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Tag: economic news

  • Construction spending inches up, showing signs of a recovery in housing

    Construction spending inches up, showing signs of a recovery in housing

    The construction industry posted a slight gain in May as companies and the government increased spending on projects across the U.S.

    Spending on construction projects rose 0.9% in May to $1.93 trillion, the Commerce Department reported Monday. 

    Wall Street was expecting construction spending to rise 0.5% in April.

    Construction spending reveals how much the government and private companies spend on projects, from housing to highways. The more the U.S. spends on construction, the higher the level of economic activity. 

    The government revised spending on construction in April to 0.4% from an initial read of a 1.2% increase.

    Over the past year, construction spending was up 2.4%. 

    In terms of residential real estate, private residential construction fell 11.6% in May as compared to the previous year. It was up 2.2% as compared to April.

    Single-family construction rose on a month-over-month basis in May by 1.7%, but fell sharply by 25% from last year.

    Multifamily construction fell by 0.1% in May, but increased by 20.4% from last year.

    Spending on public residential construction rose by 0.1% from last month, and 12.3% from last year. The U.S. increased spending on public residential construction by 1.1% from last month, and 8.3% over the last year.

    The increase in spending May overall was “strong,” Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, wrote in a note.

    “In particular, new residential activity jumped by 2.2%, reversing the cumulative declines recorded over the three prior months,” he added. “This lines up with the big increase in housing starts in May and adds to the growing body of evidence that the housing sector is bottoming out.”

    Stocks
    DJIA,
    +0.11%

    SPX,
    +0.04%
    were down in early trading on Monday. The 10-year Treasury note
    TMUBMUSD10Y,
    3.844%
    was around 3.8%.

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  • Recession canceled? U.S. stock market ‘pretty frothy’ after S&P 500’s strongest first half since 2019.

    Recession canceled? U.S. stock market ‘pretty frothy’ after S&P 500’s strongest first half since 2019.

    The S&P 500 index just wrapped up its strongest first half of a year since 2019, as a U.S. recession feared near by many investors seems perpetually further away than anticipated, leaving the stock market rally’s momentum for the rest of 2023 in question.

    It’s “difficult to gauge” when the “liquidity unleashed” by the U.S. government during the pandemic will run out, said José Torres, senior economist at Interactive Brokers, in a phone interview, referring to fiscal and monetary stimulus in 2020-2021. While the Federal Reserve has been raising interest rates since 2022 to battle high inflation, the Fed’s intervention after regional-bank failures in March provided more liquidity to the financial system, he said.

    That “created this environment for risk assets to run higher,” said Torres. And then, the artificial-intelligence craze has more recently driven “momentum” in U.S. stocks, he said. “I think the market goes lower from here.”

    The S&P 500
    SPX,
    +1.23%
    in mid-March was trading near its starting level in 2023, as regional-bank woes weighed on stocks before the Fed’s intervention that month. The central bank’s bank term funding program, announced March 12, helped shore up confidence in the banking system, taking off “a lot of pressure on financial conditions,” according to Torres. 

    The S&P 500 rose 15.9% in the first six months of 2023 for its strongest first-half of a year since 2019, according to Dow Jones Market Data. Each of the index’s 11 sectors climbed in June, marking the first time since November that all of them were up in the same month.

    The U.S. economy has been resilient despite the Fed’s rapid interest rate hikes in 2022 to cool demand and bring down still high inflation. Investors appear to be shrugging off recession worries after some surprisingly strong economic data in recent days.

    “Ladies and Gentleman, the recession has been cancelled!” wrote Bernard Baumohl, chief global economist at the Economic Outlook Group, in a note emailed June 29.  

    “Let’s not forget that despite the economy’s impressive performance the first three months, prices have continued to ease as well,” Baumohl said in the note. “Virtually every inflation metric has been falling,” he said, so “unless inflation shows signs of reversing course and accelerates, the Fed should maintain its current pause.”

    The Fed has slowed its interest-rate hikes this year, pausing them at its June policy meeting while signaling that further rate increases may still be coming. Federal-funds futures on Friday showed traders largely expecting the Fed to lift its benchmark rate by a quarter point in July to a targeted range of 5.25% to 5.5%, according to the CME FedWatch Tool, at last check. 

    Investors have cheered the Fed’s pause, with many expecting it’s near the end of its rate-hiking cycle, which had led to brutal losses for stocks and bonds last year. 

    Meanwhile, economic data released in the past week showed a revised estimate for U.S. growth in the first quarter was higher than anticipated; new orders for manufactured durable goods were stronger than expected in May; sales of newly built homes that same month beat economists’ forecasts; consumer confidence jumped in June to a 17-month high based on a Conference Board survey; and that initial jobless claims in the week ending June 24 fell.

    See also: U.S. economy on track to grow as fast as 2% in the second quarter

    Investors also welcomed more evidence of inflation easing. U.S. inflation measured by the personal-consumption-expenditures price index softened to 3.8% in May on a 12-month basis, the slowest increase since April 2021, based on a government report Friday. 

    But Torres said he worries the U.S. economy may be growing too fast for the Fed’s fight with inflation, potentially leading the central bank to become more hawkish by further tightening monetary policy. 

    ‘Shocked’

    “There’s a huge discrepancy” between two-year Treasury yields
    TMUBMUSD02Y,
    4.908%
    and where the Fed has indicated its benchmark rate may wind up at the end of its hiking cycle, he said. That’s after the recent rise in two-year yields from the wake of their fall during the regional-banking stress.

    The Fed’s summary of economic projections, released in June, showed its policy rate could wind up as high as 5.6% by the end of this year, compared to a current targeted range of 5% to 5.25%. 

    Meanwhile, the yield on the two-year Treasury note rose 81.7 basis points in the second quarter to 4.877% on Friday, the highest level since March 9 based on 3 p.m. Eastern Time levels, according to Dow Jones Market Data.

    “I’ve been shocked the market has already been able to digest this yield move to the upside,” said Torres. “There’s still more room to the upside on yields,” he said, adding that two-year Treasury rates often are viewed as a gauge of how hawkish the Fed may be with its policy rate.

    The U.S. stock market rose on Friday, closing out June with weekly, monthly and quarterly gains.

    The S&P 500 and Nasdaq Composite
    COMP,
    +1.45%
    each finished the month at its highest closing level since April 2022, with both indexes notching their longest monthly win streaks since 2021, according to Dow Jones Market Data. The technology-heavy Nasdaq soared 31.7% during the first six months of 2023, clinching its best first half since 1983.

    Sentiment in the stock market has gotten “pretty frothy,” making equities vulnerable to a decline, said Liz Ann Sonders, chief investment strategist at Charles Schwab, in a phone interview. “On the surface the market has been incredibly resilient, but of course the concentration has been extreme.” 

    She pointed to a “small handful” of megacap stocks, including names like Apple Inc.
    AAPL,
    +2.31%
    Microsoft Corp.
    MSFT,
    +1.64%
    and Nvidia Corp.
    NVDA,
    +3.63%    ,
    powering the performance of the S&P 500 and Nasdaq.

    Read: Apple clinches $3 trillion valuation, becoming first U.S. company to close at that mark

    Such stocks “really kicked into high gear” at the start of the banking trouble in March, as investors, in a defensive move, sought companies that are “highly liquid” and generate cash, she said.

    Stocks in that megacap group, sometimes referred to as Big Tech although they span sectors including communication services and consumer discretionary as well as information technology, have also benefited from AI exposure, said Sonders.

    Weakness, strength on the roll

    Sonders said she sees the U.S. as having experienced “rolling” recessions in different segments – such as housing or manufacturing – as opposed to the entire economy being swept up in a full-blown downturn. “The recession versus no recession debate” is missing the current nuances of this cycle, in her view.

    “We’ve seen weakness and strength rolling through the economy as opposed to everything either booming at the same time, or falling apart at the same time,” she said. So while cracks may turn up in the services sector, the U.S. could still benefit from other areas, such as the recent lift seen in the housing market, which already has gone through a recession, according to Sonders.

    Read: Homebuilder ETF outperforms S&P 500, industry’s stocks still ‘cheap’ in 2023 market rally

    In the stock market, megacap names have gotten a lot of attention for their surge this year, yet other pockets, such as homebuilders and the S&P 500’s industrials sector, have recently done well, she said. Industrial stocks
    SP500EW.20,
    +0.92%
    recently stood out to Sonders for their “decent breadth.”

    But to her thinking, “this is not the kind of environment to make a monolithic sector call or two,” rather Sonders favors screening stocks for characteristics such as “high quality” when looking for investment opportunities.

    Fluctuating financial conditions have made it harder to discern when the U.S. could fall into a recession, according to Torres. But rates rising further poses the risk of returning to the kind of environment that created stress for regional banks, he said. And with “commercial real estate lurking in the background” as a concern, he said it’s tough to see the stock market climbing from the S&P 500’s already “rich” levels.

    “The higher the Fed pushes rates, the more pressure that’s gonna put on bank balance sheets,” said Charlie Ripley, senior investment strategist for Allianz Investment Management, in a phone interview. “It just becomes a question of whether or not you’re going to see a run on a particular bank.”

    This coming week, the Fed will release minutes from its June policy meeting. Investors will see them on Wednesday, the day after the July 4 holiday in the U.S. 

    While the S&P 500 has rallied in 2023, shares of the SPDR S&P Regional Banking ETF
    KRE,
    -1.14%
    sank 30.5% in the first half of the year while the Invesco KBW Bank ETF
    KBWB,
    +0.24%
    is down 20.5% over the same period, according to FactSet data.

    “There is a lot of dispersion within the market,” said Ripley. “There are pockets that are doing better than others.”

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  • JPMorgan, Goldman, Citi and Morgan Stanley boost dividends after Fed stress tests

    JPMorgan, Goldman, Citi and Morgan Stanley boost dividends after Fed stress tests

    Major U.S. banks including Morgan Stanley and JPMorgan Chase & Co. announced dividend increases late Friday, in the wake of the results of the Federal Reserve’s latest bank stress tests earlier this week.

    JPMorgan
    JPM,
    +1.40%
    said it plans to raise the bank’s dividend to $1.05 a share, up from $1 a share, for the third quarter, subject to board approval.

    The stress tests “show that banks are resilient — even while withstanding severe shocks — and continue to serve as a pillar of strength to the financial system and broader economy,” JPMorgan Chief Executive Jamie Dimon said in a statement.

    “We continue to maintain a fortress balance sheet with strong capital levels and robust liquidity,” Dimon added.

    Morgan Stanley
    MS,
    +0.19%
    said it will increase its quarterly dividend to 85 cents a share from the current 77.5 cents a share, beginning with its third-quarter dividend. The bank also said that its board reauthorized a multiyear share buyback totaling as much as $20 billion, without an expiration date, beginning in the third quarter.

    Don’t miss: Fed stress tests see large banks able to handle recession and slide in commercial-real-estate prices

    See also: Wall Street upbeat on banks after ‘mostly positive’ Fed stress tests results

    “The results of the Federal Reserve’s stress test demonstrate the durability of our transformed business model. We remain committed to returning capital to our shareholders and are raising our dividend by 7.5 cents,” Chief Executive James P. Gorman said in a statement.

    Wells Fargo
    WFC,
    +0.54%    ,
    for its part, said it will increase its dividend to 35 cents a share, up from 30 cents a share, subject to board approval. It said it has the capacity to undertake a share buyback, “which will be routinely assessed as part of the company’s internal capital adequacy framework that considers current market conditions, potential changes to regulatory capital requirements, and other risk factors,” without elaborating further.

    Goldman Sachs Group Inc.
    GS,
    -0.17%
    said it would raise its dividend, to $2.75 a share from $2.50 a share, starting July 1.

    Market Pulse: Goldman Sachs reportedly looking to exit Apple partnership

    Citigroup Inc. C said its board had approved an increase in its quarterly dividend to 53 cents a share, from 51 cents, also for the third quarter.

    Citi Chief Executive Jane Fraser said that, while the bank “would have clearly preferred not to see an increase in our stress capital buffer, these results still demonstrate Citi’s financial resilience through all economic environments, including the severely adverse scenario envisioned in the Federal Reserve’s stress test.”

    Citi’s “robust capital and liquidity position, as well as the diversification of our funding and our business model, allow Citi to continue to be a source of strength for our clients and navigate challenging macro environments securely,” Fraser said.

    The bank bought back $1 billon in shares in the second quarter and will continue to evaluate its capital actions, the chief executive said. “We are completely committed to simplifying Citi, improving returns and delivering value to our shareholders.”

    Shares of Morgan Stanley and Wells Fargo rose 1.5% and 0.1%, respectively, in the after-hours session after ending the regular trading day up a respective 0.2% and 0.5%. JPMorgan shares edged up 0.2% in the extended session after closing 1.4% higher on Friday. Citigroup shares were up 0.2%, while Goldman’s were largely unchanged.

    Bill Peters contributed.

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  • A breakfast-cereal giant’s grumbles about prices could be music to the Fed’s ears

    A breakfast-cereal giant’s grumbles about prices could be music to the Fed’s ears

    General Mills the megamanufacturer behind your morning Cheerios, reported a drop in earnings that might make it question whether continuing to raise prices is worth it. 

    General Mills
    GIS,
    +0.52%
    CEO Jeff Harmening acknowledged during the company’s fourth-fiscal-quarter earnings call this week that consumers responded to higher prices by making fewer purchases. “As you look at the last 12 weeks, it’s pretty clear that elasticity — volume elasticities have increased,” which may suggest consumer demand is more sensitive to price increases than it had been previously.

    In business and economics, price elasticity refers to the degree to which individuals, consumers or producers change their demand or the amount supplied in response to price or income changes.

    “ ‘Companies have been raising prices pretty aggressively. We’re seeing that trend definitely subside.’ ”


    — Richard Moody, Regions Financial Corp.

    The manufacturer of the Häagen-Dazs, Pillsbury and Betty Crocker product lineups, as well as its famed breakfast cereals, felt the impact of this phenomenon as it reported a decline in profits and sales volume for its fourth quarter. 

    Read: General Mills’ stock slides 5% as sales fall short. North American retailers are reducing inventory.

    Richard Moody, chief economist at Regions Financial Corp., said higher prices are posing an issue for companies more broadly. “Companies have been raising prices pretty aggressively. We’re seeing that trend definitely subside. Sellers of goods just don’t have as much pricing power as they had for most of last year and the prior year,” Moody told MarketWatch.

    This could be music to the ears of Federal Reserve officials, who are trying to get inflation back down to their 2% target.

    St. Louis Fed President James Bullard, during the early days of the fight against inflation in 2022, said inflation would return to the Fed’s target once companies find out that raising prices is harmful to their bottom lines.

    In an interview last May with Fox Business Network he observed that “a lot of CEOs have come on TV and said, ‘Oh, I have lots of pricing power, and I can do whatever I want and make a lot of money … but I think some of them are going to get punched in the face here with the fact that consumers have to react.”

    Context: Fed-preferred PCE gauge shows lowest U.S. inflation rate since April 2021, but stickiness at core hints at persistent price pressure

    Also see: U.S. consumer sentiment climbs to 4-month high on slower inflation and end of debt-ceiling fight

    Though General Mills’ drop in earnings might not be the punch in the face Bullard warned of, its recent quarterly update could be a sign that continuing to raise prices is now looking harmful to financial results.

    A statement from the company attributed the drop in earnings to a trend among retailers toward lower inventory levels. During the pandemic, grocery stores stocked up on Nature Valley snack bars and CoCo Puffs due to concerns about supply-chain complications. General Mills says retailers are holding less inventory now, so there is less on the shelves for consumers to purchase.

    CEO Harmening said the majority of General Mills’ price increases are in the marketplace already. Though conditions can change, “we feel good about what we see right now with our pricing and the inflationary environment that we see,” he said, a possible indication that the company might back off of flexing price muscle. 

    Other economists were uncertain about reading too much into lower earnings for companies like General Mills.

    Will Compernolle, macro strategist at FHN Financial, said he detected a bit of a culture change due to grocery-store inflation over the past two years. “People are buying less stuff to eat at home. And that is, you know, a kind of mysterious trend in the sense that this is always considered a necessity,” he said.

    As pandemic-era stay-at-home recommendations and other public health measures were eased, there’s been “a temporary surge in food-services spending” as people have chosen to go out to restaurants rather than cook at home, he said. 

    He said it is unclear how companies like General Mills will respond to consumer spending. In order to determine demand, they will have to see what “the new normal looks like when the dust settles” and ask whether “people going to go back to their old composition of food at home versus food away.” 

    Read: Shopping at Kroger can be up to four times cheaper than eating out, CEO says

    Robert Frick, corporate economist with Navy Federal Credit Union, said he has observed “consumers are saving more and spending less, perhaps out of caution, as most believe a recession is either here or imminent.”

    Lower-income Americans have become particularly sensitive to price increases, Frick said. He shared his “hunch” that there is “kind of a drag on spending because lower-income Americans are being hurt so badly.”

    “It seems likely most of the effects of spending plateauing overall has to do with that lower third of Americans [having] really started to, you know, pinch their pennies and run up their debt, and they don’t want to run it up any more,” Frick said.

    Income and spending data released by the government on Friday showed people may have more money to spend but are not spending quite as much.

    U.S. consumer spending slowed in May, rising just 0.1%, compared with 0.6% growth in consumer spending in the prior month. Consumers saved 4.3% of their disposable income, an increase from April’s 3.4% savings rate. 

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  • Stocks end higher Friday, as Nasdaq scores best first half of a year since 1983

    Stocks end higher Friday, as Nasdaq scores best first half of a year since 1983

    U.S. stocks closed higher Friday, ending the month and the first half of 2023 with robust gains as a long-anticipated economic recession failed to materialize. The Dow Jones Industrial Average
    DJIA,
    +0.84%
    rose about 283 points on Friday, or 0.8%, ending near 34,405, according to preliminary FactSet data. It gained 4.6% in June and 3.8% over the year’s opening six months, its best first half since 2021, according to Dow Jones Market Data. Stocks have been in rally mode in 2023 as inflation continued to retreat under a regime of sharply higher interest rates. The bullish tone, especially for a select few technology stocks, has endured even as Fed Chairman Jerome Powell repeatedly said a few more interest-rate increases look likely this year, and that rates will likely stay high for awhile. Yet the U.S. economy hasn’t tipped into a recession, suggesting the Fed might have room to pull off a “soft landing” for the economy, or at least only a mild recession, as it fights to bring down the cost of living to its 2% annual target. On Friday, the personal-consumption expenditures price index, a key inflation gauge, eased to a 3.8% annual rate in May, the slowest level since April 2021. Against that backdrop, the S&P 500 index
    SPX,
    +1.23%
    rose 1.2% on the session, 2.3% in June and 15.9% in the first half, its best start to a year since 2019. But the Nasdaq Composite Index was the standout, gaining 1.5% on Friday and 31.7% in the first half of 2023, which was its best first half since 1983, according to Dow Jones Market Data.

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  • What’s at stake for stock and bond investors in second half of 2023

    What’s at stake for stock and bond investors in second half of 2023

    There’s a lot riding for stock and bond investors in the second half of the year, with the biggest question centered around whether the idea of “immaculate disinflation” can come fully to fruition.

    The term refers to the notion that inflation might meaningfully dissipate from here, without a significant uptick in U.S. unemployment or a major recession. It’s considered to be the perfect scenario for investors and policy makers, who want inflation back down to their 2% target, and one in which the Federal Reserve’s main policy rate target wouldn’t need to go much higher from its current level between 5%-5.25%.

    What makes the path ahead so tricky is that core readings that represent the purest reads on inflation are proving to be stubborn and it isn’t clear whether they’ll turn meaningfully lower, fast. If they don’t, that would likely put pressure on central bankers to keep up their inflation fight and has the potential to drive up interest-rate expectations, as well as Treasury yields. Though the bond market has come around to the fact there won’t likely be any rate cuts by the Fed soon, it still isn’t completely on board with the idea of higher rates for longer — which, in turn, is helping to support equities for now.

    “The problem for the disinflation people or believers is that the core readings continue to come in too high,” said Jeffrey Cleveland, director and chief economist at Payden & Rygel, a Los Angeles-based investment management firm that oversees $148.9 billion in assets.

    Friday’s core reading from the Fed’s favorite inflation gauge — known as the PCE — was 0.3% for the month of May, and has been at or above that mark for six straight months.

    Via phone, Cleveland said his firm expects the monthly core PCE reading to end the year above 0.3%, but “you need monthly core PCE readings to be 0.1% or 0.2% to see meaningful disinflation.” If inflation surprises to the upside, “the whole Treasury curve moves up, with the 2-year rate most susceptible,” which would likely dent the performance of stocks.

    Cleveland said he expects the policy-sensitive 2-year Treasury yield BX:TMUBMUSD02Y to get back to 5% by December — a level that was last seen in March.

    The first six months of this year have turned out to be great for U.S. equities, with the Nasdaq-100
    NDX,
    +1.63%
    on track for its best first-half performance on record, as investors came around to the idea that the economy is resilient enough to absorb higher rates. The unemployment rate stood at 3.7% as of May as the U.S. added a shockingly large number of jobs, while annual core readings from the consumer-price index and PCE index came in at 5.3% and 4.6%, respectively, for May.

    Read: How stocks and every other major asset have performed in first half of 2023 — and over the last 18 months

    Meanwhile, the benchmark 10-year yield
    TMUBMUSD10Y,
    3.812%    ,
    which reflects investors’ long-term U.S. outlook, has remained relatively contained near 3.75% for months as robust U.S. data rolled in, accompanied by signs of overall inflation easing when waning gas and food prices are factored in.

    Data released this week reaffirmed that the U.S. economy and labor market are holding up, despite 5 percentage points of Fed rate hikes since March 2022. With policy makers signaling two more hikes may be on the way starting in July, the risk is that the economy continues to prove resistant to policy makers’ actions and requires even more tightening.

    “Not only is the U.S. economy continuing to prove resilient in the face of significantly tighter monetary policy, but it also appears the starting point of the economy for 2023 was even higher than previously anticipated with the consumer proving to be an even stronger force across the first three months,” said Stifel, Nicolaus & Co. economists Lindsey Piegza and Lauren Henderson, in a note this week. 

    Via phone, Henderson said her Chicago-based firm isn’t buying into the “immaculate disinflation” theory yet and thinks inflation “is proving stickier and more persistent than many expected.”

    Stifel, which updates its forecasts on a quarterly basis, is standing by its year-end expectations for the 2- and 10-year Treasury yields
    TMUBMUSD10Y,
    3.812%
    to be at 4.65% and 3.45%, respectively, she said. That’s below the current levels for those rates because Stifel economists foresee a short, shallow recession “sometime in the fourth quarter or beyond,” as policy makers push the fed-funds rate target up to 5.75% by year-end and stay there through 2024, according to Henderson.

    Inside the market for fixings, or derivatives-like instruments in which bets can be made on upcoming consumer-price index reports, traders have been coalescing around the view that the annual headline CPI rate is likely to start falling toward 2% this year. They even see the core CPI reading dropping to roughly 2.5% annually and to 0.2% monthly, in relatively quick fashion.

    However, one big name has a warning. Former New York Fed President Bill Dudley said inflation could easily go higher than his estimated 2.5% long-term average, and that the 10-year Treasury yield might even go above his “conservative” estimate of 4.5%.

    On Friday, financial markets were focused on the positive aspects of the PCE report, with all three major U.S. stock indexes
    DJIA,
    +0.97%

    SPX,
    +1.31%

    COMP,
    +1.49%
    higher in afternoon trading. Meanwhile, 3-month
    TMUBMUSD03M,
    5.320%
    through 30-year Treasury yields
    TMUBMUSD30Y,
    3.854%
    all moved lower.

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  • Nasdaq posts best first half since 1983 as inflation data power Friday stock surge

    Nasdaq posts best first half since 1983 as inflation data power Friday stock surge

    U.S. stocks finished higher Friday, with the Nasdaq Composite closing out June with its strongest first half of a year since 1983, as investors hoped the Federal Reserve might be able to back off its inflation battle more quickly than Fed chief Jerome Powell has telegraphed.

    How stock indexes traded

    • The Dow Jones Industrial Average
      DJIA,
      +0.84%
      rose 285.18 points, or 0.8%, to close at 34,407.60

    • The S&P 500
      SPX,
      +1.23%
      gained 53.94 points, or 1.2%, to finish at 4,450.38, its highest closing value since April 20, 2022.

    • The Nasdaq Composite
      COMP,
      +1.45%
      climbed 196.59 points, or 1.4%, to end at 13,787.92, marking its highest closing value since April 7, 2022.

    For the week, the Dow gained 2%, the S&P 500 advanced 2.3% and the Nasdaq increased 2.2%, according to Dow Jones Market Data. All three indexes rose in June, with the S&P 500 climbing for a fourth straight month to book its longest monthly win streak since August 2021. The Nasdaq also climbed for a fourth consecutive month to score its longest such win streak since April 2021.

    What’s driven markets

    The final trading day of the week, month and quarter presented a positive picture for U.S. stocks as the main indexes advanced following the latest inflation report.

    “Clearly today the market likes and is responding to the inflation data,” said Chris Fasciano, portfolio manager at Commonwealth Financial Network, in a phone interview Friday. “It continues to show softening inflation and that’s clearly what the Fed’s looking for,” he said. “I think investors are comfortable right now with a soft-landing scenario” for the economy.

    On Friday, data showed U.S. inflation measured by the personal-consumption-expenditures price index eased to 3.8% in May on a 12-month basis, the slowest increase since April 2021.

    The PCE price index edged up 0.1% on a month-over-month basis in May, while core prices, which exclude volatile food and energy products, increased by 0.3%. The government’s PCE inflation report was in line with economists’ expectations.

    See: U.S. inflation slows, PCE shows, but price pressures still intense

    The data added to an increasingly upbeat portrait of a U.S. economy, which has continued to expand despite the Fed’s aggressive tightening of monetary policy. Gross domestic product in the U.S. expanded 2% during the first quarter, much stronger than the previous 1.3% reading, data released on Thursday showed.

    In other U.S. economic updates, the University of Michigan said Friday the final reading of its consumer-sentiment index for June improved to 64.4. That’s a four-month high.

    Still, the PCE report showed consumer spending rose just 0.1% in May, slower than economists had anticipated.

    The Federal Reserve has been raising interest rates since 2022 to cool the economy and tame inflation. Fed Chair Jerome Powell said earlier this week that he didn’t expect inflation in the U.S. to return to the central bank’s 2% target until 2025.

    “Right now, the Fed’s job is not clear-cut,” said George Mateyo, the chief investment officer of Key Private Bank, in emailed commentary Friday. “While they may not be done with rake hikes, perhaps they don’t have much more work to do.”

    The U.S. stock market has rallied this month, bringing the S&P 500 index’s gains this quarter to 8.3%. The S&P 500 jumped 15.9% in the first six months of this year, while the tech-heavy Nasdaq soared 31.7% for its best first half since 1983, according to Dow Jones Market Data.

    Companies in focus

    Jamie Chisholm and Greg Robb contributed.

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  • Supreme Court knocks down Biden’s student-debt forgiveness plan

    Supreme Court knocks down Biden’s student-debt forgiveness plan

    The Supreme Court knocked down the Biden administration’s plan to cancel up to $20,000 in student debt for a wide swath of borrowers, the court announced Friday. 

    The decision means that the White House won’t move forward with the plan for now, though it’s possible officials could try to launch a new version of the debt-forgiveness initiative using a different legal authority. Roughly 26 million borrowers applied for or were automatically eligible for debt relief under the Biden administration’s plan, which canceled up to $10,000 in student debt for borrowers earning less than $125,000 and up to $20,000 in federal loans for borrowers who met that criteria and also used a Pell grant in college. 

    Americans owe $1.7 trillion of student loans and the White House had estimated that more than 40 million borrowers would benefit from the initiative. But almost as soon as the Biden administration announced the debt-forgiveness plan last year, opponents looked for ways to challenge it legally. Ultimately, two cases made it to the high court. 

    In one case, two student-loan borrowers sued over the debt-relief plan in part because the Department of Education didn’t submit it for public comment. That, they said, resulted in an initiative that arbitrarily left out or limited the amount of relief available to some student loan borrowers, like themselves. The suit filed by the borrowers was backed by the Job Creators Network, a conservative advocacy organization co-founded by Bernard Marcus, the co-founder of Home Depot, who also supported former President Donald Trump. 

    Six Republican-led states brought the other case on the basis that canceling debt could harm their state coffers. 

    The court considered two issues in these cases. The first is whether the plaintiffs had standing, or the ability to bring a lawsuit because they’ve been directly harmed by the policy. The second is whether the Biden administration overstepped in its executive authority when issuing the policy. In order for the justices to reach the second issue, or the merits of the case, they had to find that the plaintiffs had standing to sue. 

    Legal experts, including some who believed the Biden administration didn’t have the authority to authorize the debt-relief plan, were skeptical of the notion that the parties bringing the cases had standing to sue. During oral arguments in February, the court’s three liberal justices also questioned whether the parties who challenged debt forgiveness were actually injured by the policy. 

    In addition, one of the members of the court’s conservative wing, Justice Amy Coney Barrett, asked pointed questions about the six states’ argument that they had standing to sue in part because the debt-relief plan would injure the state of Missouri. That claim surrounded the Missouri Higher Education Loan Authority, or MOHELA, a state-affiliated organization that services federal student loans. The states had argued if MOHELA lost accounts due to the debt-relief plan, its revenue would decline and that loss would hurt Missouri because of MOHELA’s ties to the state. 

    Despite these questions, Barrett agreed with the court’s five other conservative judges and found that the states have standing to sue. The three liberal justices dissented.

    “MOHELA is, by law and function, an instrumentality of Missouri,” Chief Justice John Roberts wrote in the majority opinion. “It was created by the State, is supervised by the State, and serves a public function. The harm to MOHELA in the performance of its public function is necessarily a direct injury to Missouri itself.”

    The court’s decision in the states’ suit allowed the justices to get to the merits of the case. The parties challenging the debt-relief plan argued that the Department of Education went beyond the authority Congress delegated it in discharging student debt. Solicitor General Elizabeth Prelogar argued to the justices that in canceling student debt, the Secretary of Education acted “within the heartland” of the authority Congress provided to him under the HEROES Act, a 2003 law that aims to ensure student-loan borrowers aren’t left worse off by a national emergency. 

    The court’s conservative majority sided with the states, with a 6-3 decision, striking down the debt-relief plan in its current form. 

    “The HEROES Act allows the Secretary to ‘waive or modify’ existing statutory or regulatory provisions applicable to financial assistance programs under the Education Act, but does not allow the Secretary to rewrite that statute to the extent of canceling $430 billion of student loan principal,” Roberts wrote.

    In the months leading up to the court’s decision, White House officials said there was no backup plan for if the Supreme Court knocked down the debt-forgiveness initiative. Advocates and activists have said that student-loan repayments shouldn’t resume until the Biden administration fulfills its promise to cancel some student debt.

    The bill President Joe Biden signed in June to raise the nation’s debt limit requires that the Department of Education end the pause on federal student loan, interest payments and collections 60 days after June 30, 2023. Interest on federal student loans will resume starting September 1 and payments will start to come due in October, according to the Department’s website.

    Advocates and activists have said for years that the Higher Education Act provides the Secretary of Education with the authority to discharge student loans. In ruling that the HEROES Act didn’t authorize the Biden administration’s debt-relief plan, the court left the option open for the Biden administration to create a loan-forgiveness program authorized under the HEA. 

    The court’s decision marks the latest development in a more-than-decade-long push to get the government to cancel student debt en masse. The idea, which has its origins in the Occupy Wall Street movement, made it to the presidential campaign stage during the 2020 cycle and was adopted by the White House last year.    

    Proponents of student debt cancellation and the Biden administration, have expressed concern that without some kind of relief a large swath of borrowers could slip into delinquency and default with the return of student loan payments later this year.

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  • Eurozone Unemployment Held at Record Low in May

    Eurozone Unemployment Held at Record Low in May

    By Ed Frankl

    The eurozone’s unemployment rate held steady at a record low in May, a reflection of a persistently tight labor market and a signal that European Central Bank policymakers might need to act further to curb economic activity as they try to lower inflation.

    The bloc’s unemployment rate was 6.5% in the month, matching the level of April, according to data from the European Union’s statistics agency Eurostat released Friday.

    The May reading was the same as expectations from economists polled by The Wall Street Journal. The rate has been steadily falling since it reached 8.6% in August 2020, at the height of the pandemic.

    The number of unemployed people in the eurozone in May fell 57,000 compared with April to 11.01 million, Eurostat said. Youth unemployment rate was stable at 13.9% in May.

    Across the euro area, the labor market remains tight. Seasonally adjusted unemployment levels held steady in Germany, and France, at 2.9% and 7.0% respectively, while it fell by 0.2 percentage points in Italy to 7.6% and rose by 0.1 points to 12.7% in Spain, Eurostat said.

    But there are signals that the labor market could be loosening. Germany earlier Friday reported that its adjusted unemployment figure–based on national standards–rose unexpectedly to 5.7% from 5.6%. This could ease the pressure on the European Central Bank, which sees a cooling labor market as a sign that its interest-rate hikes could be helping curtail economic activity in its efforts to lower inflation.

    Write to Ed Frankl at edward.frankl@wsj.com

    

    


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  • 
		
		
    
			
    UK Economy Expanded Slightly in First Quarter, Matching First Estimates
    
			
    UK Economy Expanded Slightly in First Quarter, Matching First Estimates
    
			
    

    

    By Ed Frankl
    

    The U.K. economy grew marginally in the first quarter of 2023, matching previous estimates, as a cost-of-living crisis impacted by high inflation and rising interest rates weighed on economic activity.
    

    Gross domestic product grew 0.1% from January to March compared with the previous three-month period, the same as the fourth quarter of 2022 and in preliminary estimates, according to data from the Office for National Statistics released Friday.
    

    

    Economists polled by the Wall Street Journal also expected growth of 0.1%.
    

    It meant quarterly GDP in the first quarter was 0.5% smaller than at its prepandemic level in the final three months of 2019, the ONS said. Among G-7 nations, only Germany also trails its prepandemic level.
    

    Since the end of the first quarter, ONS data already said the U.K. economy grew 0.2% on month in April. GDP is expected to grow 0.2% in 2023, according to a poll of economists by FactSet. B
    

    But economic activity is expected to be hampered further after the Bank of England raised rates to 5% at its most recent meeting, in an attempt to put a lid on inflation that runs higher than many peer nations.
    

    In a separate release, the ONS said the U.K.’s current-account deficit widened to 10.8 billion pounds ($13.6 billion) in the first quarter from a GBP2.5 billion deficit in the fourth quarter of 2022.
    

    Write to Ed Frankl at edward.frankl@wsj.com
    

    

    


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  • 
		
		
    
			
    Dow ends 270 points higher, Nasdaq closes flat on upbeat economic data
    
			
    Dow ends 270 points higher, Nasdaq closes flat on upbeat economic data
    
			
    

    

    U.S. stocks ended mostly higher Thursday, getting a boost from the financial sector, on positive tones from the banking sector and the economy. The Dow Jones Industrial Average
    
        DJIA,
    
        +0.80%
    
       rose about 269 points, or 0.8%, ending near 34,122, according to preliminary FactSet data. The S&P 500 index
    
        SPX,
    
        +0.45%
    
       ended 0.5% higher, while the Nasdaq Composite Index
    
        COMP,
    
        -0.00%
    
       closed virtually unchanged. The S&P 500’s financial sector was a standout, climbing 1.7%, a day after 23 of the nation’s biggest banks passed annual “stress tests,” designed to model their ability to withstand a severe global recession scenario. The U.S. economy also saw a revised gross domestic product reading of 2% in the first quarter. Federal Reserve Chairman Jerome Powell on Thursday also downplayed concerns that the Federal Reserve might be at risk of going too far with its rate hikes, at a meeting with other global central bankers in Spain, while also saying that coming rate decisions would be decided on a meeting-to-meeting basis. 
    

    


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  • 
		
		
    
			
    Riksbank Lifts Policy Rate to 3.75% From 3.50%, Signals More to Come
    
			
    Riksbank Lifts Policy Rate to 3.75% From 3.50%, Signals More to Come
    
			
    

    

    By Dominic Chopping
    

    STOCKHOLM–Sweden’s central bank on Thursday lifted its key policy rate to 3.75% from 3.50%, as expected, and signaled a further hike later in the year as it continues to fight stubbornly high inflation.
    

    The Riksbank’s new rate path now implies the rate will peak at around 4.05% from around 3.65% previously, and remain at that level well into 2025.
    

    

    “For inflation to return to the target of 2% within a reasonable period of time, monetary policy needs to be tightened further,” the central bank said.
    

    “The forecast is for the policy rate to be increased at least one more time this year,” it said.
    

    The Riksbank said that new information, such as service prices rising unexpectedly fast and a weaker krona, indicates that inflation is declining more slowly than expected.
    

    Alongside Thursday’s rate decision, the central bank said it will expand government bond sales to 5 billion Swedish kronor ($463.6 million) a month from SEK3.5 billion from September, a move it said could contribute to a stronger krona and improve its capacity to reduce inflation.
    

    The Riksbank added that it is exploring ways to reduce currency risk by hedging part of its foreign exchange reserves. The starting point for this would be to hedge around 25% of its SEK410 billion reserves, it said.
    

    Write to Dominic Chopping at dominic.chopping@wsj.com
    

    

    


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  • 
		
		
    
			
    Fed stress tests see large banks able to handle recession and slide in commercial real estate prices
    
			
    Fed stress tests see large banks able to handle recession and slide in commercial real estate prices
    
			
    

    The U.S. Federal Reserve said Wednesday that all 23 banks in this year’s stress tests withstood a hypothetical “severe” global recession and losses of up to $541 billion as well as a 40% decline in commercial real estate prices.
    

    The banks in the 2023 stress tests hold about 20% of the office and downtown commercial real estate loans held by banks and should be able to handle office space weakness that has loomed amid slack demand for space in the wake of the COVID-19 pandemic.  
    

    

    “The  projected decline in commercial real estate prices, combined with
    the substantial increase in office vacancies, contributes to projected loss rates on office properties that are roughly triple the levels reached during the 2008 financial crisis,” the Fed said in a prepared statement.
    

    Also read: FDIC studying plan to include smaller U.S. banks in Basel III capital requirements after failures in early 2023
    

    Fed vice chair of supervision Michael S. Barr said the exams confirm that the U.S. banking system remains resilient, even in the wake of the failure of Silicon Valley Bank, Signature Bank and First Republic Bank earlier this year.
    

    Barr also alluded to comments he made last week when he said the Fed should consider a wider range of risks that could derail banks in a process he described as reverse stress tests.
    

    “We should remain humble about how risks can arise and continue our
    work to ensure that banks are resilient to a range of economic scenarios, market shocks, and other stresses,” Barr said in a prepared statement.
    

    The bank stress tests are closely watched because they help determine what capital banks have left over for stock buybacks and dividends. However, expectations are not particularly high at the current time for any huge payouts to investors given talk by regulators about high capital requirements tied to Basel III international banking laws, as well as a challenging economic environment with interest rates on the rise in an attempt to cool economic activity and tame inflation. 
    

    Senior Fed officials said banks will be clear to provide updates on their stock buybacks and dividends after the market close on Friday. 
    

    For the first time, the Fed conducted an “exploratory market shock” on the trading books of the U.S.’s eight largest banks including greater inflationary pressures and rising interest rates.
    

    The results showed that the largest banks’ trading books were resilient to the rising rate environment tested. That group included Bank of America Corp., the Bank of New York Mellon,  Citigroup Inc., the Goldman Sachs Group Inc., JPMorgan Chase & Co. , Morgan Stanley , State Street Corp, and Wells Fargo & Co.
    

    Senior federal officials said they’re studying a wider application of the exploratory market shock to other banks. 
    

    In last year’s tests, the Fed did not place an emphasis on a rapid rise in interest rates partly because expectations were high for a recession with lower interest rates in 2023. Instead, interest rates rose.  That market dynamic was a factor in the collapse of Silicon Valley Bank, which sold securities with lower interest rates at a loss to cover an increase in withdrawals, only to spark a run on the bank.  
    

    All told, the Fed said the 23 banks in the stress test managed to maintain their capital requirements even with a projected $541 billion in losses.  (See breakdown below).
    

    

    

    
          
    
            U.S. Federal Reserve chart
    
          
    
  
    

    

    Under the most severe stress, the aggregate common equity risk-based capital ratio would decline by 2.3% to a minimum of 10.1%.
    

    Other facets of the hypothetical recession included a “substantial” increase in office vacancies, a 38% reduction in house prices  and a 6.4% increase in U.S. unemployment to a high of 10%.  The drop in house prices in this year’s stress tests is worse than the decline in the Global Financial Crisis in 2008. 
    

    “The results looked pretty good,” said Maclyn Clouse, a professor of finance at the University of Denver’s Daniels College of Business. “The banks were in pretty good shape from a capital standpoint and they’d be able to withstand some shock. It’s good news.”
    

    Barr’s remark on Fed officials being “humble” reflects the fact that regulators largely missed the Global Financial Crisis as well as the sudden demise of Silicon Valley Bank in March.
    

    “They need to be humble,” Clouse said. “We need to be a little more humble about the results and a little more alert about new challenges that normally haven’t been looked at with stress tests.”
    

    This year, the  banks that took part in the stress tests including Bank of America Corp.
    
        BAC,
    
        -0.60%    ,
    
       Bank of New York Mellon Corp.
    
        BK,
    
        -0.64%    ,
    
       Capitol One Financial Corp.
    
        COF,
    
        +0.52%    ,
    
       Charles Schwab Corp.
    
        SCHW,
    
        +1.01%    ,
    
       Citigroup
    
        C,
    
        -0.37%    ,
    
       Citizens Financial Group Inc.
    
        CFG,
    
        -1.61%
    
       and Goldman Sachs Group Inc.
    
        GS,
    
        +0.07%    .
      
    

    Other exams took place at J.P. Morgan Chase & Co.
    
        JPM,
    
        -0.44%    ,
    
       M&T Bank Corp.
    
        MTB,
    
        -0.18%    ,
    
       Morgan Stanley
    
        MS,
    
        -0.52%    ,
    
       Northern Trust Corp.
    
        NTRS,
    
        -0.46%    ,
    
       PNC Financial Services Group Inc.
    
        PNC,
    
        -0.36%    ,
    
       State Street Corp.
    
        STT,
    
        -0.62%    ,
    
       Truist Financial Corp.
    
        TFC,
    
        -0.07%    ,
    
       U.S. Bancorp
    
        USB,
    
        -0.71%
    
       and Wells Fargo & Co.
    
        WFC,
    
        -0.71%    .
      
    

    In 2022, the Fed said banks could withstand 10% unemployment and a 55% drop in stock prices as part of the year-ago stress test.
    

    KBW analyst David Konrad said in a June 22 research note he expected no “huge surprises” in addition to capital uncertainty around dividends and buybacks already expected by Wall Street.
    

    Providing guidance on how the Fed will study bank strength, Fed chair of supervision Michael Barr said last week that the Fed needs to consider “reverse stress tests” to look at “different ways an institution can die” instead of simply submitting banks to a specific list of hypothetical hardships.
    

    “We have to work harder at looking at patterns we haven’t seen before,” Barr said at an appearance on June 20.
    

    Also Read: Fed official eyes ‘reverse stress tests’ for banks as results awaited after 2023 bank failures
    

    Also read: FDIC studying plan to include smaller U.S. banks in Basel III capital requirements after failures in early 2023
    

    


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  • 
		
		
    
			
    The banking crisis has eased but a credit crunch still threatens the U.S. economy
    
			
    The banking crisis has eased but a credit crunch still threatens the U.S. economy
    
			
    

    

    Financial disruptions in 2008 contributed to the deep economic downturn that came to be known as the Great Recession. Could recent bank failures similarly lead to a broad U.S. recession?
    

    The $532 billion of assets of the three banks that failed in March and April 2023 exceed the inflation-adjusted value of $526 billion of assets of the 25 banks that failed in 2008. Yet the current situation differs in many ways from the underlying economic circumstances at the outset of the Great Recession. 
    

    

    Still, that experience, as well as others, show how financial distress can lead to macroeconomic weakness which then contributes to further financial distress, resulting in a downward spiral during which credit becomes tight, investment is curtailed and growth stalls.
    

    Bank distress can have adverse consequences for borrowers and the broader economy. One source of recent U.S. bank vulnerabilities is the rapid increase in interest rates. Banks take in deposits that can be withdrawn in the short term and use them to make loans and invest in securities at interest rates that are fixed for some time. 
    

    As interest rates rise, the value of banks’ existing portfolio decreases as new investments at higher rates are more attractive. By one estimate, the U.S. banking system’s market value of assets is $2.2 trillion lower than suggested by their book value of assets accounting for loan portfolios held to maturity. 
    

    These book losses are realized if banks have to sell those assets to cover withdrawals from depositors. At the same time banks face challenges in maintaining deposit levels, depositors are less willing to place their money in low-return checking and savings accounts as higher-interest opportunities become increasingly available. 
    

    Banks that failed in 2023 have had specific weaknesses that made them particularly vulnerable. Silicon Valley Bank (SVB), for example, was particularly exposed to risk from rising interest rates as it had heavily invested in longer-term government bonds which lost market value as interest rates rose and its management failed to hedge against this risk.
    

    SVB was also especially vulnerable to a run by depositors because over 90% of the value of its deposits exceeded the $250,000 amount guaranteed by the Federal  through the Federal Deposit Insurance Corporation (FDIC). Depositors holding accounts in excess of this guaranteed amount, both individuals and companies (whose accounts were used for making payroll, among other reasons) are only partially protected in case of bank failure so they have an incentive to withdraw funds at the first sign of trouble. 
    

    Moreover, depositors were connected to each other through business and social groups, so news traveled quickly seeding the conditions for a classic bank run at Twitter speed. Signature Bank also had about 90% of its assets uninsured and its portfolio was heavily concentrated in crypto deposits. Both banks grew rapidly with inadequate risk and liquidity management practices in place and, while regulators had raised concerns about these risks, they had not taken more forceful actions to address them, according to a GAO report. Meanwhile, First Republic Bank, catered to wealthy depositors and for this reason also had a high share of uninsured deposits that made it more vulnerable to a bank run as its bond assets lost value amidst rising interest rates.
    

    Commercial banks reduce lending when their deposits fall or when they otherwise cannot meet regulatory requirements. Deposits represent an important source of banks’ ability to lend. As a bank’s deposits decrease, it has less resources available for lending since other sources of funds are not as easily obtained. 
    

    A bank may also cut lending in an effort to satisfy regulations such as meeting or exceeding the Capital Adequacy Ratio. Regulators require banks to have enough capital on reserve to handle a certain amount of loan losses. The Capital Adequacy Ratio decreases when loans fail and the bank sees its loan loss reserves decline. The bank can then increase its Capital Adequacy Ratio by using funds that would otherwise be devoted to commercial loans or by shifting from loans to other assets that are less risky (such as government securities). 
    

    There is evidence that this effect contributed to the cutback in bank lending in New England in the 1990-1991 U.S. recession when there was a collapse in that region’s real estate market. A bank may choose to reduce lending if there are concerns about solvency even if it is not yet hitting up against the formal capital adequacy ratio requirement. 
    

    Read: San Francisco at risk of more falling ‘dominos’ as $2.4 billion of office property loans come due through 2024
    

    A credit crunch occurs when borrowers who would otherwise receive loans are precluded from doing so because of a restriction on the supply of loans by banks. But a reduction in bank lending could also reflect a decrease in borrowers’ demand for loans. 
    

    Researchers have used a variety of methods to identify when there is a credit crunch rather than just a lower demand for loans. For example, a credit crunch could be identified through looking for differential borrowing, employment, and performance patterns by bank-dependent companies as compared to those that have access to financing through bond or equity markets. Bank-dependent companies are typically smaller than those that have access to other types of financing. 
    

    Credit crunches due to bank distress can undermine investment and economic growth. An early and influential analysis by Ben Bernanke, who went on to chair the Federal Reserve and served during the 2008 Great Financial Crisis, analyzed the effects of bank failures during the Great Depression. He found that bank failures had a particularly strong effect in reducing the amount of borrowing by households, farmers, and small businesses in that period, which contributed to the severity and duration of the Great Depression. 
    

    The U.S. banking system has been made more resilient since that time, but there is still evidence of the effect of a credit crunch on regional U.S. economies. The April 2023 IMF Global Financial Stability Report argued that a credit crunch in the United States could reduce lending by 1%, which would lower GDP growth by almost 0.5 percentage points.
    

    Michael Klein is the executive editor of EconoFact. He is the William L. Clayton Professor of International Economic Affairs at The Fletcher School at Tufts University.
    

    This commentary was originally published by EconoFact: Banks, Credit Crunches, and the Economy.
    

    More: Justice Department to weigh updating banking competition rules
    

    Also read: Senators make headway on clawing back pay from failed banks’ CEOs, as key committee advances bill
    

    

    


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  • 
		
		
    
			
    U.S. Economic Calendar – MarketWatch
    
			
    U.S. Economic Calendar – MarketWatch
    
			
    

    

    The median forecasts in this calendar come from surveys of economists conducted by Dow Jones Newswires and The Wall Street Journal.
    

    All statistics in this calendar are in expressed in nominal terms unless labeled “real.” “Real” statistics are inflation-adjusted using the most relevant deflator. “SAAR” means seasonally adjusted annual rate.
    

    Click on the links to read MarketWatch coverage of the data and speeches.
    

    


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  • 
		
		
    
			
    German Consumer Sentiment to Weaken in July on Gloomier Outlook
    
			
    German Consumer Sentiment to Weaken in July on Gloomier Outlook
    
			
    

    

    By Ed Frankl
    

    Consumer confidence in Germany worsened for the first time in nine months in July, reflecting a more uncertain climate for household spending, as the country’s economic outlook continues to be bleak after a recession in the winter.
    

    

    Germany’s forward-looking consumer sentiment index forecasts confidence to tick down to minus 25.4 in July–the first decline since October 2022–from a revised minus 24.4 in June, according to data from market-research group GfK published Wednesday.
    

    The reading upended expectations that the index would improve, to minus 23, according to a forecast from economists polled by The Wall Street Journal.
    

    The news adds further gloom over expectations for the German economy, after June data last week showed the Ifo business-climate index fell for the second month in a row and the composite purchasing managers’ index dipped close to the 50-point mark that represents contraction.
    

    The data, alongside rising interest rates and high inflation, could mean Germany is heading for a third quarter of negative growth, some economists say, after the economy contracted 0.5% in the fourth quarter of 2022, and 0.3% in the first of this year.
    

    “The current development in consumer sentiment indicates that consumers are once again more uncertain,” GfK consumer expert Rolf Buerkl said.
    

    The apprehension to spend was reflected in the indicator showing respondents’ propensity to save increased this month, he added.
    

    GfK uses three sub-indexes for the current month–June–to derive a sentiment figure for the coming month. Both economic and income expectations declined, as households take into account that they will face real income losses this year, which won’t be fully offset by wage increases, GfK said.
    

    However, the third measure, of propensity to buy, rose on the month, though it still remains at a low level, showing that consumption remains weak, according to GfK.
    

    Moreover, private consumption likely won’t make any significant contribution to overall economic development in Germany this year, GfK said.
    

    “Continued high inflation rates, currently at around six percent, are noticeably eroding the purchasing power of households and preventing private consumption from making a positive contribution,” Buerkl added.
    

    German inflation was 6.1% in the latest data May, cooling from 7.2% in April, but high by historical standards, with underlying pressures on household spending still strong.
    

    The European Central Bank increased its key deposit rate to 3.5% from 3.25% earlier in June, while signaling that it had further to go in its efforts to combat inflation, despite the headwinds the squeeze on spending will cause to economic growth.
    

    Write to Ed Frankl at edward.frankl@wsj.com
    

    

    


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  • 
		
		
    
			
    U.S. Economic Calendar – MarketWatch
    
			
    U.S. Economic Calendar – MarketWatch
    
			
    

    

    The median forecasts in this calendar come from surveys of economists conducted by Dow Jones Newswires and The Wall Street Journal.
    

    All statistics in this calendar are in expressed in nominal terms unless labeled “real.” “Real” statistics are inflation-adjusted using the most relevant deflator. “SAAR” means seasonally adjusted annual rate.
    

    Click on the links to read MarketWatch coverage of the data and speeches.
    

    


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  • 
		
		
    
			
    Dow gives back earlier gains, stocks end lower after Russia’s brief rebellion
    
			
    Dow gives back earlier gains, stocks end lower after Russia’s brief rebellion
    
			
    

    

    U.S. stocks closed lower Monday, after Russia on the weekend was rocked by a brief revolt from the Wagner mercenary force. The Dow Jones Industrial Average
    
        DJIA,
    
        -0.04%
    
       fell about 11 points, or less than 0.1%, ending near 33,715, according to preliminary FactSet data, giving up earlier gains in the final moments of trade. The S&P 500 index
    
        SPX,
    
        -0.45%
    
       fell 0.4%, while the Nasdaq Composite Index
    
        COMP,
    
        -1.16%
    
       closed down 1.2%. Stocks have been struggling to extend a recent rally driven by a handful of technology stocks that earlier in June lifted major indexes to their highest levels in more than a year. Investors and oil markets were on edge Monday after a brief mutiny in Russia over the weekend raised concerns about potential disruptions to global oil supplies. U.S. crude prices edged higher Monday, with West Texas Intermediate oil for August
    
        CL00,
    
        +0.53%
    

            CLQ23,
    
        +0.53%
    
       ending slightly below $70 a barrel.
    

    


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  • 
		
		
    
			
    German Business Sentiment Fell in June as Manufacturing Outlook Worsens
    
			
    German Business Sentiment Fell in June as Manufacturing Outlook Worsens
    
			
    

    

    By Ed Frankl
    

    Business sentiment in Germany worsened in June for the second month in a row, with weakness in the manufacturing sector leading to a bleaker outlook for the German economy.
    

    The Ifo business-climate index declined to 88.5 in June from 91.5 in May, according to data from the Ifo Institute published Monday.
    

    

    The reading missed expectations of 90.5 according to economists polled by The Wall Street Journal.
    

    “Expectations were markedly pessimistic and companies’ assessments of their current situations were worse,” Clemens Fuest, president of the Ifo Institute, said.
    

    The index assessing the expectations for the next six months tumbled to 83.6 in June from 88.3 in May, and the indicator gauging current business conditions also fell, to 93.7 from 94.8, the survey said.
    

    In manufacturing, the business climate deteriorated substantially, while business expectations also fell significantly, declining to their lowest level since November 2022, the survey said.
    

    “The weakness in the manufacturing sector is steering the German economy into turbulent waters,” Fuest said.
    

    Elsewhere, there were also declines in the climate indexes for the services, trade and construction sectors, Ifo said.
    

    The Ifo index is based on a poll of about 9,000 companies in manufacturing, services, trade and construction.
    

    Write to Ed Frankl at edward.frankl@wsj.com
    

    

    


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    What’s next for markets after aborted Wagner mutiny leaves Russia’s Putin weakened
    
			
    What’s next for markets after aborted Wagner mutiny leaves Russia’s Putin weakened
    
			
    

    Investors will start the week nervously sorting through the aftermath of a short-lived rebellion by the mercenary Wagner Group that’s seen leaving Russian President Vladimir Putin weakened.
    

    “As Monday’s global markets are set to begin trading, investors are laser-focused on whether the short-lived Russia insurrection was only the beginning of a much deeper thunderbolt set to rock geopolitical, economic and market stability in the days and weeks ahead,” Greg Bassuk, chief executive officer at AXS Investments in New York, told MarketWatch on Sunday in emailed comments.
    

    

    U.S. stock-index futures edged up after the start of electronic trading Sunday night, while oil rallied. Futures on the Dow Jones Industrial Average
    
        YM00,
    
        +0.14%
    
       rose 25 points, while S&P 500 futures
    
        ES00,
    
        +0.15%
    
       edged up 0.1% and Nasdaq-100 futures gained 0.2%.
    

    Global stocks fell last week as interest-rate hikes by European central banks stoked recession fears. In the U.S., the S&P 500
    
        SPX,
    
        -0.77%
    
       ended a streak of five straight weekly gains, while the Dow Jones Industrial Average
    
        DJIA,
    
        -0.65%
    
       and Nasdaq Composite
    
        COMP,
    
        -1.01%
    
       also pulled back.
    

    See: Russia’s short-lived revolt could have long-term consequences for Putin, as questions remain over Prigozhin’s whereabouts
    

    ‘Real cracks’
    

    While a weakened Russia raises the prospects of a favorable outcome for Ukraine 16 months after Putin’s decision to invade, the potential for further internal strife in the nation with the world’s largest nuclear arsenal is less comforting, observers noted.
    

    “This raises profound questions. It shows real cracks,” U.S. Secretary of State Antony Blinken told CBS News’ “Face the Nation” on Sunday morning.
    

    Putin’s hold on power “certainly seems shakier than it was a few days ago,” but there remains “no clear contender to replace him, by election or coup,” said Benjamin Friedman, policy director at Defense Priorities, a foreign-policy think tank in Washington, D.C.
    

    Nonetheless, the war in Ukraine “is weakening Russia in various ways, including by creating internal strife and dangerously discontented elites who have some power,” Friedman told MarketWatch. “The perception of Putin’s fallibility and weakness is growing and creates its own reality. That is dangerous to him. It’s hard to predict what additional power grabs and instability that could create,” he said.
    

     See: Russia’s short-lived revolt could have long-term consequences for Putin, as questions remain over Prigozhin’s whereabouts
    

    ‘Bloodbath’ of volatility?
    

    AXS Investment’s Bassuk said the further turmoil “could drive a bloodbath of market volatility amid its impact on the war with Ukraine, a shifting balance among the G-8 superpowers, and the already heightened potential for a U.S. and global recession.”
    

    Analysts have warned that an uptick in volatility may be overdue. The Cboe Volatility Index
    
        VIX,
    
        +4.11%    ,
    
       a measure of expected volatility in the S&P 500 over the next 30 days, last week fell to its lowest since January 2020 and ended Friday below 14. Its long-term average stands near 20. The subdued performance, which has accompanied a year-to-date rally of more than 13% for the S&P 500 index, is taken by some market watchers as a sign of complacency.
    

    Read: Why the ‘easy money’ has been made in the stock-market rally — and what comes next
    

    Potential ‘nonevent’
    

    But the quick termination of the rebellion could make it more of a “nonevent” for capital markets as trading resumes, said Marc Chandler, managing director at Bannockburn Global Forex.
    

    While conventional wisdom sees signs of Putin’s weakness, the Russian leader has often been underestimated, he said.
    

    “The war in Ukraine is likely unaffected, and Kyiv’s counteroffense thus far seems rather muted. The risk is that the war escalates if Kyiv resorts to medium- and long-range missiles to hit Russian assets in Crimea, and possibly in Russia proper,” Chandler said.
    

    The rebellion, led by Wagner Group chief Yevgeny Prigozhin, saw the mercenary paramilitary force take over Russia’s southern military headquarters in Rostov-on-Don amid little resistance before marching largely unchallenged toward Moscow. Putin, without mentioning him by name, accused Prigozhin of treason. 
    

    The advance halted a little more than 120 miles from the capital before Prigozhin abruptly stood down in a deal that would see him sent to Belarus and charges against him of leading an armed rebellion dropped.
    

    As events unspooled Saturday, analysts warned that extended strife could spark a flight to quality when markets reopened into assets like U.S. Treasury bonds
    
        TMUBMUSD10Y,
    
        3.720%    ,
    
       the U.S. dollar
    
        DXY,
    
        -0.14%
    
       and other havens like the Japanese yen
    
        USDJPY,
    
        -0.21%    ,
    
       Swiss franc
    
        USDCHF,
    
        -0.06%
    
      and gold
    
        GC00,
    
        +0.32%    .
      
    

    The dollar was little changed versus major rivals in the early going Sunday evening, while gold for August delivery
    
        GCQ23,
    
        +0.32%
    
       edged up 0.2%.
    

    All eyes on oil
    

    Meanwhile, commodity and financial markets have seen big swings since Russia invaded Ukraine on Feb. 24, 2022. 
    

    First and foremost, the invasion produced a global energy shock. Russia was the world’s third-largest crude producer behind the U.S. and Saudi Arabia, and a key supplier of natural gas to Western Europe.
    

    Crude-oil futures soared in the immediate aftermath of the invasion, with the global benchmark Brent crude
    
        BRN00,
    
        +0.91%
    
       topping out just shy of $140 a barrel in early March 2022 after closing at $94.05 on the eve of the invasion.
    

    Natural-gas prices had also soared, and fears of shortages led to a scramble by European governments to fill storage amid apocalyptic predictions about a harsh 2022-’23 winter. 
    

    Energy prices subsequently fell back. Crude oil is trading well below levels seen ahead of the invasion. And despite waves of sanctions by European and U.S. governments and price caps aimed at limiting Moscow’s ability to fill its coffers, Russian crude supplies remain robust.
    

    Oil prices were on the rise Sunday night, with WTI up 87 cents, or 1.3%, to trade at $70.03 a barrel, while Brent gained 91 cents, or 1.2%, to $74.76 a barrel.
    

    August Brent crude
    
        BRNQ23,
    
        +0.95%
    
       settled Friday at $73.85 a barrel, falling 3.6% last week. West Texas Intermediate crude for August delivery
    
        CL00,
    
        +0.91%    ,
    
       the U.S. benchmark, dropped 3.9% last week to end Friday at $69.16 a barrel. 
    

    Jorge Leon, senior vice president at Rystad Energy, noted that in the past 35 years, geopolitical shocks involving big oil producers have seen crude futures jump by an average of 8% in the five days after the start of the triggering event (see chart below). 
    

    

    

    
          
    
            Rystad Energy
    
          
    
  
    

    

    A rise of that magnitude looks unlikely given how quickly the rebellion was quelled, he said.
    

    “Given that the short-lived event this weekend in Russia appears to have ended, we do not expect to see such a significant increase in oil prices next week. We do, however, believe that the geopolitical risk amid internal instability in Russia has increased,” Leon said in emailed comments.
    

    —Barbara Kollmeyer contributed. 
    

    


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