A FedEx plane lands at Shanghai Pudong International Airport in Shanghai on April 27, 2023.
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FedEx shares tumbled more than 10% in premarket trading Wednesday, the morning after the package delivery giant lowered its revenue forecast as weaker demand hit sales.
The company said it expects a low-single-digit decline in revenue for the fiscal year, down from a previous forecast for flat sales year over year. Analysts had expected a revenue drop of less than 1% in the current fiscal year, according to LSEG, formerly known as Refinitiv.
It’s the second consecutive quarter FedEx has lowered its sales outlook.
The company’s Express unit, its largest, was especially challenged in the quarter with lower demand, surcharges and customers shifting to cheaper services, FedEx said.
“In the remainder of [fiscal] 2024, we expect revenue will continue to be pressured by volatile macroeconomic conditions, negatively affecting customer demand for our services across our transportation companies,” FedEx said in a filing. Its fiscal year ends May 31.
The company said, however, that operating income would improve thanks to its cost-cutting plan.
Here’s how FedEx performed versus Wall Street’s expectations:
Adjusted earnings per share: $3.99 vs. $4.18, according to analysts surveyed by LSEG
Automotive revenue: $22.17 billion vs. $22.41 billion expected
For the three-month period ending Nov. 30, FedEx reported net income of $900 million, or $3.55 a share, versus $788 million, or $3.07 a share, a year earlier. Adjusting for certain items, the company posted earnings of $1.01 billion or $3.99 per share, up more than 25% from a year earlier but below analyst forecasts.
The company credited cost-cutting initiatives for its higher profit. Revenue fell 3% to $22.17 billion from a year earlier.
“FedEx has delivered an unprecedented two consecutive quarters of operating income growth and margin expansion even with lower revenue, clear evidence of the progress we are making on our transformation as we navigate an uncertain demand environment,” FedEx CEO Raj Subramaniam said in a news release.
LONDON, UK – Sept. 2021: People seen dining outdoors in Soho in London in September 2021.
SOPA Images | LightRocket | Getty Images
LONDON — U.K. inflation fell by more than expected to hit 3.9% in November, in the lowest annual reading since September 2021.
Economists polled by Reuters had expected a modest decline in the headline consumer price index to 4.4%, after the 4.6% annual reading of October surprised to the downside by dropping to a two-year low.
Month on month, the headline CPI fell by 0.2%, compared with a consensus forecast of a 0.1% increase.
The Core CPI — which excludes volatile food, energy, alcohol and tobacco prices — came in at an annual 5.1%, well below a 5.6% forecast.
The surprisingly large falls prompted a spike in bets that the Bank of England will cut interest rates in 2024, which manifested in a sharp fall in British bond yields.
The yield on the U.K. 10-year government bond, or gilt, sunk to an eight-month low, dropping 11 basis points to around 3.54%. Yields move inversely to prices. Meanwhile, the U.K.’s FTSE 100 was the only major European stock index in positive territory on Wednesday, climbing 0.8% by midmorning London time.
The Office for National Statistics said the largest downward contributions came from transport, recreation and culture, and food and nonalcoholic beverages.
The Bank of England last week maintained a hawkish tone as it kept its main interest rate unchanged at 5.25%. The Monetary Policy Committee reiterated that policy is “likely to need to be restrictive for an extended period of time.”
U.K. Finance Minister Jeremy Hunt cheered the Wednesday figures and said the country was “starting to remove inflationary pressures from the economy.”
“Alongside the business tax cuts announced in the Autumn Statement this means we are back on the path to healthy, sustainable growth,” he said in a statement.
“But many families are still struggling with high prices so we will continue to prioritise measures that help with cost of living pressures.”
Significant fall ‘undermines’ Bank of England caution
The Bank of England has repeatedly pushed back against market expectations for significant cuts to interest rates in 2024, noting last week that “key indicators of U.K. inflation persistence remain elevated.”
Suren Thiru, economics director at ICAEW, said the “startling” fall in inflation recorded Wednesday will reassure households that there is a “light at the end of the tunnel,” with easing core CPI figures showing that underlying price pressures are relenting.
“The likely squeeze on wages from rising unemployment and a stagnating economy should help to continue to keep them on a downward trajectory,” he said by email.
“These inflation numbers suggest that the Bank of England is too pessimistic in its rhetoric over when interest rates could start falling. A deteriorating economy could push the Bank to start loosening policy by the Autumn, particularly if inflationary pressures continuing easing.”
A ‘glimmer of relief’
Richard Carter, head of fixed interest research at Quilter Cheviot, said the latest inflation print adds to a sense of “cautious optimism” in the U.K. relative to the cost-of-living crisis and bond market chaos of last year.
Despite the drop in CPI, he noted that the broader economic picture remains “complex, marred by stagnation and subdued growth prospects.”
“This stagnation, leaving the output no higher than it was in January, paints a picture of an economy struggling to rebound from a series of unprecedented challenges,” Carter said over email, while acknowledging that the pace at which inflation is slowing offers a “glimmer of relief” for households.
“The pressures are manifold – from the cost of living crisis, volatile energy markets, Brexit aftershocks, to enduring productivity issues. These factors have collectively dampened economic prospects and consumer confidence.”
After a two-year slump below its pandemic high, online shopping made a comeback this holiday season. The CNBC All-America Economic Survey finds 57% of Americans naming online shopping as their top one or two destinations for Christmas gifts.
In 2006, online shopping accounted for just 18% of responses. It hit an all-time high in 2020, at the height of the pandemic, when 55% responded it was the top destination. It scaled back to 51% last year, holding on to some but not all of its pandemic gains. But this year, hit yet another all-time high.
The survey of 1,002 Americans throughout the country was conducted Dec. 8 through 12 and has a margin of error of +/-3.1%.
The reason for the surge is unclear but a look at those spending more online this year suggests it could center around a search for bargains to combat inflation. Among those groups spending more online are women 50 and older who as a group reported more frugal holiday spending plans than average and are more concerned about inflation and the overall condition of the economy. Still, the group shops less online than younger women aged 18-49. Also spending more online this year than last are those with incomes below $30,000 and those who plan to spend only $200 on gifts, far below the $1,300 average.
“We know from the rest of the data that inflation is a major factor in why people are spending less and more,” said Micah Roberts of Public Opinion Strategies, the Republican pollster for the survey. “Everything costs more, so you’re going to have to spend more to buy it.”
While groups differ over how much they spend online, where they spend is fairly uniform: Amazon. Once again — and continuously since the question was first asked six years ago — Amazon is the No. 1 destination for online shopping and no one else is really close. Back in 2017, just 35% of the public said Amazon was their top online destination. Today, that percentage has risen to a commanding 74%, unchanged from last year but below its 2019 high.
The only other competitor, Walmart, has made some modest gains, rising to 16% from 12% last year and from just 4% in 2017. Specialty goods stores, like Etsy and local store websites, also gained from 8% to 14%.
Americans say they plan to use debt to pay for gifts this year in about the same percentages as prior, with 31% saying they will carry a balance from holiday spending, up 1 point from last year. But 10% say they will use “buy-now-pay-later” plans.
Market optimism over the potential for interest rate cuts next year is dangerously overdone, according to former FDIC Chair Sheila Bair.
Bair, who ran the FDIC during the 2008 financial crisis, suggests Federal Reserve Chair Jerome Powell was irresponsibly dovish at last week’s policy meeting by creating “irrational exuberance” among investors.
“The focus still needs to be on inflation,” Bair told CNBC’s “Fast Money” on Thursday. “There’s a long way to go on this fight. I do worry they’re [the Fed] blinking a bit and now trying to pivot and worry about recession, when I don’t see any of that risk in the data so far.”
The Dow hit all-time highs in the final three days of last week. The blue-chip index is on its longest weekly win streak since 2019 while the S&P 500 is on its longest weekly win streak since 2017. It’s now 115% above its Covid-19 pandemic low.
Bair believes the market’s bullish reaction to the Fed is on borrowed time.
“This is a mistake. I think they need to keep their eye on the inflation ball and tame the market, not reinforce it with this … dovish dot plot,” Bair said. “My concern is the prospect of the significant lowering of rates in 2024.”
Bair still sees prices for services and rental housing as serious sticky spots. Plus, she worries that deficit spending, trade restrictions and an aging population will also create meaningful inflation pressures.
“[Rates] should stay put. We’ve got good trend lines. We need to be patient and watch and see how this plays out,” Bair said.
U.S. ports are receiving multimillion dollar grants to upgrade cargo handling infrastructure.
The grants are part of the Biden administration’s $21 billion commitment to modernize port infrastructure in the U.S.
Midsize port cities such as Baltimore are among the 2023 grant recipients. In November, the Port of Baltimore received a $47 million grant to kick-start an offshore wind manufacturing hub, among other improvements. For example, the funds will pay for a new berth, or dock, for rolling cargo. Baltimore is the top U.S. destination for rolling cargo imports, a category including farm machinery from John Deere and light-duty vehicles from BMW, according to the Maryland Port Administration.
More than $653 million in Port Infrastructure Development Program grants were awarded to U.S. ports in 2023 by the U.S. Department of Transportation, Maritime Administration. Other projects receiving federal funds include the Port of Tacoma Husky Terminal Expansion in Washington state ($54.2 million), and the North Harbor Transportation System Improvement Project in Long Beach, California ($52.6 million).
Baltimore isn’t the only city with a growing port according to maritime economists. Experts say gateways along the U.S. southeast coast are moving more cargo as major points of entry clog up with truck traffic.
“All of the ports on the East Coast are upgrading their infrastructure and capacity,” said Walter Kemmsies, managing partner at the Kemmsies Group, a maritime economics consulting firm currently working with the Port Authority of Georgia in Savannah. “What that does is it makes it more attractive to the ocean carriers. They like to be able to go in and out of a port very quickly, and they like to go to several ports.”
Ports America formed a public-private partnership with the state of Maryland to manage equipment and operations in sections of the Port of Baltimore. The group told CNBC that $550 million in upgrades have gone into Seagirt Marine Terminal alone for densification of the container yard since the partnership began in 2010.
These upgrades build on past plans to revive America’s declining industrial cities. In Baltimore, public officials are addressing bottlenecks along the supply chain beyond the Port. They believe that the Howard Street Tunnel expansion project will increase double-stack rail capacity out of Baltimore, which could help the companies working at the port move goods to and from points in the Midwest.
Watch the video above to see more of the upgrades coming to the Port of Baltimore.
U.S. President Joe Biden speaks during an event about lowering health care costs in the East Room of the White House on July 7, 2023 in Washington, DC.
Drew Angerer | Getty Images News | Getty Images
President Joe Biden paraded this week’s stock market record highs Friday in a new campaign video that trolled his predecessor, Donald Trump, for predicting a market collapse if Biden were elected.
“Good one, Donald,” Biden wrote in the post on X.
During the 2020 presidential campaign, then-President Trump claimed, “If Biden wins, you’re gonna have a stock market collapse the likes of which you’ve never had.”
The video replayed that clip, followed by soundbites of news anchors touting the stock market’s recent gains. One memorable snippet showed Larry Kudlow, Trump’s former top economic aide, marveling at the market’s performance on his Fox Business show.
“Uh, let’s just talk for a moment about the stock market. Boom,” Kudlow says.
Facing the prospect of a rematch with Trump in 2024, Biden is seizing on the stock market gains to try to get through to voters.
The video reflects a growing willingness by the Biden campaign to take direct aim at Trump, who leads the Republican primary field by more than 40 points.
It also reflects a shifting tone from the Biden campaign, which has spent the past year focused on a positive message and touting Biden’s economic gains and job creation.
But this strategy has so far failed to resonate with voters, polls show. A pivot to more negative campaign messages, and reminding voters of how Trump governed in office, could help to energize disaffected Democrats.
A poll last month from The New York Times and Siena College found voters trusted Trump — who inherited a stronger economy than Biden did and left office in the middle of the pandemic — over Biden, on the economy.
The HSBC Holdings Plc headquarters building in Hong Kong, China.
Paul Yeung | Bloomberg | Getty Images
LONDON — Markets have entered a “new paradigm” as the global order fragments, while heightened recession risk means that “bonds are back,” according to HSBC Asset Management.
In its 2024 investment outlook, seen by CNBC, the British lender’s asset management division said that tight monetary and credit conditions have created a “problem of interest” for global economies, increasing the risk of an adverse growth shock next year that markets “may not be fully prepared for.”
HSBC Asset Management expects U.S. inflation to fall to the Federal Reserve’s 2% target in late 2024 or in early 2025, with the headline consumer price index figures of other major economies also set to drop to central banks’ targets over the course of next year.
The bank’s analysts expect the Fed to begin cutting rates in the second quarter of 2024 and to trim by more than the 100 basis points priced in by markets over the remainder of the year. They also anticipate that the European Central Bank will follow the Fed, and that the Bank of England will kickstart a cutting cycle but will lag behind its peers.
“Nevertheless, headwinds are beginning to build. We believe further disinflation is likely to come at the price of rising unemployment, while depleting consumer savings, tighter credit conditions, and weak labour market conditions could point to a possible recession in 2024,” Global Chief Strategist Joseph Little said in the report.
A new paradigm
The rapid tightening of monetary policy by central banks over the last two years, Little suggested, is leading global markets towards a “new paradigm” in which interest rates remain at around 3% and bond yields stick around 4%, driven by three major factors.
Firstly, a “multi-polar world” and an “increasingly fragmented global order” are leading to the “end of hyper-globalisation,” Little said. Secondly, fiscal policy will continue to be more active, fueled by shifting political priorities in the “age of populism,” environmental concerns and high levels of inequality. Thirdly, economic policy is increasingly geared towards climate change and the transition to net-zero carbon emissions.
“Against this backdrop, we anticipate greater supply side volatility, structurally higher inflation, and higher-for-longer interest rates,” Little said.
“Meanwhile, economic downturns are likely to become more frequent as higher inflation restricts the ability of central banks to stimulate economies.”
Over the next 12 to 18 months, HSBC AM expects investors to place greater scrutiny on corporate profits and the ongoing debate over the “neutral” rate of interest, along with a heightened focus on labor market and productivity trends.
‘Bonds are back’
Markets are now largely pricing a “soft landing” scenario, in which major central banks return inflation to target without tipping their respective economies into recession.
HSBC AM believes the increased risk of recession is being overlooked and is positioning for defensive growth alongside a prevailing view that “bonds are back.”
“A weaker global economy and slowing inflation are likely to present a supportive environment for government bonds and challenging conditions for equities,” Little said.
“Therefore, we see selective opportunities in parts of global fixed income, including the U.S. Treasury curve, parts of core European bond markets, investment grade credits, and securitised credits.”
HSBC AM is cautious on U.S. stocks, due to high earnings growth expectations for 2024 and a stretched market multiple — the level at which shares trade versus their expected average earnings — relative to government bond markets. The report analysis sees European stocks as relatively cheap on a global basis, which limits downside unless a recession materializes.
“Japanese stocks may be an outperformer among developed markets, in our view, due to attractive valuations, the end of unconventional monetary policy, and a high-pressure economy in Japan,” Little said.
He added that idiosyncratic trends in emerging markets also warrant a selective approach rooted in corporate fundamentals, earnings visibility and risk-adjusted rewards. If the Fed cuts rates significantly in the second half of 2024 as the market expects, Indian and Mexican bonds and Chinese A-share stocks — domestic shares that are dominated in yuan and traded on the Shanghai and Shenzhen exchanges — would be some of HSBC AM’s top emerging market picks.
India’s post-pandemic rebound and rapidly growing markets and Japan’s continued exit from unconventional monetary policy render them as attractive sources of diversification, Little suggested, while Chinese growth is widely projected at around 5% this year and 4.5% in 2024, but could also benefit from further fiscal policy support.
“Asian equities are in a stronger position in terms of growth and are likely to remain a relative bright spot in the global context,” Little said.
“Regional valuations are generally attractive, foreign investor positioning remains light, while stabilising earnings should be the key driver of returns next year.”
Asian credit should also enjoy a much better year as global rates peak, most regional economies perform well and Beijing offers an additional fiscal boost, he added.
Wholesale prices were flat in November, providing a leading indicator that inflation is easing, the Labor Department reported Wednesday.
The producer price index, which measures a broad range of prices on final demand items, was unchanged for the month, following a 0.4% decrease in October but less than the Dow Jones estimate for a 0.1% gain. On a year-over-year basis, headline PPI accelerated just 0.9%, after peaking above 11.5% in March 2022.
Excluding food and energy, the index also was unchanged against an estimate for a 0.2% increase. Excluding food, energy and trade services, PPI increased 0.1%, posting a sixth straight increase and good for a 12-month gain of 2.5%.
The release comes a day after the Labor Department said its consumer price index rose just 0.1% in November and 3.1% from a year ago. The PPI gauges the prices producers receive for what they produce while CPI measures what consumers pay and is considered a leading signal for prices in the pipeline.
Together, the easing inflation data, along with other economic signals, likely will give the Federal Reserve enough room to hold benchmark interest rates steady when its policy meeting concludes Wednesday.
At the wholesale level, indexes for both goods and services were unchanged, though there were some big swings within components.
Gasoline, for instance, fell 4.1% while chicken eggs soared 58.8%. The index for final demand energy fell 1.2%, offsetting increases of 0.6% for foods and 0.2% for goods less food and energy.
Rate cuts, an increased chance of a soft landing and lower inflation — the outlook for next year is looking up in the CNBC Fed Survey, to a point.
Respondents to the CNBC Fed Survey see the Federal Reserve beginning rate cuts next year, though not as aggressively or as quickly as markets have priced in. June is the first month for which more than half of respondents have a reduction built in, rising to 69% by July. Overall, the average respondent forecasts about 85 basis points of cuts next year, roughly one 25 basis point trim a quarter, but not as much as the 120 basis points built into futures markets.
“The Fed needs to begin laying out a road map to rate cuts that may represent tighter policy since cuts will be lagging the decline in inflation and real rates will be rising,” writes John Ryding, chief economic advisor to Brean Capital, in response to the survey.
Kathy Bostjancic, chief U.S. economist at Nationwide, writes in, “The markets have prematurely priced in high odds of rate cuts starting in Q1, but we do expect further steady disinflation will lead the Fed to begin rate cuts around mid-year.”
Like the Fed itself, the 35 respondents to the survey, including economists, strategists and analysts, separate into hawks and doves on the issue of rate cuts next year.
“I still believe (Powell) has the memories of the 1970s in his mind and will be more stubborn in keeping monetary policy tight for longer than markets want him to be,” said Peter Boockvar, chief investment officer at Bleakley Financial Group.
But Michael Englund of Action Economics writes in, “The U.S. headline y/y inflation metrics will fall sharply into early-2024 thanks to weakness in energy prices and easier comparisons, leaving the Fed with significant elbow room to start tightening even if core year over year inflation rates remain firm.”
Respondents boosted the probability of a soft landing to 47%, up 5 points from the October survey. They lowered the probability of a recession in the next year by 8 points to 41%, the lowest since the spring of 2022.
Still, the average respondent sees the unemployment rate rising to 4.5% next year and gross domestic product coming in just below 1%, or about half of potential, showing that all is not rosy with the forecast and that an economic slowdown remains the baseline forecast for the group.
“A softening in hiring, income growth, and confidence all point to reduced consumer and business spending,” says Joel Naroff of Naroff Advisors.
But Diane Swonk, chief economist at KPMG, writes in: “The U.S. consumer has proven itself a worthy adversary to everything the Fed has dealt it in its fight against inflation. The key is for a ‘Rocky’ ending, with the consumer still standing and able to leave the ring and heal, once the Fed rings the final bell and starts to cut rates.”
Inflation is forecast to decline on average to 2.7% by the end of next year, down from an expected year-end level of 3.2% for the consumer price index. About a third of respondents forecast the Fed will hit its 2% inflation target next year, 37% say it will happen in 2025 and 28% say it will happen after 2025 or never.
“For the FOMC in 2024, 3.5% inflation is acceptable, recession is not,” says Steven Blitz, chief U.S. economist at TS Lombard. “With 61% of adults owning equities, the highest since 2008, the Fed is not going to sacrifice faith in equities on the altar of 2% inflation.” Fed officials have insisted they will continue to pursue 2% as their inflation target.
Another wild card for next year is whether the Fed ends quantitative tightening in which it has been reducing its balance sheet to tighten monetary policy by allowing the bonds on its balance sheet to mature without replacing them. On average, respondents see the Fed halting QT in November 2024. But that average masks a wide disparity in views, with 55% saying it will happen in 2024 (evenly divided between the first and second half of the year), 30% saying it will happen in 2025 or later and 13% saying they don’t know.
The Fed is seen stopping QT with its balance sheet at $6.2 trillion, compared with the current level of $7.7 trillion and with bank reserves at $2.6 trillion, down from the current level of $3.4 trillion. At $95 billion a month in QT, that implies another eight or nine months of QT to reduce bank reserves to the average expect level. Fed officials have not specified a level, but respondents believe they could announce an end to QT as soon as August and will likely taper QT, or gradually reduce the amount of runoff, before bringing it to an end. When the Fed announces the end of QT, 56% believe it will also say that it will allow all of its mortgage and agency-backed securities to roll off of its balance sheet, 15% say it won’t and 29% do not know.
Respondents to the CNBC Fed Survey see the S&P rising above 5,000 for the first time, on average, but not until the end of 2025. They forecast only a modest gain through 2024 of less than 2% from the current level to 4,696. But much depends on the economic growth: 47% see stocks as overpriced if there’s a soft landing, compared with 91% who say stocks are overpriced if there’s a recession.
Subodh Kumar, president, Subodh Kumar & Associates, sees the market in a period of limbo, unable to break out either way: “The equity markets … appear neither able to reach beyond the highs set at year-end 2021 nor do they appear to be willing to sustain a classical correction,” he wrote.
Barry Knapp, managing partner at Ironsides Macroeconomics, says, “Equities are expecting a ‘V’ shaped earnings recovery, an outcome that is unlikely with contracting bank credit.”
A photo taken on November 23, 2023 shows the logo of the ChatGPT application developed by US artificial intelligence research organization OpenAI on a smartphone screen (left) and the letters AI on a laptop screen in Frankfurt am Main, western Germany.
Kirill Kudryavtsev | Afp | Getty Images
The European Union on Friday agreed to landmark rules for artificial intelligence, in what’s likely to become the first major regulation governing the emerging technology in the western world.
Major EU institutions spent the week hashing out proposals in an effort to reach an agreement. Sticking points included how to regulate generative AI models, used to create tools like ChatGPT, and use of biometric identification tools, such as facial recognition and fingerprint scanning.
Germany, France and Italy have opposed directly regulating generative AI models, known as “foundation models,” instead favoring self-regulation from the companies behind them through government-introduced codes of conduct.
Their concern is that excessive regulation could stifle Europe’s ability to compete with Chinese and American tech leaders. Germany and France are home to some of Europe’s most promising AI startups, including DeepL and Mistral AI.
The EU AI Act is the first of its kind specifically targeting AI and follows years of European efforts to regulate the technology. The law traces its origins to 2021, when the European Commission first proposed a common regulatory and legal framework for AI.
The law divides AI into categories of risk from “unacceptable” — meaning technologies that must be banned — to high, medium and low-risk forms of AI.
Generative AI became a mainstream topic late last year following the public release of OpenAI’s ChatGPT. That appeared after the initial 2021 EU proposals and pushed lawmakers to rethink their approach.
ChatGPT and other generative AI tools like Stable Diffusion, Google’s Bard and Anthropic’s Claude blindsided AI experts and regulators with their ability to generate sophisticated and humanlike output from simple queries using vast quantities of data. They’ve sparked criticism due to concerns over the potential to displace jobs, generate discriminative language and infringe privacy.
Job creation showed little signs of a let-up in November, as payrolls grew even faster than expected and the unemployment rate fell despite signs of a weakening economy.
Nonfarm payrolls rose by a seasonally adjusted 199,000 for the month, slightly better than the 190,000 Dow Jones estimate and ahead of the October gain of 150,000, the Labor Department reported Friday.
The unemployment rate declined to 3.7%, compared to the forecast for 3.9%, as the labor force participation rate edged higher to 62.8%.
Average hourly earnings, a key inflation indicator, increased by 0.4% for the month and 4% from a year ago. The monthly increase was slightly ahead of the 0.3% estimate, but the yearly rate was in line.
Markets showed mixed reaction to the report, with stock market futures modestly negative while Treasury yields surged.
Health care was the biggest growth industry, adding 77,000. Other big gainers included government (49,000), manufacturing (28,000) and leisure and hospitality (40,000).
Heading into the holiday season, retail lost 38,000 jobs, half of which came from department stores. Transportation and warehousing also showed a decline of 5,000.
This is breaking news. Please check back here for updates.
A Redfin sign in front of a home for sale in Atlanta on Nov. 10, 2022.
Elijah Nouvelage | Bloomberg | Getty Images
This year was the least affordable year for homebuying in at least in the past 11 years, according to a Thursday report from real estate company Redfin.
In 2023, someone making the median income in the U.S. — $78,642 — would’ve had to spend more than 40% of their income on monthly housing costs if they bought the median-priced home, which was around $400,000, according to Redfin. That’s the highest share in Redfin’s records dating back to 2012, up nearly 3% from last year.
Monthly costs for homebuyers have increased more than twice as fast as wages, Redfin said. The 30-year fixed mortgage rate hit 8% in October, the first time since 2000, combined with a decrease in house listings on the market.
This past year, a typical homebuyer had to earn an income of at least $109,868 if they wanted to spend a maximum of 30% of their income on monthly housing payments for a median-priced home, Redfin reported. That record high is up 8.5% from last year and $30,000 more than the typical household income.
Austin, Texas, was the only city that became more affordable in 2023, decreasing by around a 1% share, according to Redfin’s analysis. Meanwhile, the most expensive metros included many in California, such as Anaheim, San Francisco and San Jose. People in those areas, Redfin added, were forced to rent in 2023 due to high housing costs.
On the other end of the spectrum, Midwest metros proved to be among the most affordable, with someone in Detroit making the median income only spending about 18% of their earnings on monthly housing costs.
Looking to 2024, Redfin predicts mortgage rates will fall to about 6.6% and prices will drop 1% as new listings find their way onto the market.
“A perfect storm of inflation, high prices, soaring mortgage rates and low housing supply caused 2023 to go down as the least affordable year for housing in recent history,” Redfin Senior Economist Elijah de la Campa said in a statement. “The good news is that affordability is already improving heading into the new year.” Don’t miss these stories from CNBC PRO:
Frederic Neumann, HSBC’s chief Asia economist and co-head of global research for Asia, discusses the latest data out of China and the bleak outlook for the world’s second-largest economy.
Southwest Airlines Boeing 737-700 aircraft is seen landing at dusk time at Ronald Reagan Washington National Airport in Arlington, Virginia.
Nicolas Economou | Nurphoto | Getty Images
Southwest Airlines and its pilots’ union are closing in on a new contract that would raise pay for the carrier’s more than 11,000 aviators and end months of contentious negotiations, weeks ahead of the crucial holiday travel season.
The company and the union have agreed on pay, retirement and other items but are working on an implementation schedule, the Southwest Airlines Pilots Association said in a message to its members on Thursday.
If a preliminary agreement is approved by Southwest pilots’ union board in the coming weeks, it would then go to pilots for a ratification vote.
The union and the airline declined to provide specifics of the deal.
Southwest and the union “are working hard to close out the few remaining items,” an airline spokesman told CNBC. “Southwest remains committed to reaching an agreement that rewards our Pilots and places them competitively in the industry.”
Southwest reached a preliminary agreement with its flight attendants’ union earlier this fall that includes 36% pay increases for cabin crew members.
A labor deal with its pilots would end a period of tense negotiations between the company and the union, which recently included laying groundwork for a potential strike, though strikes are extremely rare in the airline industry.
It would also become the latest in a string of big labor deals this year, including agreements between Hollywood writers, actors and studios as well as between automakers and the United Auto Workers union, following strikes.
A pedestrian sheltering under an umbrella passes a Julius Baer Group Ltd. branch in Zurich, Switzerland, on Tuesday, July 13, 2021.
Stefan Wermuth | Bloomberg | Getty Images
The share price of Julius Baer plummeted after the Swiss private bank disclosed 606 million Swiss francs ($692.7 million) of loan exposure to a single conglomerate client.
The disclosure and swirling concerns about concentration of risk in the lender’s private debt business came against a backdrop of emerging news that troubled Austrian real estate group Signa was teetering. It filed for insolvency on Wednesday.
The 606 million Swiss franc exposure to one client — via three loans to different entities within a European conglomerate — is collateralized by commercial real estate and luxury retail, the company revealed. It represents around 18% of Julius Baer’s CET1 capital as of the end of June 2023, according to analysts at DBRS Morningstar.
The bank last week booked provisions of 70 million Swiss francs to cover the risk of a single borrower in its private loan book.
Despite the speculation, Julius Baer has not confirmed that the client is Signa, and a spokesperson told CNBC on Thursday that the bank “cannot comment on alleged or existing client relationships.”
DBRS Morningstar Senior Vice President Vitaline Yeterian and Managing Director Elisabeth Rudman on Wednesday said that such a large concentration of funds to a troubled real estate borrower raises concerns about risk management and highlights the broader risks for the banking sector, as highly leveraged companies grapple with higher debt financing costs in a perilous economic environment.
The European Central Bank recently examined the commercial real estate sector and the provisioning methods and capital buffers of European banks.
DBRS Morningstar says the capital levels of Julius Baer are adequate to absorb further losses, with a hypothetical 606 million Swiss franc loss accounting for around 280 basis points of the Swiss bank’s 15.5% CET1 ratio, based on risk-weighted assets of 21.43 billion Swiss francs as of the end of June.
“However, we see the recent significant fall in Julius Baer’s share price as a reminder of the rising impact of technology and social media on stakeholder behavior,” they said in Wednesday’s note.
“Meanwhile, the limited level of disclosure makes it hard to assess the full picture for the bank at this stage. Any kind of deposit outflow experienced by Julius Baer would be negative for the bank’s credit profile.”
Rickenbacher issued a statement on Monday confirming that the bank would maintain its dividend policy, along with other updates, while reassuring investors that any excess capital left at the end of the year will be distributed via a share buyback.
Julius Baer has a strong capital position with a CET1 capital ratio of 16.1% as of the end of October, the bank said Monday, significantly above its own floor of 11%.
Even under a hypothetical total loss scenario, the Group’s pro-forma CET1 capital ratio at Oct. 31 would have exceeded 14%, the bank said, meaning it would have remained “significantly profitable.”
“Julius Baer is very well capitalised and has been consistently profitable under all circumstances. We regret that a single exposure has led to the recent uncertainty for our stakeholders,” Rickenbacher said.
“Together with investing and multi-generational wealth planning, financing is an inherent part of the wealth management proposition to our clients.”
He added that the board is now reviewing its private debt business and the framework within which it is conducted.
Nonetheless, Julius Baer’s shares continued to fall and were down 18% on the year as of Thursday morning.
“We continue to closely monitor sectors that have come under stress as a result of more uncertain economic times, higher for longer interest rates, tightening in lending conditions, weaker demand, higher operating costs, and in particular the commercial real estate sector,” DBRS Morningstar’s Yeterian said.
Several economists in recent weeks have suggested that there are lingering vulnerabilities in the market that may be exposed in 2024, as the sharp rises in interest rates enacted by major central banks in the last two years feed through.
Exposure to commercial real estate emerged as a concern for several major lenders this year, while the risks associated with panic-driven bank runs on smaller lenders became starkly apparent in March, with the collapse of Silicon Valley Bank.
A common theme during the mass withdrawals of investment and customer deposits was a panic exacerbated by rumors about the lender’s financial health on social media, a trend bemoaned by its bosses at the time.
Based on the assumption that Julius Baer’s troubled private debt exposure was “likely” Signa, Deutsche Bank said in a Thursday note that the bank’s insolvency filing of Wednesday could trigger further “material credit losses” that will weigh on otherwise strong profitability this year.
“However, capital ratios are strong and can easily absorb the losses, while maintaining a stable dividend (c.6% yield) and even keeping a small share buyback with FY23 results on the table,” said Benjamin Goy, head of European financials research at Deutsche Bank.
“Hence, we believe it is most important to act decisively and ensure this is an isolated case which will not repeat, to bring back the confidence in an otherwise good business model (capital light, structural tailwinds and growth acceleration opportunities) that is trading only at 7.6x next year’s earnings (vs >10x average) when market tailwinds are finally returning.”
Goy reiterated the German lender’s “buy” recommendation, even though Deutsche Bank has cut its 2023 earnings forecast and stock target price for Julius Baer.
A security guard at the New York Stock Exchange (NYSE) in New York, US, on Tuesday, March 28, 2023.
Victor J. Blue | Bloomberg | Getty Images
With central banks having hiked interest rates at breakneck speed and those rates likely to stay higher for longer while the lagged effects set in, the macroeconomic outlook for 2024 is far from clear.
The Washington-based institution sees U.S. GDP growth, which has remained surprisingly resilient in the face of over 500 basis points of interest rate hikes since March 2022, to remain among the strongest developed market performers at 2.1% this year and 1.5% next year.
The U.S. economy’s resilience has fueled an emerging consensus that the Federal Reserve will achieve its desired “soft landing,” slowing inflation without tipping the economy into recession.
Yet Deutsche Bank‘s economists, in a 2024 outlook report published Monday, were quick to point out that monetary policy operates with lags that are “highly uncertain in their timing and impact.”
“With the lagged impact of rate hikes taking effect, we can already see clear signs of data softening. In the U.S., the most recent jobs report showed the highest unemployment rate since January 2022, credit card delinquencies are at 12-year highs, and high yield defaults are comfortably off the lows,” Deutsche’s Head of Global Economics and Thematic Research, Jim Reid, and Group Chief Economist David Folkerts-Landau said in the report.
“At the outer edges of the economy there is obvious stress that is likely to spread in 2024 with rates at these levels. In the Euro Area, Q3 saw a -0.1% decline in GDP, with the economy in a period of stagnation since Autumn 2022 that will likely extend to mid-Summer 2024.”
The German lender has a considerably bleaker prognosis than market consensus, projecting that Canada will have the highest GDP growth among the G7 in 2024 at just 0.8%.
“Although that is still positive and the profile improves through the year, it means the major economies will be more vulnerable to a shock as they work through the lag of this most aggressive hiking cycle for at least four decades,” Reid and Folkerts-Landau said, noting that potential “macro accidents” would be more likely in the aftermath of such rapid tightening.
“We had 10-15 years of zero/negative rates, plus an increase in global central bank balance sheets from around $5 to $30 trillion at the recent peak, and it was only a couple of years ago that most expected ultra-loose policy for much of this decade. So it’s easy to see how bad levered investments could have been made that would be vulnerable to this higher rate regime.”
U.S. regional banks triggered global market panic earlier this year when Silicon Valley Bank and several others collapsed, and Deutsche Bank suggested that some vulnerabilities remain in that sector, along with commercial real estate and private markets, creating “a bit of a race against time.”
‘Higher for longer’ and regional divergence
The prospect of “higher for longer” interest rates has dominated the market outlook in recent months, and Goldman Sachs Asset Management economists believe the Fed is unlikely to consider cutting rates next year unless growth slows by substantially more than current projections.
In the euro zone, weaker growth momentum and a large drag from tighter fiscal policy and lending conditions increase the likelihood that the European Central Bank pauses its monetary policy tightening and potentially pivots toward cuts in the second half of 2024.
“While the Fed and ECB seem to have steered away from a hard landing path during the tightening cycle, exogenous shocks or a premature pivot to policy easing may reignite inflation in a way that requires a recession to force it lower,” GSAM economists said.
“Conversely, further monetary tightening might trigger a downturn just as the effects of prior tightening begin to take hold.”
GSAM also noted regional divergence in the trajectory of growth prospects and inflation patterns, with Japan’s economy surprising positively on the back of resurgent domestic demand driving wage growth and inflation after many years of stagnation, while China’s property market indebtedness and demographic headwinds skew its risks to the downside.
Meanwhile Brazil, Chile, Hungary, Mexico, Peru and Poland were early hikers of interest rates in emerging markets and were among the first to see inflation slow sharply, meaning their central banks have either begun cutting rates or are close to doing so.
“In a desynchronized global cycle, with higher-for-longer rates and slower growth in most advanced economies, the road ahead remains uncertain,” GSAM said, adding that this calls for a “diversified and risk conscious investment approach across public and private markets.”
Recession risk ‘delayed rather than diminished’
In a roundtable event on Tuesday, JPMorgan Asset Management strategists echoed this note of caution, claiming that the risk of a U.S. recession was “delayed rather than diminished” as the impact of higher rates feeds through into the economy.
JPMAM Chief Market Strategist Karen Ward noted that many U.S. households took advantage of 30-year fixed rate mortgages while rates were still around 2.7%, while in the U.K., many shifted to five-year fixed rates during the Covid-19 pandemic, meaning the “passthrough of interest rates is much slower” than previous cycles.
However, she highlighted that U.K. exposure to higher rates is due to rise from about 38% at the end of 2023 to 60% at the end of 2024, while first-time buyers in the U.S. will be exposed to much higher rates and the cost of other consumer debt, such as auto loans, has also risen sharply.
“I think the the key conclusion here is that interest rates do still bite, it’s just taking longer this time around,” she said.
The U.S. consumer has also been spending pent-up savings at a faster rate than European counterparts, Ward highlighted, suggesting this is “one of the reasons why the U.S. has outperformed” so far, along with “incredibly supportive” fiscal policy in the form of major infrastructure programs and post-pandemic support programs.
“All of that fades into next year as well, so the backdrop for the consumer just doesn’t look as strong for us as we go into 2024 that will start to bite a little bit,” she said.
Meanwhile, corporates will over the next few years have to start refinancing at higher interest rates, particularly for high-yield companies.
“So growth slows in 2024, and we still think the risks of a recession are significant, and therefore we’re still pretty cautious about the idea that we’ve been through the worst and we’re looking at an upswing from here on,” Ward said.
ABU DHABI, United Arab Emirates — Amid a turbulent global environment, hedge fund titan Ray Dalio sees one particular part of the world as holding promise for investors: the Middle East’s Gulf states.
The Bridgewater Associates founder specifically highlighted the United Arab Emirates, while speaking during a CNBC panel at Abu Dhabi Finance Week.
“We’re talking today about how the world order is changing, and how the region, the GCC (Gulf Cooperation Council) region is becoming an important region. It’s very classic. It’s a renaissance state. We’re now talking about a renaissance state here that happens within this greater geopolitical and economic environment,” Dalio told CNBC’s Dan Murphy on Tuesday.
Dalio’s Bridgewater Associates is the world’s largest hedge fund, which had $97.2 billion in assets under management as of September 2023, according to the latest annual report by Pensions & Investments. The billionaire financier in April opened a new branch of his family office, the Dalio Family Office, in Abu Dhabi, expanding his push into the Middle East and supplementing the business’ existing locations in the U.S. and Singapore.
The UAE “is a renaissance state,” Dalio said. “What I mean is, I look for fundamentally, do you earn more than you spend? So [do] you have a good income statement? Do you have a good balance sheet? Are your assets greater than your liabilities?”
He added, “Do you have a culture in which there’s the development of people and the working together of those people to be productive?,” he continued.
“And number four would be, are you outside of a great power conflict? Are you in the middle of the war? Or are you outside the war? And so, I look at that around the world as to the places I want to invest in, the places I want to be. And this region is very, very attractive and is at the takeoff point for the reasons that were discussed in the other sessions.”
Many economic observers have pointed to the Gulf states, particularly the UAE and Saudi Arabia, as leveraging their oil wealth, geographic location between eastern and western markets, and long-term development plans to become highly attractive spots for both foreign investment and fundraising.
Dubai, the UAE’s glitzy commercial capital, was home to 40 registered hedge funds as of July, more than a third of which arrived in the previous 12 months, according to the Dubai International Financial Centre. The vast majority set up shop in the years following the Covid-19 pandemic, when relatively relaxed rules and financial liberalization reforms ushered in a new wave of foreign investment. The majority of those funds are regional subsidiaries of London or New York-based firms.
Amid higher oil prices in recent years, the region’s mammoth sovereign wealth funds have ever more to spend.
The region’s combined 10 largest sovereign wealth funds managed some $4 trillion in early 2023, according to the Sovereign Wealth Fund Institute. That’s more than the gross domestic product of France or the U.K. — and it doesn’t include private money. Saudi Arabia’s Public Investment Fund alone manages more than $700 billion in assets, according to the SWFI.
Those figures and the funds’ willingness to make large investments in advanced industries around the world are drawing visible interest from venture capitalists and startup founders, in sectors such as fintech, digital transformation and renewable energy technology.
Geopolitically, the UAE and Saudi Arabia are also among the so-called “middle power” countries, which maintain good relations with both the Western world and heavyweights like Russia and China. This allows them to leverage those relationships to maximize advantages in trade and political influence.
The countries have played mediating roles in the Ukraine-Russia war and engage with both the rest of the Muslim world and, officially or unofficially, with Israel, all while avoiding getting pulled into the war raging between Israel and Hamas in the Gaza Strip.
The rise of these so-called “middle powers” in mediating such large-scale conflict signals a new world where players beyond the U.S. and the West can call the shots, and where smaller states aren’t forced to tie themselves to the U.S., Russia, or China.
The lure of high dividends has been a major draw for global investors amid a recent wave of mega listings across the Gulf region.
Rustam Azmi | Getty Images
It’s also key for global positioning, as U.S. influence in the world and the region wanes, Dalio said.
“In the broader sense, you have now a serious war in Europe, you have a serious war in the Middle East, and you have a change in control,” Dalio said. “You used to have a dominant power … the United States would have a greater role in influencing things. Now we’re having a testing of power. And that’s going on in different ways. And so we’re in a period, I think of greater disorder, and then it has its economic implications.”
The financial status, regulatory environment and, thus far, political stability of the Gulf states — particularly their ability to stay outside the fray of major conflicts — are crucial for institutional investors, Dalio said.
“I want to emphasize, as an investor, I would say important things are first to know how to diversify well, to be in those places that have those four qualities I mentioned before — the good income statement, good balance sheet, the civility of the people and (being) the renaissance states that are outside the great conflict states,” he said.
“You’re seeing this renaissance with Gulf countries and so on, to be able to go on and have … prosperity in the region.”
Wells Fargo Securities is officially out with its 2024 stock market forecast.
Chris Harvey, the firm’s head of equity strategy, sees a volatile path to his S&P 500 to 4,625 year-end target.
“It’s really hard to get excited. If we have better [economic] growth, then the Fed doesn’t do anything,” he told CNBC’s “Fast Money” on Monday. “If we have worse growth, then numbers are going to come down and then the Fed will eventually cut. The second half will be better, but the first half is going to be really, really sloppy.”
Harvey’s target is just 75 points above Monday’s S&P 500’s close.
“Can we go higher from here? Sure, we can go a little bit higher. But I just don’t think you can go a ton higher,” he said. “People have talked about 5,000. I don’t see how you get to that level.”
In his official 2024 outlook note, Harvey told clients to brace for a “trader’s market” instead of a “buy-and-hold situation.” His early year strategy: Start with a risk-averse stance.
“The VIX [CBOE Volatility Index] is up 13. Every time we’ve gone into a new year with the VIX at 13, we’ve seen spikes. We’ve seen the equity market pull back, and it’s just not a great setup into 2024,” Harvey added.
He warns the higher cost of capital is an additional market problem because it prevents multiples from going higher.
“As long as the cost of capital stays higher, it’s really hard for me to get to a much higher price target,” Harvey said.
Yet, he still sees opportunities for investors.
“What we want to do is we want to go to the places that are oversold. We just upgraded utilities today. We upgraded health care,” Harvey noted. “Those are areas that have good valuations, decent fundamentals and most people really aren’t there at this point.”
“If you look at the alternatives, there are things that are pretty attractive. And, I hate to say that as being head of equity strategy, but you can park money at the front of the curve and make a pretty good rate of return and not put on a whole lot of risk,” said Harvey.
His 2023 S&P target is 4,420 — which implies a three percent drop from Monday’s close.
A person walks past a sales advertisement at Saks Off 5th department store ahead of the Thanksgiving holiday sales in Washington, D.C., on Nov. 21, 2023.
Saul Loeb | AFP | Getty Images
There’s a dark cloud hanging over Black Friday.
A slew of retailers have issued tepid, cautious or downright disappointing fourth-quarter outlooks over the past few weeks, casting a pall over the crucial holiday season right as they gear up for the biggest shopping day of the year.
The companies, which include everyone from luxury goods giant Tapestry to big boxer BJ’s Wholesale Club, cited a host of dynamics that led them to reduce their outlooks or issue forecasts that came in below expectations.
Some, such as Best Buy and Nordstrom, cited the uncertain state of the consumer following months of persistent inflation, while others, such as Hanesbrands, said demand is simply drying up for its basic T-shirts, socks and underwear as wholesalers look to keep inventories in check.
If there’s one theme that captures the commentary, it’s caution, and while some retailers may have been overly conservative with their outlooks, the resounding lack of confidence spells trouble for the holiday quarter and raises questions about the overall health of the economy.
“Consumers are still spending, but pressures like higher interest rates, the resumption of student loan repayments, increased credit card debt and reduced savings rates have left them with less discretionary income, forcing them to make trade-offs,” Target CEO Brian Cornell told analysts on a call last week.
“As we look at recent trends across the retail industry, dollar sales are being driven by higher prices with consumers buying fewer units per trip. In fact, overall unit demand across the industry has been down 2% to 4% in recent quarters, and the industry has experienced seven consecutive quarters of declines in discretionary dollars and units,” he said.
When asked about the upcoming holiday season, Cornell said it was too soon to weigh in on early sales, saying only that the company was “watching the trends carefully.”
The holiday shopping season over the past couple of years has seen outsize growth brought on by the Covid-19 pandemic, which gave consumers stimulus payments and an opportunity to pad their bank accounts while they were stuck at home and unable to travel or dine out.
In 2020, holiday spend was up 9.1% from the year prior, according to the National Retail Federation. In 2021, spend was up 12.7% year over year, and in 2022, it was up 5.4%.
As 2023 comes to a close, savings accounts dwindle and consumers continue to face inflation and high interest rates, that growth in holiday spend is expected to slow to 3% to 4%, according to the NRF. That’s consistent with the slower growth rates seen between 2010 and 2019 in the lead up to the pandemic.
The expected slowdown has led many retailers to approach the holiday season with more caution than Wall Street anticipated.
On Monday, Bank of America’s consumer team found that out of 43 retailers that issued earnings forecasts, 37, or 86%, came in light of Street expectations.
Take Walmart, for example. The retailer struck a cautious tone with its outlook, which came in below expectations, after it saw consumer spending weaken toward the end of October. Last week, it said it expects adjusted earnings per share of $6.40 to $6.48 for the year, lower than the $6.48 analysts had projected, according to LSEG, formerly known as Refinitiv.
“Halloween was good overall,” Chief Financial Officer John David Rainey said on a call with CNBC. “But in the last couple of weeks of October, there were certainly some trends in the business that made us pause and kind of rethink the health of the consumer.”
For some retailers, even good news wasn’t cheery enough.
Dick’s Sporting Goods raised its forecast Tuesday after posting strong top- and bottom-line beats and said it now expects full-year earnings per share of between $11.45 and $12.05, compared with the $11.27 to $12.39 range that analysts had projected, according to LSEG.
But compared to its strong third-quarter results, the outlook came off as tempered.
The retailer said it was “excited” for the holiday but couched that optimism with executives repeatedly noting they were looking forward to the things “within our control” — a refrain heard four times during the hour-long call.
“We are very excited about what we have within our control for Q4. Our products are in stock. We’ve got tremendous gifts … and the teams are pumped to deliver an amazing holiday experience,” CEO Lauren Hobart said on a call with analysts. “We’re balancing all of that with caution about the macroeconomic environment and the consumer, because we know that consumers are going through a lot right now. So, I think, we’ve been reasonably cautious in our guidance.”
Civilians and rescuers look for survivors amid the rubble of a destroyed building following an Israeli bombardment in Khan Younis in the southern Gaza Strip on November 12, 2023.
Mahmud Hams | Afp | Getty Images
War-battered Gaza’s already fragile economy lies in ruins, much like its buildings, following more than a month of bombings by Israel after Hamas militants attacked the country in October.
Even before the war, a majority of Gazans had limited access to affordable, nutritious provisions and were deemed food insecure, according to the United Nations World Food Programme, but the situation has now turned dire. About 80% of Gaza residents were reliant on some sort of international aid before the latest escalation.
“Gaza’s economy is 100% dependent on two sources of revenue: foreign aid and access to Israel’s labor market. The latter is now gone, probably forever. The only thing remaining is foreign aid,” Marko Papic, partner and chief strategist at Clocktower Group, told CNBC via email.
You have a very young (Palestinian) population that doesn’t see hope … It’s very hard to see an economic future.
Kevin Klowden
Milken Institute’s Chief Global Strategies
Over one month into the war, Gazans have lost at least 182,000 jobs, or 61% of the workforce, according to the International Labor Organization. Another U.N. agency, the United Nations Development Programme, has forecast that Gaza’s development would be set back by 16 to 19 years in its assessment based on economic, health and educational indicators.
“Even though the Israelis had occupied Gaza starting 1967 well into the 80s, the economy was doing a bit better, but mostly it was doing well, based on having a number of educated people who went outside of Gaza,” said Kevin Klowden, chief global strategist at Santa Monica, California-headquartered think tank Milken Institute.
Gaza was under the control of Egypt from 1948 until mid-1967 before Israel seized it along with the West Bank following its victory in the Six-Day War against a coalition of Arab countries.
“In the first 25 years of [Israeli] occupation, Gaza had both people working inside Israel [and] it had its own local economy … it was an important part of the Palestinian economy,” Raja Khalidi, director-general of the Palestine Economic Policy Research Institute told CNBC via telephone.
Gazans were able to work in Israel, Egypt, the Gulf and other places 50 years back, and there was a strong professional class, university and airport at the time, but with the current conflict the enclave’s economy now is dire, almost nonfunctional, Klowden also said.
According to the United Nations, during the 1970s and 1980s, the Palestinian economy saw relatively strong capital inflows, largely due to remittances from Palestinian workers in Israel and the Gulf countries.
Things changed after Hamas gained power in Gaza in 2006 when Israel relinquished its control of the enclave. Hamas has not held an election in Gaza since.
That deal [to end the conflict] is likely to have to see Gulf Arab monarchies and Saudi Arabia footing much of the bill for the viability of Gaza in the future.
Marko Papic
Chief Strategist at Clocktower Group
Not only did the Palestinians lose out on working in Israel after Hamas took over Gaza, their trade with the Egyptians also dissipated as Egypt views Hamas as a threat, with investments into the Palestinian Authority-governed West Bank no longer flowing into Gaza, Klowden said.
Since 2007, Gaza has been surrounded by concrete walls and barbed wire fences after Israel imposed an air, land and sea blockade on the Gaza Strip, saying the move was necessary to safeguard itself from Hamas’ attacks. The U.N. classifies Israel as an occupier state over the Palestinian territories of the West Bank and Gaza.
“When people ask me what does it take for Gaza to get back to where it was … We want to go back to where it was 20 years ago, not where it was two months ago,” said Khalidi.
The blockade and repeated wars with Israel since 2008 have hollowed out the enclave’s economy, with its anemic economic growth falling far behind that of the West Bank over the last 15 years, according to the International Monetary Fund.
“It’s not been a situation where there’s been economic hope. And for the last 15 years, essentially, that’s been the situation,” Klowden said. “You have a very young population that doesn’t see hope out of that. It’s very hard to see an economic future out of that.”
As many as 65% of the 2.3 million Palestinians living in the 140-square-mile sliver of land, between Israel and Egypt are under the age of 24.
“Ultimately, some form of a deal to end the conflict will have to be put in place,” said Clocktower Group’s Papic.
“But that deal is likely to have to see Gulf Arab monarchies and Saudi Arabia footing much of the bill for the viability of Gaza in the future.”
