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Tag: economic conditions

  • UBS is buying Credit Suisse in bid to halt banking crisis | CNN Business

    UBS is buying Credit Suisse in bid to halt banking crisis | CNN Business

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    London
    CNN
     — 

    Switzerland’s biggest bank, UBS, has agreed to buy its ailing rival Credit Suisse in an emergency rescue deal aimed at stemming financial market panic unleashed by the failure of two American banks earlier this month.

    “UBS today announced the takeover of Credit Suisse,” the Swiss National Bank said in a statement. It said the rescue would “secure financial stability and protect the Swiss economy.”

    UBS is paying 3 billion Swiss francs ($3.25 billion) for Credit Suisse, about 60% less than the bank was worth when markets closed on Friday. Credit Suisse shareholders will be largely wiped out, receiving the equivalent of just 0.76 Swiss francs in UBS shares for stock that was worth 1.86 Swiss francs on Friday.

    Extraordinarily, the deal will not need the approval of shareholders after the Swiss government agreed to change the law to remove any uncertainty about the deal.

    Credit Suisse

    (CS)     had been losing the trust of investors and customers for years. In 2022, it recorded its worst loss since the global financial crisis. But confidence collapsed last week after it acknowledged “material weakness” in its bookkeeping and as the demise of Silicon Valley Bank and Signature Bank spread fear about weaker institutions at a time when soaring interest rates have undermined the value of some financial assets.

    Shares in the 167-year-old bank fell 25% over the week, money poured from investment funds it manages and at one point account holders were withdrawing deposits of more than $10 billion per day, the Financial Times reported. An emergency loan of nearly $54 billion from the Swiss National Bank failed to stop the bleeding.

    But it did “build a bridge” to the weekend, to allow the rescue to be pieced together, Swiss officials said Sunday night.

    “This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue,” UBS chairman Colm Kelleher told reporters.

    “It is absolutely essential to the financial structure of Switzerland and … to global finance,” he told reporters.

    Desperate to prevent the meltdown spreading through the global financial system on Monday, Swiss authorities initiated the search for a private sector solution, with limited state support, while reportedly considering Plan B — a full or partial nationalization.

    “Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome,” Credit Suisse chairman Axel Lehmann said in a statement.

    “This has been an extremely challenging time for Credit Suisse and while the team has worked tirelessly to address many significant legacy issues and execute on its new strategy, we are forced to reach a solution today that provides a durable outcome.”

    The emergency takeover was agreed to after a days of frantic negotiations involving financial regulators in Switzerland, the United States and United Kingdom. UBS

    (UBS)     and Credit Suisse rank among the 30 most important banks in the global financial system, and together they have almost $1.7 trillion in assets.

    Financial market regulators around the world cheered UBS’ action to take over Credit Suisse.

    US authorities said they supported the action and worked closely with the Swiss central bank to assist the takeover.

    “We welcome the announcements by the Swiss authorities today to support financial stability,” said US Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell, in a joint statement. “The capital and liquidity positions of the US. banking system are strong, and the US financial system is resilient.”

    Christine Lagarde, President of the European Central Bank, said the banking sector remains resilient but the ECB stands at the ready to help banks maintain enough cash on hand to fund their operations if the need arises.

    “I welcome the swift action and the decisions taken by the Swiss authorities,” Lagarde said. “They are instrumental for restoring orderly market conditions and ensuring financial stability.

    The Bank of England said it welcomed the measures taken by the Swiss authorities “to support financial stability.”

    “We have been engaging closely with international counterparts throughout the preparations for today’s announcements and will continue to support their implementation,” it said in a statement. “The UK banking system is well capitalized and funded, and remains safe and sound.”

    The global headquarters of UBS and Credit Suisse are just 300 yards apart in Zurich but the banks’ fortunes have been on very different paths recently. Shares of UBS have climbed 15% in the past two years, and it booked a profit of $7.6 billion in 2022. It had a stock market value of about $65 billion on Friday, according to Refinitiv.

    Credit Suisse shares have lost 84% of their value over the same period, and last year it posted a loss of $7.9 billion. It was worth just $8 billion at the end of last week.

    Dating back to 1856, Credit Suisse has its roots in the Schweizerische Kreditanstalt (SKA), which was set up to finance the expansion of the railroad network and industrialization of Switzerland.

    In addition to being Switzerland’s second biggest bank, it looks after the wealth of many of the world’s richest people and offers global investment banking services. It had more than 50,000 employees at the end of 2022, 17,000 of those in Switzerland.

    The Swiss National Bank said it would provide a loan of 100 billion Swiss francs ($108 billion) to UBS and Credit Suisse to boost liquidity.

    UBS Chief Executive Ralph Hamers will be CEO of the combined bank, and Kelleher will serve as chairman.

    The takeover will reinforce the position of UBS as the world’s leading wealth manager with $5 trillion of invested assets, and boost its ambition to grow in the Americas and Asia. UBS said it expects to generate cost savings of $8 billion per year by 2027. Credit Suisse’s investment bank is in the crosshairs.

    “Let me be clear. UBS intends to downsize Credit Suisse’s investment banking business and align it with our conservative risk culture,” Kelleher said.

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  • Price hikes are double whammy for pet owners who are crushed by inflation | CNN Business

    Price hikes are double whammy for pet owners who are crushed by inflation | CNN Business

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    Minneapolis
    CNN
     — 

    As head of PAWS Atlanta, Joe Labriola can get a good sense of the region’s economic well-being from the day-to-day activity of the city’s oldest no-kill animal shelter.

    Through the course of the past year, it’s become increasingly clear to him that people in the area are struggling under the weight of inflation and economic uncertainty.

    Practically the entirety of the daily call volume consists of requests to rehome pets. The shelter’s “surrender queue” is full, awaiting adoptions to free up space in the main shelter. And the shelves at PAWS Atlanta’s Pet Food Pantry quickly go bare.

    But perhaps the most heartbreaking indicator is something this particular shelter never had to track before 2022. Last year, 166 pets were found abandoned at the shelter’s front gate.

    “A number of animals are being abandoned that have serious medical issues,” Labriola told CNN. “The only thing we can guess is that people just can’t afford those expenses, and they’re hoping by dropping off [their pets] at our facility that we’re going to be able to pick up the slack. And we do as best we can, but it’s really putting a strain on our resources.”

    Overall inflation remains high across the United States, but has slowly and methodically stepped down since setting a fresh 40-year record of 9.1% in June 2022, as measured by the Consumer Price Index. However, during the past eight months, inflation in pet-related products and services has only worsened, rising in some cases to record-setting levels.

    In February, when annual CPI declined to 6%, the catch-all “pets, pet products and services” index rose to 10.9%, veterinary services jumped nearly 2 percentage points to 10.3% and pet food increased to 15.2%, according to Bureau of Labor Statistics data.

    Those price increases are a double whammy for pet owners whose household finances have been weakened by persistently high inflation and for those who fear for rising instances of “economic euthanasia,” when animals are humanely put to death for financial reasons.

    The recent pet-specific price spikes also are compounding pressures facing organizations tasked with providing a safety net for animals in need.

    Nationwide, shelters are not seeing increases in pets being surrendered, said Kitty Block, chief executive officer and president of the Humane Society of the United States. However, when there are certain communities seeing spikes in abandoned or surrendered pets, that’s a sign of broader societal hardship, she said.

    “When people are having to surrender their animals for economic reasons or because they’re in the middle of a horrible disaster or war zone area, that’s a people problem; this is not some issue that is not relevant to people,” Block said. “This is bigger than dogs or cats in shelters. It’s about the people who love them.”

    At the store level, many pet products saw double-digit average unit price increases during the past year, with several items — including pet food, non-clumping cat litter and bird grooming items — seeing year-over-year price hikes north of 20%, according to Nielsen IQ data for the 52-week period ended January 28, 2023.

    “Throughout 2022, price increases were pretty extensive — all the way up to 20% and almost 30% price hikes versus the year prior — across the pet department,” said Andrea Binder, vice president of NielsenIQ North America. “In early 2023, we have started to see those start to taper off a little bit. Prices are still increasing but at a lower rate than they were in 2022.”

    The price hikes have been attributed to rising input and ingredient costs, she added.

    “The cost of chicken, the cost of beef, the cost of aluminum to make a wet cat food can … a lot of those commodity prices have been rising pretty dramatically throughout 2021 and 2022, which has caused manufacturers to increase their costs, and then therefore a lot of retailers follow suit,” she said.

    Linda Harding's dogs, Lola and Phoebe.

    Pet products, services and food have become “exponentially” more expensive, said Linda Harding, who lives in San Diego with two dogs. She said her pet food costs for Lola, her Australian Shepherd mix, and for Phoebe, her Golden Retriever, have doubled to $250 per month.

    Harding has cut back on her own expenses. She hasn’t turned on the heat much all winter, she’s limited electricity use and she has stopped buying items like clothes and eggs.

    “When you take on a pet, you take on a big responsibility,” she said. “It’s almost like when you buy a car, you’re going to have a lot of responsibility with that car. That car is going to break down, that car’s going to need repairs. It’s an investment.”

    She added: “And they’re our furbabies. We love them to pieces. So it’s not really even a question. I need to find the money to keep them as healthy as possible so we can love them as long as possible.”

    Mary Avila, a disabled veteran who lives on a fixed income, keeps things simple.

    She doesn’t go clothes shopping anymore, she buys cheaper cuts of meat, and she does try to sock away money in case her pets need a small medical procedure.

    “They always give,” said Avila, who lives in Bakersfield, California, with her cat, Jack, and two dogs, Domino and Squirt. “The cat doesn’t give as much, because cats. But the dogs, they always give, they’re always happy, they always want you around. They always are there for you.”

    Patricia Kelvin of Poland, Ohio, said her Social Security benefits and pension can only go so far, so when the cost of utilities, food or trash collection go up, she has to cut back.

    But not for her cat, Jesse.

    Patricia Kelvin's cat, Jesse.

    “If he had some major medical concern, there are a lot of things I would give up so he would get care,” she said. “There’s just no question in my mind. If my diet was going to be more beans than something else, I wouldn’t hesitate. If I had to sell my sterling silver, which I’ve had for 60 years, that would go before my little ‘Whiskers’ would be deprived.”

    The Animal Rescue League of Iowa is the largest nonprofit rescue organization in the Hawkeye State and adopted out 8,400 dogs, cats and small farm animals throughout last year.

    As pet support services manager, Josh Fiala’s role at ARL is to help keep animals out of the shelter by offering programs — such as a pet food pantry, vaccine clinics, veterinary assistance and crisis care — to help keep pets with their people.

    “We definitely, without question, have seen a dramatic increase in pretty much every one of those services,” he said, noting that the pet food pantry in particular has seen spikes in demand.

    Josh Fiala, Animal Rescue League of Iowa's Pet Support Services Manager, helps load pet food into a vehicle during a Pet Food Pantry in January 2022.

    ARL gave out about 40,000 pounds of pet food in both 2020 and 2021. Last year, it distributed 146,000 pounds of food.

    Waggle, a pet-dedicated crowdfunding platform for medical expenses and emergencies, has seen recent spikes in the volume of postings on its website — with some of the biggest increases coming from pet owners in rural communities and areas with high costs of living, said Steven Mornelli, chief executive officer and founder. Additionally, Waggle has also seen a 30% increase in posting for help with medical bills $250 and under, he told CNN.

    “We have taken that as a correlation with the stresses of inflation,” he said.

    In 2022, 4% more animals entered shelters than left, according to Shelter Animals Count, a national database of animal shelter statistics launched by some of the largest animal welfare organizations in the United States.

    That’s the largest gap seen in the past four years and is the result of fewer pets leaving shelters, not increases in surrenders, said Christa Chadwick, vice president of shelter services at the American Society for the Prevention of Cruelty to Animals.

    Adoption levels have remained essentially flat, but there has been a large decline in animals being transferred to other shelters because of staffing and driver shortages, she added.

    Joey, a shelter dog at Baypath Humane Society in Hopkinton, Massachusetts, on April 9, 2021.

    But she also highlighted the economic pressures affecting current and prospective pet owners.

    “It’s heartbreaking to know that there are situations where pet owners are being put in a position where they are making a decision about their pet, whether it’s to surrender that pet to an animal shelter or they have to make a decision about euthanasia because they can’t afford care, she said.

    “People tend to get angry at the pet owner when they [abandon or surrender their pet] but our experience has shown that when pet owners get to that point, it’s the only option they see available to them,” Chadwick. “And that’s real, and that’s hard for everybody involved, and that’s really hard for the animal who’s at the center of that.”

    Chadwick sees a role for shelters and other organizations to provide a safe and welcoming place for owners who may feel like they have no other option.

    Despite the broader economic challenges occurring within the US, PAWS Atlanta’s Labriola has had its share of feel-good success stories this year.

    PAWS Atlanta's staff members take care of pets during a public vaccine clinic on February 23.

    Donations have remained strong as has the volunteer program, he said. The low-cost public vaccination and spay and neuter clinics are sold out, indicating that people are taking advantage of inexpensive ways to care for their pets, he added.

    And just recently, the shelter’s focus of working with dogs who have been there for more than a year, or “long-term guests,” is starting to pay off, he said.

    “We’ve been able to place three long-termers into forever homes recently, freeing up space to rescue more homeless dogs,” he said.

    • Shelters, veterinarians and local rescue groups can serve as first points of contact.
    • The Humane Society of the United States’ website has a variety of resources for people facing financial challenges and need vet care, food, boarding, supplies and information to help keep pets with their families. The website has a list of national, state and local organizations.
    • Inquire if veterinarians accept Care Credit, ScratchPay or a similar service but be sure to carefully review the terms of repayment and how interest rates would be applied.
    • Ask if your veterinarian has a client-driven donation fund to help other clients in need; consider fundraising platforms such as Waggle and GoFundMe
    • Consider purchasing pet health insurance.

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  • How to Effectively Lead Through Uncertain Financial Times | Entrepreneur

    How to Effectively Lead Through Uncertain Financial Times | Entrepreneur

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    Disclosure: Our goal is to feature products and services that we think you’ll find interesting and useful. If you purchase them, Entrepreneur may get a small share of the revenue from the sale from our commerce partners.

    Uncertainty is not unusual in business. In fact, it can be seen as one of the defining features of life as a business leader. Indeed, the combination of domestic issues — from inflation to supply chain disruptions — and global tensions suggests that the level of uncertainty is likely to remain high over the coming years.

    According to KPMG’s 2022 CEO Outlook, which speaks to CEOs about their current and future strategies, 86% of these global company leaders anticipate a recession to hit in the next year, and 71% expect the recession to cause a 10% shift in earnings. With uncertainty looking more certain than ever, how can leaders begin to get a grip on future business challenges?

    Related: How Startups and Investors Can Thrive in the Current Economic Environment

    How is economic uncertainty affecting how leaders plan for 2023?

    The first thing affecting leaders right now is the fact that they exist and work within a “poly-crisis,” facing numerous challenges to their profitability and security at once. Operating in crisis mode inevitably affects a leader’s ability to plan ahead and adapt to changes in a business environment.

    Many businesses already had to make significant changes to their organizational, operational and financial structures in order to survive. These businesses face extra challenges now while high prices, tightening monetary policy and weak demand persists — with 90% of economists predicting that tempered demand will be a significant drain on business activity.

    A knock-on effect of this period of crisis has been an increase in anxiety around work, performance and money among employees. Leaders are not immune from this stress, but the pressure is high to remain calm in order to retain the best employees. And yet, any attempt at stasis is likely to be thwarted when organizational restructuring necessitates layoffs and downsizing.

    The implication for business leaders is that they need to be more flexible in adapting their strategies. In fact, even large firms need to think more like smaller startups, which focus on agility to survive and thrive. Alongside lingering anxieties and monetary restrictions, leaders face new obstacles left over from the Great Resignation and Reshuffling. The move to remote-hybrid work environments means that leaders’ usual methods of making decisions are no longer available to them. They need to find much more resilience and adaptability in order to lead through uncertainty.

    All of these factors will be especially impactful for startups and smaller businesses. Newer businesses may not have even established a status quo of reliable processes before the pandemic hit; now, they need to raise their baby in a recession.

    As leaders try to navigate growing their businesses and retaining their teams, what should they be focusing on in early 2023? Here are three considerations to keep in mind:

    1. Reaffirm the purpose of the organization

    When leading a startup, a sense of purpose is vital. Leaders may begin by describing how their ideas are going to make a dent in the universe and why they matter in an attempt to instill this into the organization and create a purpose-driven business.

    Leaders should ask themselves and their teams: “What do we offer the world that no one else can deliver? What is our reason for being?” Bringing clarity to purpose will strengthen the bonds between teammates and re-center people’s vision on the horizon rather than on the chaos that surrounds them.

    According to a recent survey by Deloitte, 43% of surveyed business leaders said their company views organizational purpose exclusively as a marketing and brand play. That’s not the smartest approach, as customers aren’t satisfied when companies speak empty words about purpose. They expect to see action.

    Related: 6 Key Tips for Leading Transparently in Economic Uncertainty

    2. Build trust by celebrating integrity

    Integrity should be the last quality to fall by the wayside when times get tough, but it’s often one of the first. Integrity can be incredibly motivating; it can inspire a team and keeps members focused on what is important.

    If leaders make promises they will be unlikely to keep, short-term wins will be overshadowed by long-term damage to trust. Both integrity and transparency should enhance trust in leadership, which is important if the organization is heading into the unknown.

    According to Deloitte’s The Future of Trust report (2021), “trustworthy companies outperform non-trustworthy companies by 2.5 times, and 88% of customers who highly trust a brand will buy again from that brand. Furthermore, employees’ trust in their leaders improves job performance, job satisfaction and commitment to the organization and its mission.”

    3. Don’t forget the positives

    When challenges abound and the world seems chaotic and uncertain, leaders can often get stuck in a negative thinking pattern. This, coupled with the calamity language of news programs and social media, can be devastating for employees’ anxiety levels.

    In a 2022 study by the American Psychological Association, 73% of people from the United States who participated in the study reported being overwhelmed by the number of crises happening in the world. Nearly nine out of 10 participants also reported that they felt crises had been occurring in a constant stream.

    Leaders will be wise to remember that optimism is still valid and possible. Highlight that times will get better, eventually. Offer some assurance that there is light at the end of the tunnel.

    Economic uncertainty, which continues to unfold and evolve, has the potential to derail even the largest and most well-organized companies. For smaller companies and startups, uncertainty can be destructive and formative at the same time. It’s their nemesis and the water they swim in. Leaders need to be able to incorporate uncertainty into their futurecasting to grow despite the obstacles it presents.

    Related: How to Prepare Your Business For Economic Downturn

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  • China’s economic recovery is on track. But youth unemployment is getting worse | CNN Business

    China’s economic recovery is on track. But youth unemployment is getting worse | CNN Business

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    Hong Kong
    CNN
     — 

    China’s economic recovery appears to be on track as it gradually emerges from three years of its strict zero-Covid policy. But rising youth unemployment underscores the tough challenges ahead for the new government to achieve its economic targets and maintain social stability.

    The National Bureau of Statistics on Wednesday released key economic indicators for January and February combined, a usual practice to avoid any distortion by the long Lunar New Year holiday, which usually falls on different dates every year.

    Industrial production rose by 2.4%, accelerating from December’s 1.3% growth. Retail sales increased 3.5%, reversing a 1.8% decline in the previous month. The growth figures are in line with market expectations.

    Investment in fixed assets, such as real estate and infrastructure, jumped 5.5%, beating estimates. In particular, capital spending on electricity and heating facilities and railways soared around 20%.

    “The economic data released today confirmed the recovery in China was well on track,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.

    Recent PMI figures had indicated a strong recovery in China’s economic activity, with February’s factory output from large, state-owned enterprises hitting the highest level in more than a decade.

    “The fading of virus disruptions led to a rapid improvement in economic conditions at the start of the year,” analysts from Capital Economics wrote.

    But there are some weak spots in Wednesday’s data.

    Youth unemployment surged. The jobless rate for 16- to 24-year-olds hit 18.1% in the January-to-February period, compared to 16.7% in December. The overall unemployment rate also increased to 5.6%.

    The real estate sector remains mired in a deep slump.

    Property investment fell 5.7% from a year ago in the first two months of this year, although it was an improvement from the 12.2% drop seen in December. Property sales by floor area contracted 3.6%.

    At the just-concluded session of the National People’s Congress, the country’s rubber-stamp parliament, the government set a cautious growth plan for this year, with a GDP target of around 5% and a job creation target of 12 million.

    But Li Qiang, the new premier who took office on Saturday, admitted it’s “not an easy task” to achieve the stated goals.

    At his first news conference on Monday, Li highlighted the challenge to create enough jobs.

    “This year’s college graduates are expected to reach 11.58 million people. From the perspective of employment, there will be certain pressure,” he said. “We will further expand employment channels and help young people.”

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  • Why Silicon Valley Bank collapsed and what it could mean | CNN Business

    Why Silicon Valley Bank collapsed and what it could mean | CNN Business

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    London
    CNN
     — 

    Silicon Valley Bank collapsed with astounding speed on Friday. Investors are now on edge about whether its demise could spark a broader banking meltdown.

    The US federal government has stepped in to guarantee customer deposits, but SVB’s downfall continues to reverberate across global financial markets. The government has also shut down Signature Bank, a regional bank that was teetering on the brink of collapse, and guaranteed its deposits.

    In a sign of how seriously officials are taking the SVB failure, US President Joe Biden told Americans Monday that they “can rest assured that our banking system is safe,” adding: “We will do whatever is needed on top of all this.”

    Here’s what you need to know about the biggest US bank failure since the global financial crisis.

    Established in 1983, Silicon Valley Bank was, just before collapsing, America’s 16th largest commercial bank. It provided banking services to nearly half of all US venture-backed technology and life science companies.

    It also has operations in Canada, China, Denmark, Germany, Ireland, Israel, Sweden and the United Kingdom.

    SVB benefited hugely from the tech sector’s explosive growth in recent years, fueled by ultra-low borrowing costs and a pandemic-induced boom in demand for digital services.

    The bank’s assets, which include loans, more than tripled from $71 billion at the end of 2019 to a peak of $220 billion at the end of March 2022, according to financial statements. Deposits ballooned from $62 billion to $198 billion over that period, as thousands of tech startups parked their cash at the lender. Its global headcount more than doubled.

    SVB’s collapse came suddenly, following a frenetic 48 hours during which customers yanked deposits from the lender in a classic run on the bank.

    But the root of its demise goes back several years. Like many other banks, SVB ploughed billions into US government bonds during the era of near-zero interest rates.

    What seemed like a safe bet quickly came unstuck, as the Federal Reserve hiked interest rates aggressively to tame inflation.

    When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio. The portfolio was yielding an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%, Reuters reported.

    At the same time, the Fed’s hiking spree sent borrowing costs higher, meaning tech startups had to channel more cash towards repaying debt. At the same time, they were struggling to raise new venture capital funding.

    That forced companies to draw down on deposits held by SVB to fund their operations and growth.

    While SVB’s problems can be traced back to its earlier investment decisions, the run on the bank was triggered Wednesday when the lender announced that it had sold a bunch of securities at a loss and would sell $2.25 billion in new shares to plug the hole in its finances.

    That set off panic among customers, who withdrew their money in large numbers.

    The bank’s stock plummeted 60% Thursday and dragged other bank shares down with it as investors began to fear a repeat of the global financial crisis a decade and a half ago.

    By Friday morning, trading in SVB shares was halted and it had abandoned efforts to raise capital or find a buyer. California regulators intervened, shutting the bank down and placing it in receivership under the Federal Deposit Insurance Corporation, which typically means liquidating the bank’s assets to pay back depositors and creditors.

    US regulators said Sunday that they would guarantee all SVB customers’ deposits. The move is aimed at preventing more bank runs and helping tech companies to continue paying staff and funding their operations.

    The intervention does not amount to a 2008-style bailout, however, which means investors in the company’s stock and bonds will not be protected.

    “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out … and the reforms that have been put in place mean that we’re not going to do that again,” Treasury Secretary Janet Yellen told CBS in an interview Sunday.

    “But we are concerned about depositors and are focused on trying to meet their needs.”

    There are already some signs of stress at other banks. Trading in First Republic Bank

    (FRC)     and PacWest Bancorp

    (PACW)     was temporarily halted Monday after the shares plunged 65% and 52% respectively. Charles Schwab

    (SCHW)     stock was down 7% at 11.30 a.m. ET Monday.

    In Europe, the benchmark Stoxx Europe 600 Banks index, which tracks 42 big EU and UK banks, fell 5.6% in morning trade — notching its biggest fall since last March. Shares in embattled Swiss banking giant Credit Suisse were down 9%.

    SVB isn’t the only financial institution whose investments into government bonds and other assets have fallen dramatically in value.

    At the end of 2022, US banks were sitting on $620 billion in unrealized losses — assets that have decreased in price but haven’t been sold yet, according to the FDIC.

    In a sign that regulators have concerns about wider financial chaos, the Fed said Sunday that it would make additional funding available for eligible financial institutions to prevent the next SVB from collapsing.

    Most analysts point out that US and European banks have much stronger financial buffers now than during the global financial crisis. They also highlight that SVB had very heavy exposure to the tech sector, which has been particularly hard hit by rising interest rates.

    “While SVB is a major failure, [it] and other niche players like Signature are quite unique in the broader banking world,” research analysts David Covey, Adrian Cighi and Jaimin Shah at M&G Investments commented in a blog post on Monday. “So unique, in our view, that it is unlikely to create material problems for any of the large diversified banks in the US or Europe from a credit point of view.”

    HSBC stepped in Monday to buy SVB UK for £1 ($1.2), securing the deposits of thousands of British tech companies that hold money at the lender.

    Had a buyer not been found, SVB UK would have been placed into insolvency by the Bank of England, leaving customers with only deposits worth up to £85,000 ($100,000) — or £170,000 ($200,000) for joint accounts — guaranteed.

    The HSBC rescue is “fantastic news” for the UK startup ecosystem, said Piotr Pisarz, the CEO of Uncapped, a financial tech startup that lends to other startups. “I think we can all relax a bit today,” he told CNN.

    In a statement, HSBC CEO Noel Quinn said the acquisition “strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life science sectors, in the UK and internationally.”

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  • From Wile E. Coyote to edibles: Recession forecasts are getting weird | CNN Business

    From Wile E. Coyote to edibles: Recession forecasts are getting weird | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    Understanding the economy is a complicated task, and even the experts are struggling to answer seemingly simple questions like “Are we on the brink of a recession?” or “Why isn’t inflation falling faster?”

    Many have resorted to the use of metaphor to convey the current complexity of the economy.

    It’s a communications tactic that some Federal Reserve officials have long favored. In the early 1980s, Nancy Teeters, the first woman appointed to the Federal Reserve Board, came up with an apt metaphor to explain why she disagreed with steep rate hikes implemented by then-Fed Chairman Paul Volcker.

    Her colleagues were “pulling the financial fabric of this country so tight that it’s going to rip,” she said. “Once you tear a piece of fabric, it’s very difficult, almost impossible, to put it back together again,” she added, before remarking that “none of these guys has ever sewn anything in his life.”

    These days, economists and analysts are turning to increasingly outlandish metaphors to help translate their thoughts.

    Here are some of the most interesting descriptors used recently and what they mean:

    Wile E. Coyote

    If you think back to Saturday morning cartoons, you may remember the never-ending, and mostly futile, chase between Wile E. Coyote and his nemesis, Road Runner. That pursuit often ended with Wile E. running off a cliff and into mid-air.

    The toons were fun sources of entertainment in our salad years, but former Treasury Secretary Larry Summers says they now double as a case study for the Fed and the economy.

    “The [Federal Reserve’s] process of bringing down inflation will bring on a recession at some stage, as it almost always has in the past,” Summers told CNN last week.

    And for the US economy, it could likely mean a “Wile E. Coyote moment,” Summers said — if we run off the cliff, gravity will eventually win out.

    “The economy could hit an air pocket in a few months,” he said.

    Antibiotics

    When describing the state of the economy, Summers doesn’t just rely on Looney Tunes. He also borrows from the medical community.

    While describing why the Fed can’t end its rate hike regimen when inflation shows signs of showing, Summers has compared higher interest rates to medicine for a country sick with high inflation. The entire dose must be taken for the treatment to fully work, he says.

    “We’ve all had the experience of taking a course of drugs and giving up, stopping the drugs, before the course was exhausted, simply because we felt better. And then, whatever infection we had came back and it was harder to fight the second time,” Summers told Boston’s NPR news station WBUR in February.

    For what it’s worth, Before the Bell is also guilty of using this one.

    Fog report

    We may be driving in the fog, landing a plane in the fog or even just walking in it.

    What’s important in this oft-used scenario is that it’s hard to see and we’re doing something that typically requires clear visibility.

    Clients “facing the fog of uncertainty in financial markets, economic growth and geopolitics,” should “avoid unnecessary lane changes,” and “allow extra time to reach your destination,” advised Goldman Sachs analysts earlier this year.

    It’s essentially a fancy way of saying that no one really knows what’s going on in this economy. Instead of attempting to find a way out of the chaos, investors should slow down, stay the course and wait for recovery.

    Edibles

    Late last year, investment analyst Peter Boockvar used a semi-illicit metaphor to explain why he thought the Fed might be over-tightening the economy into recession. He compared the Fed to an inexperienced consumer of weed gummies, which can take a long time to kick in.

    During that waiting period, an eager consumer may think the drugs aren’t working and eat more before the effects of the first dose even set in. They then inevitably find themselves way too stoned and feeling not-so-great.

    Boockvar was careful to note that he himself does not indulge in this practice, by the way.

    Storm chasing

    JPMorgan Chase CEO Jamie Dimon should receive an honorary degree in meteorology for his recessionary weather predictions.

    The Big Bank exec has repeatedly referred to economic recession as a storm gathering on the horizon — occasionally he’ll update the public on how far away and how bad that storm is.

    Last summer Dimon spooked markets when he compared a possible upcoming recession to a “hurricane.” In November, he downgraded it to a “storm.”

    By January, his forecast was simply “storm clouds,” adding that he probably should never have used the term “hurricane.”

    Polyurethane

    Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income, has likened the economy to a bendable piece of plastic. Much like the economy, he wrote, polyurethane, “displays flexibility and adaptability, but also durability and strength.”

    He added that “the material’s ability to be stretched, bent, stressed and flexed without breaking, while in fact returning to its original condition, is what makes it so chemically unique. In recent years the US economy has displayed a remarkable resilience to stresses and an extraordinary ability to adapt to changing conditions.”

    Last week Senator Elizabeth Warren grilled Federal Reserve Chair Jerome Powell about American job losses being potential casualties of the central bank’s battle against high inflation.

    Warren, a frequent critic of the Fed’s leader, noted that an additional 2 million people would have to lose their jobs if the unemployment rate rises from its current 3.6% rate to reach the Fed’s projections of 4.6% by the end of the year.

    “If you could speak directly to the two million hardworking people who have decent jobs today, who you’re planning to get fired over the next year, what would you say to them?” Warren asked.

    Powell argued that all Americans, not just two million, are suffering under high inflation.

    “Will working people be better off if we just walk away from our jobs and inflation remains 5% or 6%?” Powell replied.

    Warren cautioned Powell that he was “gambling with people’s lives.”

    The discussion was part of a larger cost-benefit conversation that keeps popping up around the jobs market: Which is worse — widespread job loss or elevated inflation?

    CNN spoke with two top economic analysts with different perspectives to gain a deeper understanding of the debate.

    Below is our interview with Johns Hopkins economist Laurence Ball.

    Yesterday we published our interview with Roosevelt Institute director Michael Konczal, you can read that here.

    This interview has been edited for length and clarity.

    Before the Bell: Is it necessary to increase the unemployment rate to successfully fight inflation?

    Laurence Ball: There’s a trade off between inflation and unemployment. When the economy is very strong and unemployment is pushed down, inflation tends to be higher. Right now there are almost two job openings per unemployed worker, the supply of workers looking for jobs and the demand for firms to hire is out of whack. That’s leading to faster wage increases, which sounds good except that gets passed through to faster price increases and more inflation. So somehow the labor market has to be brought back towards a normal balance of workers and jobs and that means slowing down the economy, and that probably means raising unemployment.

    Can you explain the cost-benefit analysis of two million jobs lost to get down to 2% inflation?

    If we assume we have to get inflation down to 2%, then it’s just an unhappy fact of life that that’s going to require higher unemployment. But a lot of people, including me, think that if the Fed gets it down to 4% or 3%, that’s the time to declare victory or say, ‘close enough for government work.’

    It gets more and more expensive in terms of how much unemployment it costs to go from 3% to 2% inflation. Those last few points will have disproportionately large costs, and it’s very dubious if that’s really worth it.

    Now, the Fed has the political problem that they’ve been insisting on a 2% target rate for years. If they say right at this moment that 3% or 4% is okay that would be seen as surrendering or moving the goalposts. I think a likely outcome is that inflation gets down to 3% or 4% and the Fed continues to say their target is a 2% inflation rate but never does what has to be done to get it there.

    If you examine Fed history you see that 5% appears to be a magic number. When inflation is above 5% it becomes this big political issue. When it goes below 5% it disappears from the headlines.

    What do you think is important for our readers to know about this back-and-forth between Powell and Warren?

    Behind all of this, in a market economy there’s sort of a basic glitch. We have this thing called unemployment, we sort of chronically have not enough jobs for everybody and that’s a big problem. The problem can be reduced somewhat in the short run if you get the economy going very fast. But then that leads to inflation. Accepting that unemployment has to go back up is just recognizing that there’s this glitch in the market economy or capitalism. It’s not clear how we can get around that.

    CNN Business’ David Goldman reports: 

    In an extraordinary action to restore confidence in America’s banking system, the Biden administration on Sunday guaranteed that customers of the failed Silicon Valley Bank will have access to all their money starting Monday.

    In a related action, the government shut down Signature Bank, a regional bank that was teetering on the brink of collapse in recent days. Signature’s customers will receive a similar deal, ensuring that even uninsured deposits will be returned to them Monday.

    SVB collapse: live updates

    In a joint statement Sunday, Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg said the FDIC will make SVB and Signature’s customers whole. By guaranteeing all deposits — even the uninsured money that customers kept with the failed banks — the government aimed to prevent more bank runs and to help companies that deposited large sums with the banks to continue to make payroll and fund their operations.

    The Fed will also make additional funding available for eligible financial institutions to prevent runs on similar banks in the future.

    Wall Street investors were relieved that the government intervened as stock futures rebounded on Sunday evening, although the rally is fading Monday morning. Markets had tumbled more than 3% Thursday and Friday as investors feared more bank failures and systemic risk for the tech sector.

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  • Treasury secretary rules out bailout for Silicon Valley Bank | CNN Politics

    Treasury secretary rules out bailout for Silicon Valley Bank | CNN Politics

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    Washington
    CNN
     — 

    Treasury Secretary Janet Yellen on Sunday ruled out a federal bailout for Silicon Valley Bank following its spectacular collapse last week.

    “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out, and we’re certainly not looking,” Yellen told CBS News when asked if there will be a bailout. “And the reforms that have been put in place means that we’re not going to do that again.”

    Also Sunday, Shalanda Young, the director of the White House Office of Management and Budget, stressed in an interview with CNN’s Kaitlan Collins on “State of the Union” that the US banking system at large was “more resilient” now.

    “It has a better foundation than before the [2008] financial crisis. That’s largely due to the reforms put in place,” Young said on “State of the Union.”

    Yellen said she’s been hearing from depositors all weekend, many of whom are “small businesses” and employ thousands of people. “I’ve been working all weekend with our banking regulators to design appropriate policies to address this situation,” the Treasury secretary said, declining to provide further details.

    SVB collapsed Friday morning after a stunning 48 hours in which a bank run and a capital crisis led to the second-largest failure of a financial institution in US history.

    California regulators closed down the tech lender and put it under the control of the US Federal Deposit Insurance Corporation. The FDIC is acting as a receiver, which typically means it will liquidate the bank’s assets to pay back its customers, including depositors and creditors.

    Despite initial panic on Wall Street over the run on SVB, which caused its shares to crater, analysts said the bank’s collapse is unlikely to set off the kind of domino effect that gripped the banking industry during the financial crisis.

    But the collapse has prompted a bailout debate in Washington as lawmakers assess the fallout.

    Republican Rep. Nancy Mace of South Carolina told Collins in a separate interview on “State of the Union” that she doesn’t support a bailout “at this time” but cautioned, “It’s still very early.”

    “We cannot keep bailing out private companies because there’s no consequences to their actions. People, when they make mistakes or break the law, have to be held accountable in this country,” she said.

    While relatively unknown outside Silicon Valley, SVB was among the top 20 American commercial banks, with $209 billion in total assets at the end of last year, according to the FDIC. It’s the largest lender to fail since Washington Mutual collapsed in 2008.

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  • Takeaways from the February jobs report | CNN Business

    Takeaways from the February jobs report | CNN Business

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    Minneapolis
    CNN
     — 

    February’s jobs report had a little something for everyone.

    For workers, there were jobs; for employers, there were workers filling shortfalls caused by the pandemic; for the Federal Reserve, there were indications that the labor market was loosening and wage pressures were easing.

    Then again, the total of 311,000 net jobs added was significantly higher than expectations of 205,000, and the unemployment rate surprisingly grew to 3.6%.

    The report was a “mixed bag” at a time when the Fed — which this week signaled a more hawkish approach after a strong batch of recent economic data — is weighing to go lighter or heavier on rate hikes.

    Here are some takeaways from Friday’s report:

    Economists were anticipating that January’s blockbuster 504,000 net job gain was an anomaly due to a combination of factors such as annual data adjustments, warm weather and employers hoarding workers.

    But the US labor market in February showed that, overall, it remained fairly resistant to the Fed’s yearlong barrage of interest rate hikes. The latest employment snapshot from the Bureau of Labor Statistics also showed only a slight downward revision to the January jobs total.

    “This report, it’s not about the Federal Reserve, it’s not about inflation, it’s about you; it’s about how workers are doing,” said Claudia Sahm, founder of Sahm Consulting and a former Fed economist. “And once again, we had a month in which we were adding jobs on net, and this is really good for workers.”

    There are also encouraging signs for employers, she said, noting some of the biggest gains were in industries that have been suffering from the deepest shortages since the pandemic.

    The leisure and hospitality industry added 105,000 jobs in February, accounting for 34% of the entire month’s total gains and putting the sector that much closer to matching its pre-pandemic levels. As of February, the leisure and hospitality industry was 410,000 jobs, or 2.42%, shy of February 2020 employment levels, a CNN analysis of BLS data shows.

    “Right now, we’re still in a phase of getting back to normal in terms of not having labor shortages, not having the costs of serving customers rise and rise,” Sahm said. “I would much rather see us get back to normal by workers coming back as opposed to customers going away.”

    Despite the Fed hammering out a succession of rate hikes during the past year, construction employment hasn’t yet faltered. In February, the construction industry added 24,000 jobs, marking 12 consecutive months of employment growth.

    “Contractors are continuing to work through existing backlogs that have grown over the past two years as new opportunities arose and supply chain issues extended construction timelines,” wrote Nick Grandy, construction and real estate senior analyst at RSM US.

    Notable sectors that recorded job losses during the month were in information, which was down another 25,000 jobs (-0.8%); transportation and warehousing, which was down 21,500 jobs (0.3%); and manufacturing, which was down 4,000 positions.

    While the headline job figure and relatively minimal losses show overall strength, there is an indication of a pullback across industries. The BLS’ employment diffusion index, which shows the percentage of 250 industries that added jobs, fell to 56, which is the lowest reading since April 2020.

    “That indicates that the impact of high interest rates is spilling over to more industries,” said Julia Pollak, chief economist at ZipRecruiter.

    The labor market has remained extremely tight and fairly out of whack for the past three years. Friday’s report showed that “a modicum of slack crept back into the jobs market,” wrote Wells Fargo economists Sarah House and Michael Pugliese.

    The unemployment rate moved to 3.6% from its 53-year-low of 3.4%. That increase was in part due to more people reentering the workforce and joining the ranks of the unemployed, which the BLS classifies as people without jobs actively searching for work.

    February’s employment report showed a 0.1 percentage point increase in the labor force participation rate to 62.5% — the highest it’s been since April 2020.

    The average workweek ticked down to 34.5 hours from a revised 34.6 hours, signaling a “significant overall drop” in labor demand, said Brad McMillan, chief investment officer for Commonwealth Financial Network.

    Still, with the prime-age employment to population ratio increasing to 80.5% — on par with early 2020 levels — there may be little space left for sustained labor supply gains, according to Matt Colyar, a Moody’s Analytics economist.

    “February’s figure, apart from early 2020 readings, is higher than any rate during the previous decade-long expansion,” Colyar noted. “Even in corners of the economy where demand has slumped, businesses have shown little appetite to lay off workers en masse. As other sectors continue to hire rapidly, an acceleration in wage growth will remain a looming threat.”

    A softening in average hourly earnings is helping fuel hopes for a soft landing.

    At 0.2% on the month, wage growth was below expectations and measured 4.6% year over year.

    “There were signs in today’s report that progress on inflation can be made without torpedoing employment,” the Wells Fargo economists noted.

    As of February, the annualized rate of wage growth during the past three months is slightly under 3.6%, a pace seen when inflation was below the Fed’s target, said economist Dean Baker, co-founder of the Center for Economic and Policy Research.

    “Perhaps most important from the Fed’s perspective is the slowdown in wage growth,” Baker wrote in a statement. “The 3.6% annual rate over the last three months can hardly be seen as posing a serious threat of inflation. This slowing in the average hourly wage, coupled with the 4% rate reported in the fourth quarter Employment Cost Index, should provide solid evidence that wage growth has slowed sharply.”

    A hot batch of January economic data helped to send the Fed into a more hawkish turn. Fed Chair Jerome Powell told members of Congress this week that the Fed is prepared to increase the pace of its rate hikes if warranted.

    “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell told lawmakers.

    There’s still more data to come before the Fed meets for its two-day policymaking meeting on March 21-22, notably the Consumer Price Index, Producer Price Index and the Commerce Department’s retail sales report. However, Friday’s jobs report likely won’t spur a more dovish turn from the Fed, said Sean Snaith, an economist and director of the University of Central Florida’s Institute for Economic Forecasting.

    “We didn’t go from a four-alarm fire to a five-alarm fire with this data report, but the inflation flames aren’t out either,” he wrote in a note Friday. “And nothing today indicates that the Fed needs to change its more aggressive approach to raising interest rates.”

    Still, economist Gregory Daco cautioned that the Fed shouldn’t fall into the trap of confirmation bias by letting the stronger-than-expected economic data influence the analysis of Friday’s jobs report and next week’s CPI report.

    The Fed may see the low unemployment rate and the robust job gains as fueling wage growth, said Daco, chief economist at EY Parthenon.

    “Our view, however, is slower job growth in the goods sector, easing hours worked and moderating sequential wage growth momentum and a rise in the labor force participation rate indicate a welcome easing of labor market tightness,” Daco noted. “While we acknowledge this report was by no means a weak one, we also observe that some of the job gains were in sectors where there has been a structural employment shortfall — health care and education in particular. Employment strength in those sectors may not be indicative of cyclical wage pressures, but rather easing structural constraints.”

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  • The US economy added 311,000 jobs in February, outpacing expectations | CNN Business

    The US economy added 311,000 jobs in February, outpacing expectations | CNN Business

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    Minneapolis
    CNN
     — 

    The US economy added 311,000 jobs in February, according to the latest monthly employment snapshot from the Bureau of Labor Statistics, released Friday.

    That’s a pullback from the blockbuster January jobs report, when a revised 504,000 positions were added, but shows the labor market is still emitting plenty of heat.

    The unemployment rate ticked up to 3.6% from 3.4%.

    February’s net job gains surpassed economists’ estimates for a more modest month, with only 205,000 to be added. Separately, downward revisions to December’s and January’s totals weren’t that drastic.

    While Friday’s report is a strong one, that’s actually bad news in the broader context of the Federal Reserve’s campaign to curb high inflation, said PNC Financial Services chief economist Gus Faucher.

    “It’s much hotter than the economy can run, and so this means the Fed is going to have to continue to hike interest rates,” he told CNN. “And that makes a recession more likely.”

    Barring a surprisingly low Consumer Price Index inflation report next week, Faucher said he expects the Fed to go forward with a half-point rate hike at its March 21-22 meeting, which would be a higher pace than the recent, more moderate quarter-point increase.

    The Fed has been battling for almost a year to slow the economy and crush the highest inflation in 40 years, but the labor market continues to defy those efforts.

    “Coming up on the one-year anniversary of the Fed’s first rate hike, we never thought we would see the economy churning out 311,000 more jobs this month,” said Chris Rupkey, chief economist of FwdBonds, in a statement. “The party is on and the labor market is having a blast. The economy clearly is not landing, it is soaring.”

    The monthly job gains remain well above pre-pandemic norms, when roughly 180,000 jobs were added per month between 2010 and 2019, BLS data shows. However, the labor market remains tight and imbalances continue to persist in the ongoing recovery efforts from the devastating pandemic.

    Labor turnover data released earlier this week for January showed that there were 1.9 job openings for every person looking for one. Fed Chair Jerome Powell has frequently highlighted how the labor market remains short of pre-pandemic growth projections by more than 3 million people.

    The pandemic accelerated expected demographic trends (the aging out of the massive Baby Boom generation) with increased retirements; people also dropped out of the workforce for care-related needs and health concerns such as long Covid; and there were hundreds of thousands of workers who died from Covid.

    February’s employment report showed a 0.1 percentage point increase in the labor force participation rate to 62.5% — the highest its been since April 2020. However, it remains below pre-pandemic levels of 63.4%.

    Additionally, there was some upward movement in the jobless rate, which increased 0.2 percentage points to 3.6%.

    “Contributing to upward pressure here, there were more people looking for work,”said Mark Hamrick, senior economic analyst at Bankrate.

    Industries with notable job gains included leisure and hospitality, retail trade, government and health care. After being crushed during the pandemic, the leisure and hospitality has been steadily adding back employees and trying to meet increased demand from consumers shifting their spending from goods to services.

    Average hourly earnings — a closely watched metric as the Fed seeks to evaluate the impact of rising wages on inflation — grew 0.2% month-on-month and were up 4.6% over the year before.

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  • This Industry is the Fastest-Growing Employer in the U.S. | Entrepreneur

    This Industry is the Fastest-Growing Employer in the U.S. | Entrepreneur

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    The pandemic triggered massive changes in the job market. While tech and information industries saw a spike in demand, companies went on a hiring frenzy as the hospitality and food space cut back on jobs amid lockdown. Now, the tables have turned.

    As the world emerged from the pandemic, hospitality began rebuilding its workforce and outpaced all other industries for the first half of 2022 and has now become the leading employer in the U.S. as of January 2023. Meanwhile, jobs in the tech and information world declined, according to data from The Wall Street Journal.

    “The sectors that are seeing above-average layoffs are those that saw explosive head-count growth after the pandemic,” ZipRecruiter chief economist Julia Pollak told the outlet.

    Related: Microsoft Layoffs Signal Layoffs for Other Tech Companies

    In essence, the widespread layoffs in tech are in part due to the widespread hiring that happened in 2020. Although the layoffs and hiring freezes might ignite panic, the shift signals that the job market for tech is actually restoring to pre-pandemic levels.

    Tech giants like Amazon, Meta, Microsoft and Google have all trimmed their workforces over the past year as demand wanes and economic conditions remain uncertain. Conversely, the hospitality industry, including bars and restaurants, has bounced back and become the fastest-growing employer in the U.S.

    A close second is the healthcare industry, which also saw a major hit during the pandemic. In January alone, hospitality and healthcare added 207,000 workers, making up nearly half of the month’s private sector growth of employment, according to The Wall Street Journal data.

    Related: Five Key Trends To Look Out For In The Hospitality Industry In 2023

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    Madeline Garfinkle

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  • Buying bank stocks before a recession used to be madness. Not anymore | CNN Business

    Buying bank stocks before a recession used to be madness. Not anymore | CNN Business

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    London
    CNN
     — 

    Investors are bucking tradition this year by piling into big bank stocks just as major economies are expected to either slow down or fall into recession.

    The Stoxx Europe 600 Banks index, a group of 42 big European banks, climbed 21% between the start of the year and late February — when it hit a five-year high — outperforming its broader benchmark index, the Euro Stoxx 600

    (SXXL)    . The KBW Bank Index, which tracks 24 leading US banks, has risen by a more modest 4% so far this year, slightly outpacing the broader S&P 500

    (DVS)    .

    Both bank-specific indexes have surged since lows hit last fall.

    The economic picture is far less rosy. The United States and the biggest economies in the European Union are expected to grow at a much slower rate this year than last, while UK output is likely to contract. A sudden recession “at some stage” is also a risk for the United States, former Treasury Secretary Larry Summers told CNN Monday.

    But the widespread economic weakness has coincided with high inflation, forcing central banks to raise interest rates. That’s been a boon for banks, helping them make heftier returns on loans to households and businesses, and as savers deposit more of their money into savings accounts.

    Rate hikes have buoyed the stocks of big banks, but so too has a greater confidence in their ability to weather economic storms 15 years after the 2008 global financial crisis nearly toppled them, fund managers and analysts told CNN.

    “Banks are, generally speaking, much stronger, more resilient, more capable to [withstand a] recession,” than in the past, said Roberto Frazzitta, global head of banking at consultancy Bain & Company.

    Interest rates in major economies started climbing last year as policymakers launched their campaigns against soaring inflation.

    The steep rate hikes followed a prolonged period of ultra-low borrowing costs that started in 2008. As the financial crisis ravaged economies, central banks slashed interest rates to unprecedented lows to incentivize spending and investment. And, for more than a decade, they barely budged.

    Banks are a less attractive bet for investors in that environment as lower interest rates often feed into lower returns for lenders.

    “[The] post-crisis period of very low interest rates was seen as very bad for bank profitability, it squeezed their margins,” said Thomas Mathews, senior markets economist at Capital Economics.

    But the rate hiking cycle that got underway last year, and shows few signs of abating, has changed investors’ calculations. Fed Chair Jerome Powell said Tuesday that interest rates would rise more than people anticipated.

    Higher potential returns for shareholders are drawing investors back into the sector. For example, the average dividend yield for bank stocks in Europe — the amount of money a company pays its shareholders every year as a proportion of its share price — is now around 7%, said Ciaran Callaghan, head of European equity research at Amundi, a French asset management firm.

    By comparison, the dividend yield for the S&P 500 currently stands at 2.1%, and for the Euro Stoxx 600 at 3.3%, according to Refinitiv data.

    European bank stocks have risen particularly sharply in the past six months.

    Mathews at Capital Economics attributed their outperformance relative to US peers partly to the fact that interest rates in the countries that use the euro are still closer to zero than in the United States, meaning that investors have more to gain from rates rising.

    It can also be put down to Europe’s remarkable reversal of fortune, he said.

    Wholesale natural gas prices in the region, which hit a record high in August, have tumbled back to their levels seen before the Ukraine war, and a much-feared energy shortage has been avoided this winter.

    “Only a few months ago people were talking about a very deep recession in Europe compared to the US,” Mathews said. “As those worries have unwound, European banks have done particularly well.”

    But European economies are still fragile. When economic activity slows down, bank stocks are typically among those hit hardest. That’s because banks’ earnings are, to varying extents, tied to borrowers’ ability to repay their loans, as well as to consumers’ and businesses’ appetite for more credit.

    This time around, though — unlike in 2008 — banks are in a much better position to withstand defaults on loans.

    After the global financial crisis, regulators sprang into action, requiring lenders, among other measures, to have a large capital cushion against future losses. Capital is made up of a bank’s own funds, rather than borrowed money such as customer deposits.

    Lenders must also hold enough cash, or assets that can be quickly converted into cash, to repay depositors and other creditors.

    Luc Plouvier, a senior portfolio manager at Van Lanschot Kempen, a Dutch wealth management firm, noted that banks had undergone “structural change” in the past decade.

    “A lot of the regulation that’s been put in place [has] forced these banks to be more liquid, to have much more [of a] capital buffer, to take less risk,” he said.

    Joost de Graaf, co-head of European credit at Van Lanschot Kempen, agreed.

    “There are not any hidden skeletons in [banks’] balance sheets as far as we know.”

    — Julia Horowitz contributed reporting.

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  • Report: Housing Affordability Is at an All-Time Low | Entrepreneur

    Report: Housing Affordability Is at an All-Time Low | Entrepreneur

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    Although the housing market has shown signs of cooling in certain areas after all-time highs throughout 2022, new data has found that housing affordability is still a widespread issue for Americans.

    According to the Atlanta Fed’s Housing Affordability Monitor, housing affordability is worse today than it was more than a decade ago during the housing bubble of 2008. As of December 2022, the average American household would need to spend 42.9% of its income to afford a median-priced home. This marks a new high since August 2006, when it was 41.1%. The data also found that affordability declined 24% year-over-year.

    Related: In the ’80s, Mortgage Rates Were Almost Three Times As High — But It’s Still Harder To Buy a Home Now

    The steep decline in housing affordability could be the result of ongoing high prices for housing coupled with rising mortgage rates. When the housing market boomed during the pandemic into 2021 and much of 2022, home prices reached record highs across the country.

    Over the past year, as prices began to box out millions of would-be buyers and the Fed raised interest rates, demand finally began to slow. Still, despite the decline in home prices, housing affordability is at an all-time low, and the total value of American homes is still up 6.5% from the same period a year ago, according to the data. Although mortgage rates are high, they’re not as high as they were at the peak of November 2022 at 7.08%, so the slight decline sparked a minor uptick in homebuyers at the beginning of 2023, demonstrating just how competitive the housing market still is.

    Related: Declining Mortgage Rates Spark Uptick in Interest from Would-Be Homebuyers

    For those looking to buy a home, it might be wise to wait it out for a few more months.

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    Madeline Garfinkle

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  • What’s changed since Powell last headed to Capitol Hill | CNN Business

    What’s changed since Powell last headed to Capitol Hill | CNN Business

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    Minneapolis
    CNN
     — 

    Federal Reserve Chair Jerome Powell is set to appear before the Senate Banking Committee Tuesday to deliver the first part of his two-day semiannual monetary policy testimony before Congress.

    It’s his first appearance before the committee since June last year, when inflation was on its way to 9%.

    Powell is expected to speak to the progress the US central bank has made in its yearlong campaign to rein in high inflation by ratcheting up its benchmark interest rate from near zero to between 4.5% to 4.75%.

    Inflation has slowed in recent months, measuring 6.4% in January after hitting a 40-year high of 9.1% in June. However, the battle is not yet won, and Powell and other Fed officials have cautioned that disinflation will be bumpy and there’s a long “ways to go.”

    Fed policymakers have warned in recent weeks that interest rates will likely have to remain higher for longer in order for inflation to settle down to the central bank’s 2% target.

    This time last year, Powell’s congressional address came on the heels of Russia’s invasion of Ukraine, surging gas prices and a significant escalation in US inflation. The economy continuing to rebound and repair itself from the lingering effects of the pandemic — including the disruptions of the Omicron variant.

    Faced with a strong labor market, uncertain geopolitical developments and surging inflation, Powell told members of Congress then that he’d likely propose a quarter-point rate hike at the central bank’s forthcoming meeting.

    It’s now March 2023, and the central bank is faced with an “extraordinarily strong” labor market, ongoing geopolitical uncertainty and stubborn inflation. However, there are signals that some inflationary pressures have eased: China’s economic growth was recently downgraded; and supply chain disruptions are easing, the Federal Reserve Bank of New York reported Monday.

    The markets are currently expecting the Fed to make another quarter-point rate hike during its next meeting two weeks from now: The CME FedWatch Tool is showing a 69.4% probability of such a hike. However, the perceived chances of a half-point increase (at 30.6%) have grown considerably during the past few weeks. One month ago, the probability for a half-point increase was 3.3%, according to the CME FedWatch Tool.

    Still, several major pieces of economic data — including the latest labor turnover report, monthly jobs report, Consumer Price Index, Producer Price Index, and retail sales — are all due ahead of the Fed’s next policymaking meeting on March 21-22.

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  • JPMorgan Chase CEO Jamie Dimon says Ukraine invasion is a top economic concern | CNN Business

    JPMorgan Chase CEO Jamie Dimon says Ukraine invasion is a top economic concern | CNN Business

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    New York
    CNN
     — 

    The war in Ukraine and US-China relations are two of JPMorgan Chase CEO Jamie Dimon’s largest economic concerns, he said Monday.

    “The thing I worry the most about is Ukraine,” he told Bloomberg Television in an interview Monday morning. “It’s oil, gas, the leadership of the world, and our relationship with China — that is much more serious than the economic vibrations that we all have to deal with on a day-to-day basis.”

    Russia’s invasion of Ukraine began more than a year ago and has roiled the global economy, leading to energy and food price shocks, along with global supply chain disruptions that fueled surging inflation across the world and led to painful interest rate hikes from the world’s central banks.

    “This is the most serious geopolitical thing we’ve had to deal with since World War II,” Dimon said Monday, also highlighting the war’s impact on relations with China.

    Beijing enjoys a close relationship with Moscow, and the Chinese government has been purchasing Russian energy and supplying machinery, electronics, base metals, vehicles, ships and aircraft, throwing the Kremlin an economic lifeline.

    In recent months, tensions between the United States and China have increased as the countries compete for dominance of the microchip industry and argue over tariffs, US support for Taiwan and potential spy balloons.

    Dimon said JPMorgan Chase is taking an active role in improving the relationship between the United States and China by advising and engaging with both governments on keeping cordial relations. He’s hoping that “cooler heads prevail” but he doesn’t believe a business solution exists to ease growing disputes. While JPMorgan Chase does a fair share of business with Beijing, it’s the government, not private enterprise, that has to smooth tensions, he said.

    “We probably should have started resetting this 10 years ago,” he said. The US government has to sit down and have a “very serious conversation with the Chinese government,” he said.

    Dimon added that he believes the war in Ukraine could continue for years to come.

    On the home front, Dimon is still holding out hope for the possibility that the Federal Reserve can execute a soft landing — lowering interest rates while avoiding recession. But overall, his outlook remains cloudy.

    “A mild recession is possible, a harder recession is possible,” he said Monday. “I think there’s a good chance that inflation will come down, but not enough by the fourth quarter — the Fed may actually have to do more,” he said.

    Dimon did note that the US consumer is still very healthy: Home prices and wages are high, households still have more money in their bank accounts than they did before the pandemic and they’re still spending it.

    Consumers are in great shape, he said. “But that’s going to end at some point.”

    Still, even if America does enter a recession, he said, consumers are much stronger and will be able to better withstand a downturn than they were in 2008.

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  • More rate hikes are needed, says Fed’s Mary Daly | CNN Business

    More rate hikes are needed, says Fed’s Mary Daly | CNN Business

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    New York
    CNN
     — 

    Federal Reserve policymakers will need to raise interest rates higher and keep them there longer to tackle the higher prices caused by sticky inflation, San Francisco Fed President Mary Daly said Saturday.

    “It’s clear there is more work to do,” Daly said in a speech at Princeton University. “In order to put this episode of high inflation behind us, further policy tightening, maintained for a longer time, will likely be necessary.”

    Daly acknowledged that high inflation and the aggressive policy action taken by the Fed to bring it down have caused panic on Main Street and Wall Street. “The responses range from fearing these actions will tip the economy into a recession to fearing they won’t be enough to get the job done,” she said.

    That fear has led volatile market swings upon each release of new economic data as uncertainty leads investors to “look for answers in the immediate,” said Daly, “but achieving our mandated goals takes time and a broader view.” The Fed’s current tightening regimen, she said, “was and remains appropriate given the magnitude and persistence of elevated inflation readings.”

    High inflation levels in goods, housing and other sectors along and strong economic data, she said, has led her to question the momentum of disinflation.

    Daly does not currently vote on Fed policy decisions but is a member of the Federal Open Market Committee and participates in policy meetings.

    Her speech followed a week of similar warnings from the Federal Reserve.

    Minneapolis Federal Reserve President Neel Kashkari said last Wednesday that he’s “open to the possibility” of a larger interest rate increase in the Fed’s March policy meeting, “whether it’s 25 or 50 basis points.” (That’s a quarter or half of a percent. A basis point is one hundredth of one percent).

    Atlanta Fed President Raphael Bostic also said Wednesday that he believes the Fed needs to raise its policy rate by half a percentage point at the next meeting.

    On Thursday, Fed Governor Christopher Waller warned that painful interest rates could go higher than expected, citing a slew of recent stronger-than-expected economic data.

    The Federal Reserve has lifted its target range for interest rates from near zero to between 4.5% to 4.75% over the past year in their fight against inflation. In February, they slowed the pace of their hikes to a quarter of a percentage point, down from half a percent in December. Inflation reached a 40-year high in 2022 but began to fall in the final quarter of the year. January’s inflation data showed that the rate of prices increases had inched up once again.

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  • China to increase defense spending 7.2%, sets economic growth target of ‘around 5%’ for 2023 | CNN Business

    China to increase defense spending 7.2%, sets economic growth target of ‘around 5%’ for 2023 | CNN Business

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    Hong Kong
    CNN
     — 

    China has set an official economic growth target of “around 5%” for 2023, as it seeks to revive the world’s second-largest economy after a year of tepid growth because of pandemic measures.

    It will also expand its defense budget 7.2%, marking a slight increase over growth the previous year.

    Both figures for the coming year were released at the opening of the annual gathering of the National People’s Congress (NPC), the country’s rubber-stamp legislature, which draws nearly 3,000 delegates to Beijing for the next eight days.

    “China’s economy is staging a steady recovery and demonstrating vast potential and momentum for further growth,” outgoing Premier Li Keqiang told delegates while delivering a government work report at the opening of the congress on Sunday.

    The economy added more than 12 million urban jobs last year, with the urban unemployment rate falling to 5.5%, according to the work report, which emphasized China’s focus on ensuring stable growth, employment and prices amid global inflation and set the GDP target.

    China also unveiled its annual military budget for 2023, which will increase 7.2% to roughly 1.55 trillion yuan ($224 billion) in a draft budget report released Sunday morning.

    The spending increase marks the second year in a row that the annual hike in military spending has exceeded 7% and tops last year’s 7.1% growth, amid rising geopolitical tensions and a regional arms race. As with other recent years, the figure stays well below the symbolically significant double-digit expansion.

    “The armed forces should intensify military training and preparedness across the board, develop new military strategic guidance, devote greater energy to training under combat conditions and make well-coordinated efforts to strengthen military work in all directions and domains,” Li’s work report said.

    The GDP target and military spending are among the most closely watched in the opening day proceedings, with the GDP target figure in particular being monitored this year as China emerges from its economically draining zero-Covid policy. The new figure appears modest against what some analysts had predicted could be a more robust aim for the year ahead.

    The NPC meeting is a key yearly political event that occurs alongside a gathering of China’s top political advisory body, with the events together known as the Two Sessions.

    This is the first Two Sessions since Chinese leader Xi Jinping secured a norm-breaking third term atop the Chinese Communist Party hierarchy in October. Xi is set to enter his third term as President, a largely ceremonial title, during the congress.

    China’s GDP expanded by just 3% in 2022, widely missing the official target of “around 5.5%” mainly due to prolonged Covid restrictions. It was the second lowest annual growth rate since 1976, behind only 2020 – when the initial Covid outbreaks nearly paralyzed the economy.

    In December, after the Communist Party abruptly ended its zero-Covid policy, a massive wave of infections swept across the country, throwing supply chains and factories into chaos. But the disruptions started to fade away in January, and the economic recovery picked up pace last month.

    Official data released Wednesday showed China’s factories had their best month in nearly 11 years in February, underscoring how quickly economic activity has bounced back following the end of the Covid exit wave. The services and construction industries also had their best performance in two years.

    Moody’s Investors Service has since raised its China growth forecast to 5% for both 2023 and 2024, up from 4% previously, citing a stronger than expected rebound in the short term.

    Analysts had predicted a difficult track to recovery for China amid global headwinds, which may have also been reflected in the conservative 2023 target of “around 5%” announced Sunday.

    The global economy will weaken further this year as rising interest rates and Russia’s war in Ukraine continue to weigh on activity, the International Monetary Fund estimated in January. Global growth will likely slow from 3.4% in 2022 to 2.9% in 2023.

    China is set to release its import and export data for the first two months of this year on Tuesday, which will provide a glimpse into demand for global trade.

    During the congress, the ruling Communist Party’s new economic team, including various ministers and financial chiefs, will be unveiled with other key appointments – already selected by the Communist Party leadership – also approved. Premier Li’s replacement will be formally appointed during the meeting, which runs until March 13.

    The new economic team will face the tough task of reviving the Chinese economy as it navigates a growing array of challenges, including sluggish consumption, rising unemployment, a historic downturn in real estate, and increasing tension with the United States over technology sanctions.

    The 7.2% increase in planned defense spending marks the first time in the past decade that the budget growth rate has increased for three consecutive years, as Beijing continues to modernize and build-up its military, while asserting pressure on Taiwan – the self-governing island democracy the Chinese Communist Party claims as its own despite never having ruled.

    China now controls the world’s largest navy by size and continues to advance its fleet of nuclear submarines and stealth fighter jets.

    The military budget expanded 7.1% to 1.45 trillion yuan in 2022, compared with 6.8% the previous year. The last year China’s annual defense spending grew by double digits was 2015. The size of this year’s budget is more than double that of ten years ago.

    Chinese officials have repeatedly sought to portray their military spending as reasonable relative to other countries like the United States – part of China’s bid to present itself as a peaceful power, despite its aggression in the region including its militarization of the South China Sea and heavy patrolling around Taiwan.

    During a press conference Saturday ahead of the opening day, NPC spokesperson Wang Chao said China’s defense budget maintained a “relatively moderate and reasonable growth rate.”

    “China’s defense expenditure as a percentage of GDP has remained stable over the years. It remains basically stable, lower than the world average,” Wang said.

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  • What you need to know about this earnings season | CNN Business

    What you need to know about this earnings season | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    About 99% of all S&P 500 companies have reported fourth quarter earnings and the results aren’t great.

    Companies listed in the S&P 500 index beat analysts’ earnings estimates by an average of just 1.3% last quarter. For context, that’s way down on the index’s 5-year average of 8.6%, according to FactSet data.

    What’s happening: There have been some steep and disappointing profit misses as corporate America feels the sting of sticky inflation and the Federal Reserve’s interest rate hikes.

    Tech companies fared poorly this season: Apple

    (AAPL)     recorded a rare earnings miss while Intel

    (INTC)     and Google-parent company Alphabet also fell short of expectations.

    But it wasn’t all doom-and-gloom. Energy companies brought in yet another quarter of record profits, with Big Oil companies — such as Chevron, ConocoPhillips, Exxon and Shell — notching their most profitable years in history. Elsewhere, Tesla

    (TSLA)     reported record revenue gains and beat earnings expectations. Big box retailers Target

    (TGT)     and Walmart

    (WMT)     also surpassed estimates as US consumers kept on spending.

    Here’s what else traders need to know about the final few months of last year and beyond.

    Corporate profits could drop for the first time since 2020

    S&P 500 companies are on track to report a 4.6% drop in earnings year-over-year, according to FactSet data. That would mark their first earnings decline since the third quarter of 2020, when Covid shut down large swaths of the economy.

    Gloomy forecasts abound

    About 81 S&P 500 companies have issued negative earnings-per-share guidance for the first quarter of 2023, according to FactSet. That’s a lot higher than the 23 companies reporting positive guidance.

    There was no shortage of foreboding forecasts from top execs on earnings calls this season.

    Walmart beat estimates last quarter, but they also lowered expectations for future earnings.

    Home Depot

    (HD)     CEO Ted Decker said he was concerned that consumers were becoming less resilient to the economy. “We noted some deceleration in certain products and categories, which was more pronounced in the fourth quarter,” he said on an analyst call.

    Lowe’s executives, meanwhile, warned that they were preparing for a “more cautious consumer” this year.

    Investors feel like celebrating

    Wall Street traders appear to be taking this dour earnings season in their stride. The market is “rewarding positive earnings surprises more than average and punishing negative earnings surprises much less than average for the fourth quarter,” reports FactSet.

    Inflation is (still) a big deal

    More than 325 S&P 500 companies have cited the term “inflation” during their earnings calls for the fourth quarter. That’s well above the 10-year average of 157, according to FactSet document searches.

    But the worries over price hikes appear to be waning, at least a little bit. This marks the lowest number of S&P 500 companies using the “I”-word on their calls since the third quarter of 2021. Since last quarter, the number of inflation mentions has fallen by about 20%.

    ▸ ISM Services PMI — a report that measures the strength of the US service sector — is due out at 10 a.m. ET. The data is expected to show a slight slowdown in growth between January and February (54.5 in February vs. 56.5 in January. For context, a reading above 50 means the services economy is expanding).

    That deceleration would be a big deal. It would signal that the economy is beginning to cool and that the Fed’s efforts to fight inflation by raising interest rates are working. If services sector growth accelerates, however, it could signal that more aggressive rate hikes are ahead and send markets lower.

    ▸ Wall Street is anticipating (or dreading, depending on who you ask) next Friday’s unemployment report. The February data is expected to shed some light on a shockingly resilient labor market.

    Another unexpected surge in non-farm payrolls, like the 517,000 new jobs added in January, could indicate more Fed rate hikes are ahead. That could roil markets in this “good news is bad news” environment.

    Analysts expect that the economy added 200,000 new jobs last month, according to Refinitiv data.

    ▸ The Chinese economy surprised investors this week by quickly bouncing back from its zero-Covid shutdowns. China’s first consumer price index, producer price index and trade figures of 2023 are set to be released next week, which will show the full extent of the country’s rebound.

    “These numbers will offer the first official indications of mainland China’s reopening effect following the rebound seen in PMI numbers,” wrote analysts at S&P Global.

    Global manufacturing rose in February for the first time in seven months, according to the latest PMI surveys compiled by S&P Global. That growth was largely spurred on by China’s reopening.

    Shares of Silvergate Capital, a large lender to cryptocurrency firms, plunged nearly 60% — a record drop — on Thursday after the company told the Securities and Exchange Commission that it won’t be able to file its annual report on time and cited concerns about its ability to remain in business.

    The majority of Silvergate’s crypto clients, including Coinbase, Paxos, Galaxy Digital and Crypto.com, quickly cut ties with the bank amid the chaos.

    So what does it all mean?

    My colleague Allison Morrow explains: The California-based lender reported a $1 billion loss for the fourth quarter as investors panicked over the collapse of FTX, the exchange founded by Sam Bankman-Fried that is now at the center of a massive federal fraud investigation.

    FTX’s collapse in November rippled through the digital asset sector, forcing several firms to halt operations and even declare bankruptcy as liquidity dried up and investors fled.

    But unlike FTX, BlockFi, Celsius, Voyager and other crypto companies that folded last year, Silvergate is a traditional, federally insured lender that has positioned itself as a gateway to the crypto sector.

    It’s among the first major instances of crypto’s volatility spilling into the mainstream banking system — a scenario regulators and crypto skeptics have long feared.

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  • The US dollar is at a crossroads | CNN Business

    The US dollar is at a crossroads | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    Wall Street investors are reaching for their neck braces in preparation for yet another volatile swing in stock markets: A surging US dollar.

    The greenback — which is not just the dominant global currency but also “the key variable affecting global economic conditions,” according to the New York Federal Reserve — reached a 20-year high last year after the Fed turned hawkish with its aggressive rate hikes.

    Since then, inflation seemed to have softened, pushing the dollar down. But in recent weeks, as a slew of economic data has shown the Fed’s inflation battle is far from over, the currency soared by about 4% from its recent lows, and now sits near a seven-week high.

    Investors are stressing about this sudden rebound, since a stronger dollar means American-made products become more expensive for foreign buyers, overseas revenue decreases in value and global trade weakens.

    Multinational companies, naturally, aren’t thrilled about any of this. And around 30% of all S&P 500 companies’ revenue is earned in markets outside the US, said Quincy Krosby, chief global strategist for LPL Financial.

    What’s happening: The US dollar “finds itself at a significant crossroads yet again,” said Krosby. “While the Fed remains steadfastly data dependent, the dollar’s course as well remains focused on inflation and the Fed’s monetary response.”

    “The strong US dollar has been a headwind for international earnings and stock performance (for US investors),” wrote Wells Fargo analysts in a recent note.

    February was a rough month for markets: The Dow ended February down 4.19%, the S&P 500 fell 2.6% and the Nasdaq lost just over 1%.

    What’s next: Investors are clearly focused on the next Fed policy meeting, which is still three weeks away, for signals about the direction of rates. But until then, investors may gain some insight Tuesday when Fed Chairman Jerome Powell speaks before the Senate Banking Committee.

    They’ll also be watching next Friday’s jobs report for any softening in the labor market that could temper the Fed’s hawkish mood.

    Don’t forget the debt ceiling: Another significant threat to the dollar is looming in Congress — the ongoing debt ceiling fight. The United States could start to default on its financial obligations over the summer or in the early fall if lawmakers don’t agree to raise the debt limit — its self-imposed borrowing limit — before then, according to a new analysis by the Bipartisan Policy Center.

    That could potentially lead to a disastrous downgrade to America’s credit rating and could send the dollar spiraling as investors start to sell off their US assets and move their money to safer currencies.

    “It would certainly undermine the role of the dollar as a reserve currency that is used in transactions all over the world. And Americans — many people — would lose their jobs and certainly their borrowing costs would rise,” Treasury Secretary Janet Yellen told CNN in January.

    ▸ A lot has changed in the last twenty years. The gender pay gap hasn’t.

    In 2022, US women on average earned about 82 cents for every dollar a man earned, according to a new Pew Research Center analysis of median hourly earnings of both full- and part-time workers.

    That’s a big leap from the 65 cents that women were earning in 1982. But it has barely moved from the 80 cents they were earning in 2002.

    “Higher education, a shift to higher-paying occupations and more labor market experience have helped women narrow the gender pay gap since 1982,” the Pew analysis noted. “But even as women have continued to outpace men in educational attainment, the pay gap has been stuck in a holding pattern since 2002, ranging from 80 to 85 cents to the dollar.”

    ▸ Initial jobless claims, which measures the number of people who filed for unemployment insurance for the first time last week, are due out at 8:30 a.m. ET on Thursday.

    This will be the last official jobs data investors see before February’s heavily anticipated unemployment report next Friday.

    Economists are expecting 195,000 Americans to have filed for unemployment, which is higher than the seasonally adjusted 192,000 who applied two weeks ago.

    Initial claims have come in lower than expected in recent weeks and remain well below their pre-pandemic levels.

    The white-hot labor market in the US added more than 500,000 jobs in January, blowing analysts’ expectations out of the water and bringing the unemployment rate to its lowest level since May of 1969.

    That’s bad news for the Federal Reserve where policymakers have been attempting to tame inflation by cooling the economy through painful interest rate hikes.

    ▸ It’s a big day for groceries. Kroger (KR), Costco (COST) and Anheuser-Busch (BUD) all report earnings on Thursday.

    Investors will be watching closely for clues about consumer sentiment during an uncertain retail earnings season. On Tuesday, Kohl’s reported that it had a rough holiday season and executives at the company put the blame on inflation. The company said higher prices squeezed sales and forced it to mark down some products to entice shoppers — which hurt its profit margin.

    Those comments echoed those of other big box retailers like Walmart (WMT) and Target (TGT), who have said consumers are feeling the pinch of inflation.

    Still, Target and Walmart’s bottom lines were bolstered by food sales even as consumers pulled back on discretionary purchases.

    The US Senate voted on Wednesday to overturn a Biden administration retirement investment rule that allows managers of retirement funds to consider the impact of climate change and other ESG factors when picking investments.

    As my CNN colleagues Ali Zaslav, Clare Foran and Ted Barrett write: The rule is not mandated – it allows, but does not require, the consideration of environmental, social and governance factors in investment selection.

    Republicans complained that the rule is a “woke” policy that pushes a liberal agenda on Americans and will hurt retirees’ bottom lines.

    “This rule isn’t about saying the left or the right take on a given environmental, social, or governance issue is ‘correct,’” countered Senator Patty Murray (D-WA) on the Senate floor Wednesday. “It’s about acknowledging these factors are reasonable for asset managers to consider.”

    The measure will next go to President Joe Biden’s desk as it was passed by the House on Tuesday. The administration, however, has issued a veto threat. As a result, passage of the resolution could pave the way for Biden to issue the first veto of his presidency.

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  • Economists’ crystal balls are growing cloudier. But they still expect a recession | CNN Business

    Economists’ crystal balls are growing cloudier. But they still expect a recession | CNN Business

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    Minneapolis
    CNN
     — 

    The US economy is confusing: Jobs are surging. Inflation has been cooling but still running relatively hot. Gas prices are on the rebound. Consumers keep spending, and their confidence is growing. But holiday sales were tepid. Corporate layoffs are mounting. Company earnings aren’t stellar. And mortgage rates are ticking higher.

    In a time when the economic data has delivered mixed messages or flat out busted expectations, economists’ predictions for the year ahead are growing increasingly opaque.

    The National Association for Business Economics’ latest survey, released Monday, shows a “significant divergence” among respondents about where they think the US economy is heading in 2023, the organization’s president said.

    “Estimates of inflation-adjusted gross domestic product or real GDP, inflation, labor market indicators, and interest rates are all widely diffused, likely reflecting a variety of opinions on the fate of the economy — ranging from recession to soft landing to robust growth,” Julia Coronado, NABE’s president, said in a statement.

    Nearly 60% of survey respondents said they believe the US had a more than 50% shot of entering a recession in the next 12 months.

    When such a recession would start was another matter: 28% said first quarter, 33% said second quarter, and 21% said third quarter.

    As the Federal Reserve’s battle against high inflation continues to loom large, economists anticipate that key inflation gauges will slow this year, landing around 2.7% to 3% in 2023 and inching closer to the 2% target by 2024.

    Creating some uncertainty among economists, however, is what the Fed might do during that time as well as the potential effect from external factors.

    “Panelists’ views are split regarding how high the Federal Reserve may raise interest rates, how long rates might stay at the peak, when cuts would begin, and what would signal the central bank’s actions on each of these fronts,” Dana M. Peterson, NABE Outlook Survey chair, and chief economist at the Conference Board, said in the report. “Respondents are also highly concerned but divided in their opinions regarding the consequences of other matters that might affect the US economy, including the impact of China’s reopening on global inflation and the looming debt ceiling.”

    In terms of the labor market, which remains strong and tight, panelists’ median projections for monthly payroll growth this year was 102,000, a significant upward revision from projections in December for 76,000 jobs per month.

    NABE economists said they expect unemployment to increase, but the majority doubt it’ll exceed 5%.

    On the housing front, they expect home prices and new home construction to continue to fall this year, projecting that housing starts could see their largest decline since 2009.

    But they don’t anticipate the downturn to swing into “bust” territory. A mere 2% of respondents said that a “housing market bust” was the greatest downside risk to the US economy in 2023.

    Instead 51% of respondents said the biggest downside risk was too much monetary tightening. Trailing far behind in second was the broadening of war in Ukraine, with 12%.

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  • Inflation is doing a crab walk and Fed officials fear its pinch | CNN Business

    Inflation is doing a crab walk and Fed officials fear its pinch | CNN Business

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    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    The possibility of a 2023 market rally ground to a halt last week amid an onslaught of unfortunate inflation and economic data that spooked investors and increased the likelihood that the Federal Reserve will continue its economically painful rate hikes campaign for longer than Wall Street hoped.

    All major indexes notched their largest weekly losses of 2023 on Friday. The S&P 500 fell by 2.7%. The Dow Jones Industrial Average sank 3%, and the tech-heavy Nasdaq fell 3.3%.

    What’s happening: It appears that after months of steady decline, the pace of inflation is going sideways. January’s Personal Consumption Expenditures price index – the Fed’s favored inflation gauge – came in hotter than expected on Friday.

    Prices rose a whopping 5.4% in January from a year earlier, the Commerce Department’s Bureau of Economic Analysis reported. In December, prices rose 5.3% annually.

    In January alone, prices were up 0.6% from the prior month, a higher monthly gain from December’s increase of 0.2%.

    This inflationary crab walk is almost certainly causing Fed officials to rethink their policy.

    A paper presented Friday at the Booth School of Business Monetary Policy Forum in New York argued that disinflation will likely be slower and more painful than markets anticipate.

    “Significant disinflations induced by monetary policy tightening are associated with recessions,” said the paper. “An ‘immaculate disinflation’ would be unprecedented.” (Immaculate, in this instance, refers to the possibility of inflation falling quickly to the Fed’s 2% goal without any serious economic damage).

    Several Fed presidents, governors and top economists were on hand at the Booth School forum to discuss the paper and monetary policy on Friday. The majority of those speaking expressed deep concern about the stubbornness of inflation and general market reaction.

    Inflation won’t quit: Cleveland Fed President Loretta Mester said that while price growth has moderated from its recent high, the overall pace of inflation remains too high and could be more persistent than her colleagues currently anticipate.

    “I anticipate further rate increases to reach a sufficiently restrictive level, then holding there for some, perhaps extended, time,” echoed Boston Fed President Susan Collins at the conference.

    Collins referred to inflation as “recalcitrant,” a loaded million-dollar word that means uncooperative, or defiant to authority.

    Fed Governor Philip Jefferson struck a more befuddled stance on Friday, observing that inflation continues to baffle economists. “The inflationary forces impinging on the US economy at present represent a complex mixture of temporary and more long-lasting elements that defy simple, parsimonious explanation,” he said. Parsimonious being another million-dollar word for frugal.

    Economists stressed that more pain lies ahead. “It’s important that markets understand that ‘no landing’ is not an option,” said Peter Hooper, vice chair of research at Deutsche Bank, an author of the report.

    While recent data has signaled that the US economy remains strong, “by the time we get to the middle of this year we expect to see some bad news coming and the sooner the markets get that message the more helpful it will be to the Fed,” he said.

    The final word: Former Bank of England Governor Lord Mervyn King summed up what many were thinking on Friday: Given the complexity of the current monetary situation, he said, “I wouldn’t want to give advice to any central banks about what we should do.”

    Researchers at the Federal Reserve Bank of New York have issued a dire warning: If President Joe Biden’s student loan forgiveness plan doesn’t come to fruition, the US could face another credit crisis.

    Some background: The Covid-19 crisis triggered a sudden shift in student loan policy and a new openness to forgiveness. In March 2020, Congress passed the CARES Act, which automatically paused required payments on all federally held student loans.

    That forbearance has since been extended eight times and is set to end as late as August, 40 months after it began.

    The Biden Administration had announced an unprecedented debt cancellation proposal which would provide relief to more than 40 million borrowers. An analysis by the New York Fed found that roughly $441 billion of federal student loans are eligible for forgiveness under the proposal, canceling about 30% of all outstanding federal student loan debt.

    That forgiveness proposal is now on hold after an injunction by the 8th US Circuit Court of Appeals. On Tuesday, The Supreme Court of the United States will hear the case with its decision expected by June 2023.

    What’s on the line: If the Biden Administration’s forgiveness plan survives the court challenge, it will mark the largest mass discharge of consumer debt in modern history, according to the New York Fed. About 40% of those with federal student loan debt would have a zero balance; even more would have a much smaller monthly payment.

    But, “if payments resume without debt relief, we expect both student loan default and delinquencies to rise and potentially surpass pre-pandemic levels,” warned Fed researchers.

    “We note a stark increase in new credit card and auto loan delinquency for borrowers with eligible student loans over the past few quarters, growing at a faster pace than those without student loans and those with ineligible loans,” they wrote.

    Those missed payments suggest that some federal student loan borrowers are having trouble meeting their monthly debt obligations. “We expect these delinquency patterns to worsen if federal student loan payments resume without relief,” said the report.

    The data “may be suggestive of problems to come, a sign of economic distress that may appear particularly concerning when the burden of student loan payments resumes.”

    Future concerns: If student loan borrowers expect future debt cancellation, they may borrow even more, said researchers, which would increase debt balances even more sharply. “Absent direct policies to address this growing burden, taxpayers may be again called to for relief in the future,” they concluded.

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