Act.
In November 2023, the attorney general of Washington, D.C., filed a similar but more narrow complaint against RealPage and 14 landlords that collectively manage more than 50,000 apartment units in the District.
“Effectively, RealPage is facilitating a housing cartel,” said Attorney General of the District of Columbia Brian Schwalb in an interview with CNBC. His office filed the complaint on antitrust grounds. They allege that landlords share competitively sensitive data through RealPage, which then sets artificially high rents on a key slice of the local rental market.
Office of the Attorney General for the District of Columbia, November 2023
“Rather than making independent decisions on what the market here in D.C. calls for in terms of filling vacant units, landlords are compelled, under the terms of their agreement with RealPage, to charge what RealPage tells them,” said Schwalb.
RealPage says its revenue management products use anonymized, aggregated data to deliver pricing recommendations on roughly 4.5 million housing units in the U.S. The company says its tools can increase landlord revenues between 2% and 7%.
“Just turning the system on will outperform your manual analyst. There’s almost no way it can’t,” said Jeffrey Roper, a former RealPage employee and inventor of YieldStar.
YieldStar is one of three key revenue management tools offered by RealPage. The software balances prices, occupancy and lease lengths to help property managers optimize their portfolio’s yield. The company feeds data from its models into a newer tool dubbed “AIRM” that considers the effect of credit, marketing and leasing effectiveness.
RealPage told CNBC that its landlord customers are under no obligation to take their price suggestions. The company also said it charges a fixed fee on each apartment unit managed with its software.
RealPage was acquired by Miami-based private equity firm Thoma Bravo for $10.2 billion in 2021. In court filings, Thoma Bravo has claimed that it is not liable for the alleged acts of its subsidiary outlined by plaintiffs in the class-action complaints.
Renters told CNBC they discovered how revenue management software is used in real estate after reading a 2022 ProPublica investigation. Equity Residential investor materials show that the company started to experiment with Lease Rent Options between 2005 and 2008. RealPage acquired the product in 2017.
“How could we possibly know?” said Harry Gural, a tenant in an Equity Residential property located in the Van Ness neighborhood of Washington, D.C. Gural says he has been involved in legal matters against his landlord’s pricing practices for more than seven years.
Affiliates of Equity Residential are contesting a separate decision made by a local housing authority in Jersey City regarding prices set on the Portside Towers property. The company has filed a lawsuit in federal court challenging the decision, stating that the decision could result in millions of dollars in refunds for tenants.
Equity Residential and other defendant landlords declined to comment on ongoing RealPage litigation.
Redfin reports that asking rents in the U.S. ticked down to $1,964 a month in December 2023, a decline from recent highs. Prices are coming down in markets such as Atlanta and Austin, Texas, where home construction is high. But analysts believe low rates of homebuilding on the U.S. East Coast could give well-located landlords more pricing power.
“Guys like us that own 80,000 well-located apartments, we’re still in a pretty good spot,” said Equity Residential CEO Mark Parrell in a June 2023 interview with CNBC. Watch the video above to learn about the rising tide of lawsuits against U.S. corporate landlords.
CORRECTION: A previous version of this article misstated when Equity Residential purchased Portside Towers.
Visitors take photos in front of the Meta sign at its headquarters in Menlo Park, California, December 29, 2022.
Tayfun Coskun | Anadolu Agency | Getty Images
Technology companies are learning an old lesson from Wall Street: maturing means shrinking.
Meta and Amazon saw their shares spike on Friday following their fourth-quarter earnings reports. While revenue for both topped estimates, the story for investors is that they’re showing their ability to do more with less, an alluring equation for shareholders.
There’s also a recognition that investors value cash, in many cases, above all else. The tech industry has long preferred to reinvest excess cash back into growth, ramping up hiring and experimenting with the next big thing. But following a year of hefty layoffs and capital preservation, Meta on Thursday announced that, for the first time, it will pay a quarterly dividend of 50 cents per share, while also authorizing an additional $50 billion stock repurchase plan.
“The key with these companies is really that they’re able to reinvent themselves,” said Daniel Flax, an analyst at Neuberger Berman, in an interview with CNBC’s “Squawk Box” on Friday. They “continue to invest for the future and play offense while at the same time manage expenses in this tough environment,” he said.
Amazon is less aggressively moving to send cash to shareholders, but the topic is certainly being discussed. The company instituted a $10 billion buyback program in 2022 and hasn’t announced anything since. On Thursday’s earnings call, Morgan Stanley analyst Brian Nowak asked about plans for additional capital returns.
“Just really excited to actually have that question,” finance chief Brian Olsavsky said in response. “No one has asked me that in three years.”
Olsavsky added that “we do debate and discuss capital structure policies annually or more often,” but said the company doesn’t have anything to announce. “We’re glad to have the better liquidity at the end of 2023 and we’re going to try to continue to build that,” he said.
After years of seemingly unfettered growth, the biggest internet companies in the world are firmly into a new era. They’re still out hunting for the best technical talent, particularly in areas like artificial intelligence, but headcount growth is measured. Staffing up in certain parts of the business likely means scaling back elsewhere.
For example, Meta CEO Mark Zuckerberg told investors that when it comes to AI, “We’re playing to win here and I expect us to continue investing aggressively in this area in order to build the most advanced clusters.”
Later on the call, when asked about expanding headcount, Zuckerberg said new hiring will be “relatively minimal compared to what we would have done historically,” adding that, “I kind of want to keep things lean.”
Olsavsky said most teams at Amazon are “looking to hold the line on headcount, perhaps go down as we can drive efficiencies in the size of our business.”
The story is playing out across Silicon Valley. January was the busiest month for tech job cuts since March, according to the website Layoffs.fyi, with almost 31,000 layoffs at 118 companies. Amazon and Alphabet added to their 2023 job cuts with more layoffs last month, as did Microsoft, which eliminated 1,900 roles in its gaming unit shortly after closing the acquisition of Activision Blizzard.
SAN FRANCISCO, CALIFORNIA – JUNE 23: XBOX CEO Phil Spencer arrives at federal court on June 23, 2023 in San Francisco, California. Top executives from Microsoft and Activision/Blizzard will be testifying during a five day hearing against the FTC to determine the fate of a $68.7B merger of the two companies. (Photo by Justin Sullivan/Getty Images)
Downsizing this week hit the cloud software market, where Okta announced it was cutting about 400 jobs, or 7% of its staff, and Zoom confirmed it was eliminating less than 2% of its workforce, amounting to close to 150 positions. Zuora announced a plan to cut 8% of jobs, or almost 125 positions based on the most recent headcount figures.
Evan Sohn, chairman of Recruiter.com, called it a “very confusing job market.” Last year, tech companies were responding to dramatically changing market conditions — soaring inflation, rising interest rates, rotation out of risk — after an extended bull market. Meta slashed over 20,000 jobs in 2023, Amazon laid off more than 27,000 people, And Alphabet cut over 12,000 positions.
The economy is in a very different place today. Growth is back at a healthy clip, inflation appears under control and the Federal Reserve is indicating rate cuts are on the horizon this year. Unemployment held at 3.7% in January, down from 6.4% three years earlier, when the economy was just opening up from pandemic lockdowns. And nonfarm payrolls expanded by 353,000 last month, the Labor Department’s Bureau of Labor Statistics reported Friday.
Tech stocks are booming, with Meta, Alphabet and Microsoft all at or near record levels.
But the downsizing in the industry continues.
“Companies are still in the cleanup from ’23,” Sohn told CNBC’s “Worldwide Exchange” this week. “There could be a flipping of skills, different skills necessary to really handle the new world of 2024.”
Wall Street is rewarding tech companies for improved discipline and cash distribution, but it raises the question about where they can turn for significant growth. Other than Nvidia, which had a banner 2023 due to soaring demand for its AI chips, none of the other mega-cap tech companies have been growing at their historic averages.
Even Meta’s better-than-expected 25% growth for the fourth quarter is a bit misleading, because the comparable number a year ago was depressed due to a slowing digital advertising market and Apple’s iOS update, which made it harder to target ads. Finance chief Susan Li reminded analysts on Thursday that as 2024 progresses, the company will be “lapping periods of increasingly strong demand.”
By late this year, analysts are projecting growth at Meta will be back down to the low teens at best. Growth estimates for Amazon and Alphabet are even lower, a good indication that calls for capital allocation measures may only get louder.
Ben Barringer, technology analyst at Quilter Cheviot, told CNBC that Meta’s decision to pay a dividend was a “symbolic moment” in that regard.
“Mark Zuckerberg is showing that he wants to bring shareholders along with him and is highlighting that Meta is now a mature, grown-up business,” Barringer said.
Liz Hoffman, Semafor business and finance editor, joins ‘Squawk Box’ to discuss turmoil facing New York Community Bancorp, what it means for the regional banking sector at large, and more.
Stephen Squeri, chair and CEO of American Express, speaks during an Economic Club of New York event in New York on Nov. 10, 2022.
Stephanie Keith | Bloomberg | Getty Images
American Express CEO Stephen Squeri on Friday said the credit card company saw “good consumer spending” during the holidays and signs of strong overall health for U.S. spending.
In particular, delinquency rates were “lower than they were in 2019,” Squeri told CNBC’s Scott Wapner in an interview at the American Express PGA Tour event in La Quinta, California.
“Our customers are high-spending premium customers, and they are continuing to spend,” he said.
The signs of resilient consumer spending run somewhat counter to persistent inflation. December’s consumer price index increased 0.3%, hotter than the 0.2% expected by economists.
But Squeri said he’s not surprised, adding he’s of the opinion that the U.S. is in the middle of a “soft landing,” slowing spending and bringing inflation down — without spurring a recession.
JPMorgan Chase CEO Jamie Dimon said earlier this week that he remains cautious on the U.S. economy, along with Goldman Sachs CEO David Solomon, who said it’s hard to imagine the number of Federal Reserve rate cuts that the market seems to be calling for in 2024.
“I mean look, recessions do happen,” Squeri said Friday. “The nice part about recessions is there’s always a recovery. … We’ll get through whatever we need to get through, and part of that is because of our customer base, and our colleagues that are supporting our customers.”
American Express reports its fourth-quarter earnings Jan 26.
Shoppers walk past shops on Regent Street on the final weekday before Christmas in London on December 22, 2023. Britain’s economy unexpectedly shrank in the third quarter and flatlined in the previous three months, official data showed Friday, raising fears of a recession before an election due next year. (Photo by HENRY NICHOLLS / AFP) (Photo by HENRY NICHOLLS/AFP via Getty Images)
Henry Nicholls | Afp | Getty Images
U.K. retail sales dropped significantly more than expected in December, in a sign that the economy may have entered a shallow recession in the second half of 2023.
The Office for National Statistics said sales volumes fell by 3.2% during the key trading month, after a 1.4% rise in November. Economists polled by Reuters had expected a fall of just 0.5%.
December marked the largest monthly decline since January 2021, when strict pandemic lockdown measures dampened demand. The ONS said people appeared to have done their Christmas shopping earlier than in previous years.
Volumes were 0.9% lower in the three months to December 2023, compared with the previous quarter.
It comes after U.K. gross domestic product for the third quarter was revised down to a 0.1% contraction, from a prior reading of no growth.
“Today’s release would subtract around 0.15 percentage points from real GDP growth in December, which increases the chances the economy may have ended 2023 in the mildest of mild recessions,” said Alex Kerr, assistant economist at Capital Economics.
Trade body British Retail Consortium said that the figures “capped a difficult year for retailers” and showed Black Friday sales ate into Christmas spending.
Blackstone Group chairman, CEO and co-founder Steve Schwarzman joins ‘Squawk Box’ to discuss the real estate market, doing business in China, 2024 election, and more.
JPMorgan Chase CEO Jamie Dimon said he remains cautious on the U.S. economy over the next two years because of a combination of financial and geopolitical risks.
“You have all these very powerful forces that are going to be affecting us in ’24 and ’25,” Dimon told Andrew Ross Sorkin on Wednesday in a CNBC interviewat the World Economic Forum in Davos, Switzerland.
“Ukraine, the terrorist activity in Israel [and] the Red Sea, quantitative tightening, which I still question if we understand exactly how that works,” Dimon said. Quantitative tightening refers to moves by the Federal Reserve to reduce its balance sheet and rein in previous efforts including bond-purchasing programs.
Dimon has advocated caution over the past few years, despite record profits at JPMorgan, the nation’s largest bank, and a U.S. economy that has defied expectations. Despite the corrosive impact of inflation, the American consumer has mostly remained healthy because of good employment levels and pandemic-era savings.
In Dimon’s view, the relatively buoyant stock market of recent months has lulled investors on the potential risks ahead. The S&P 500 market index rose 19% in the past year and isn’t far from peak levels.
“I think it’s a mistake to assume that everything’s hunky-dory,” Dimon said. “When stock markets are up, it’s kind of like this little drug we all feel like it’s just great. But remember, we’ve had so much fiscal monetary stimulation, so I’m a little more on the cautious side.”
Goldman Sachs CEO David Solomon said Wednesday that while the market environment excluding geopolitical issues “feels better today” than a year ago, he was troubled by soaring U.S. debt levels.
“I’m very concerned about the growing debt,” Solomon said. “It’s a big risk issue that we’re going to have to deal with and reckon with, it just might not happen in the next six months.”
Dimon is no stranger to dire predictions: In 2022, he warned investors of an economic “hurricane” ahead because of quantitative tightening and the Ukraine conflict.
In Wednesday’s wide-ranging interview, Dimon discussed his views on Ukraine, former President Donald Trump, immigration, commercial real estate and bitcoin.
“We have to teach the American public that this is about freedom and democracy for the free world, and that’s why the battle is being fought,” Dimon said about the Ukraine conflict.
