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Tag: Economic Performance/Indicators

  • ‘This is the best possible jobs report’ — economists react to June employment data

    ‘This is the best possible jobs report’ — economists react to June employment data

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    The June jobs report on Friday showed the U.S. economy gained 209,000 jobs last month, with the unemployment rate dipping to 3.6% from 3.7%.

    Economists polled by The Wall Street Journal had expected an addition of 240,000 jobs and an unemployment rate of 3.6%.

    See: Jobs report shows 209,000 gain in June — smallest increase since end of 2020

    Below are some initial reactions from economists and other analysts, including their views on what the jobs report means for the Federal Reserve as the central bank considers how to proceed with interest-rate hikes. The main U.S. stock indexes
    SPX,
    -0.29%

    DJIA,
    -0.55%

    COMP,
    -0.13%
    traded mixed following the data on nonfarm payrolls, also called NFP.

    • “This is actually a great number. This is a number that is something we can sustain. We can’t sustain adding 300,000, 400,000, 500,000 jobs a month. We need to see it slow. It’s doing exactly what it needs. If we’re going to have a soft landing, this is what it looks like. So I don’t think that we should make too much of this number being bad. But I do think that the Fed train is rolling toward another rate hike, but I wouldn’t put my money on a second one yet.” — Betsey Stevenson, economics professor at the University of Michigan and a former Obama White House economist, in a CNBC interview

    Related: July Fed rate hike remains largely priced in, expectations for September or November hike soften somewhat

    • “In a sense, this is the best possible jobs report, then, threading the needle between too strong and too weak. People should be happy to see decent job growth and decent wage growth. The Fed can take pleasure in slowing momentum and wage growth stabilizing rather than rising, while bond traders can breathe a sigh of relief there is no sign of the strength picked up by ADP yesterday. It is win, win, win.” — Chris Low, chief economist at FHN Financial, in a note

    • “The 209,000 rise in non-farm payrolls in June was the weakest gain since December 2020 and suggests labor market conditions are finally beginning to ease more markedly. That said, it is unlikely to stop the Fed from hiking rates again later this month, particularly when the downward trend in wage growth appears to be stalling.” — Andrew Hunter, deputy chief U.S. economist at Capital Economics, in a note

    • “Overall, the cooling in hiring is a welcome development, but the pace is still above growth in the working-age population, and combined with continued wage pressures and the drop in the unemployment rate, this leaves the Fed on track to hike rates by 25 [basis points] in both July and September.” — Katherine Judge, senior economist at CIBC, in a note

    • “Black unemployment went up to 6.0% for June, and is a statistically significant change from 5.0% in March. So while the employment rate is historically high, there is still room for growth. (As always when we’re talking about historical exclusion & discrimination).” — Kate Bahn, economist and research director at WorkRise, which is affiliated with the Urban Institute, in a tweet

    • “The markets maybe made too much of the ADP number, as that has shown to be not always exactly a great indicator. … The labor market is cooling, but marginally. Most importantly, though, the average hourly earnings number suggests still some firming in that space, and that’s where the Fed has been primarily focused. So for me, this is maybe a little lighter, but not a dramatic change in terms outlook and expectations.” — Roger Ferguson, former Fed vice chair, in a CNBC interview

    Now read: Part-time work surged in June as hours cut back, U.S. jobs report says

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  • Part-time work surged in June as hours cut back, U.S. jobs report says

    Part-time work surged in June as hours cut back, U.S. jobs report says

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    One worrying sign emerged from June’s job markets report — there was a big pickup in the ranks of those working part-time involuntarily.

    According to the Labor Department, there were 452,000 people who said they were part-time for economic reasons. Part of that, the government said, were those whose hours were cut due to slack work or business conditions.

    The series is a volatile one, but if the period around the COVID-19 pandemic outbreak is excluded, it was the biggest monthly rise since Aug. 2019.

    Average weekly hours were 34.4 in June — a tenth above May’s reading, but down from the post-COVID peak of 35 hours in Jan. 2021.

    U.S. stock futures
    ES00,
    -0.04%
    were pointed lower after the release of the data, including the headline 209,000 rise in nonfarm payrolls.

    “I’m in the good news is good for stocks camp and this data was probably slightly skewed to the bad side, which will drag on risk assets as the market digests it,” said Peter Tchir of Academy Securities.

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  • He called the 2023 stock-market rally. Here’s what Wall Street’s biggest bull sees for the second half.

    He called the 2023 stock-market rally. Here’s what Wall Street’s biggest bull sees for the second half.

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    Few Wall Street strategists were looking for a robust rally to kick off 2023 after 2022 went into the books as an exceptionally brutal year.

    And then there was Tom Lee, an enduring equity bull and the head of research at Fundstrat Global Advisors, who set a 2023 year-end price target of 4,750 for the S&P 500
    SPX,
    -0.79%
    back in December, among the most bullish forecasts for the benchmark.

    Now, Lee is even more bullish on the stock market as the second half of the year gets under way. Lee lifted his year-end target for the S&P 500 by 75 points to 4,825 on Monday, which would represent an around 9.4% gain from Thursday’s level. It would also eclipse the all-time high finish of 4796.56 set on Jan. 3, 2022.

    “In our view, the stock market bottomed October 12, 2022, and the rise over the past nine months is the start of a new bull market,” said Lee. “We have had a huge decline in inflation, and the inflation war is the war the Fed is waging and seemingly winning.”

    The S&P 500 has jumped 14.9% this year, according to Dow Jones Market Data, having exited its longest stretch in bear market territory since 1948. It ended Thursday near 4,411. The tech-heavy Nasdaq Composite
    COMP,
    -0.82%
    has surged more than 30%, while the Dow Jones Industrial Average
    DJIA,
    -1.07%
    lags behind, up 2.3%.

    See: History shows stock market’s bullish momentum in the first half could spill over into the second half, but analysts are not so sure

    Lee, in a phone interview, told MarketWatch a decline in inflation, especially a downshift in headline consumer-price index toward 3%, could take pressure off the Federal Reserve.

    Then the Fed could pivot to a more dovish stance despite deliver a hawkish pause in June, Lee said. Policy makers are often referred to as doves — who favor less restrictive monetary policy — and hawks — who favor tighter policy.

    Nowcasts from the Federal Reserve Bank of Cleveland estimate that June CPI inflation may come in at 0.4% for the month, bringing the year-over-year level down to 3.2% from 4% in May. However, core inflation may come in at a 5.1% year-over-year rate on these nowcast estimates, lower than the 5.3% increase in the previous month but well above the central bank’s 2% goal. 

    “The core inflation is sticky because it still has these residual components such as housing and autos lagging, and once those start to fade, core CPI would fall toward under 3% annualized,” Lee said in a phone interview on Wednesday.

    Fed Chair Jerome Powell in June warned that policy makers still expect more interest-rate increases this year to combat inflation, with policy makers forecasting two more quarter-point hikes.

    “But two additional hikes to me isn’t as much of a shock as 500 basis points in 12 months,” Lee said, referring to the series of increases that took the fed-funds rate from near zero to its current level of 5% to 5.25% since March 2022.

    See: Here’s what Wall Street’s most bullish analyst heading into the year thinks of the stock market now

    Meanwhile, continuous advancements in artificial intelligence are another catalyst Lee thinks could drive the “new bull market.”  

    The recovery of the stock market this year has been led by megacap technology stocks after the craze around AI started to drive bullish sentiment on tech shares in the second quarter. However, many market participants have questioned the rally’s overreliance on the “Magnificent Seven” cohort, pointing out narrow market breadth that has left the average stock behind.

    Lee argued that market breadth has improved significantly, and should continue to do so.

    “If inflation is cooling, and therefore people become more confident that two rate hikes are the most, or maybe there’s not even two hikes, then I think it’s going to ease financial conditions, so interest rates and bond-market volatility should be diminishing,” Lee said.

    The forward price-to-earnings, or P/E, ratio of the S&P 500 excluding energy was 15.7 times at the start of 2023 and now stands at 16.4 times, a mere 0.7 point increase, according to Lee.

    “We believe P/E should expand as companies are viewed as resilient and we are at the start of a new earnings-per-share cycle,” the veteran strategist wrote in a Monday note. “But the key is the above happening — a combination of easing inflation and improving growth outlook.” 

    See: The stock market is headed for a big first-half gain. What history says that means for the rest of 2023.

    In late October, Lee remained resistant to cutting his 2022 year-end price target of 5,100 and still expected a “base” case for 2023 that the S&P 500 could gain over 25%. That was counter to consensus, which saw the gauge falling to 3,000 in the first half 2023 before recovering to a flat finish amid a slide by the economy into recession.  

    “There’s plenty of people who think that things are going to get weaker because monetary policy tightening hasn’t been felt yet. I don’t know when people change their minds — it’s probably when the Fed decides to change its mind,” Lee said. “In my opinion, it’ll be easier for the Fed to say things more dovish if the inflation headline is at 3%. But until that happens, nobody believes inflation is falling.” 

    Lee defended his 2022 bullish call. The S&P 500 ended last year at 3,839.50, down 19.4%.

    “If you accepted our view [in 2022], you wanted to buy stocks, but those people who didn’t believe us went to cash or went defensive. Even though it didn’t play out at the end of last year, it was the right position to have because stocks have recovered everything in 2023. We’ve been sticking with our view and many of our clients think we’ve kept them involved.” Lee told MarketWatch. 

    See: ‘Rolling recession’ turns to ‘rolling expansion,’ says top Wall Street economist

    He admitted it wasn’t easy to be bullish in the first half of this year amid “a battle” between bullish and bearish factors, while stocks suffered a pullback following the collapse of three U.S. regional banks in March. 

    The average S&P 500 year-end price target is 4,113 as of July 5, according to data compiled by MarketWatch. 

    As for what could go wrong with his outlook for the second half? “Nothing’s guaranteed,” Lee said, referring to uncertainties around inflation, the risk of a Fed policy mistake, the Ukraine war, China’s disappointing economic recovery, consumer spending and other factors.  

    “Everyone is focusing on the risk, so I don’t think these are necessarily going to surprise us as much,” Lee said.

    “At some point if the market doesn’t fall back, there’s going to be a panic buying because I’m sure the majority of people think this is just a bear-market rally and it’s going to fail. However, at some point they have to acknowledge that that may not happen,” Lee said.

    “I think that there’s more risk of a panic-buying moment than panic-selling moment.”  

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  • What the Inverted Yield Curve Really Means. It May Not Be Recession.

    What the Inverted Yield Curve Really Means. It May Not Be Recession.

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    This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit http://www.djreprints.com.

    https://www.barrons.com/articles/inverted-yield-curve-recession-rates-fed-bonds-be519f7c

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    The bond market inversion reached its steepest since 1981 this week. When investors charge the government more to borrow for two years than for 10 years, it’s often seen as a sign that a recession is coming. 

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  • Germany’s Trade Surplus Fell in May as Exports Ticked Down

    Germany’s Trade Surplus Fell in May as Exports Ticked Down

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    By Ed Frankl

    Germany’s trade surplus fell unexpectedly on month in May, as exports declined marginally and imports rose, a sign that domestic demand could be improving despite a global economic slowdown, as the country’s economy tries to shake off the recession it suffered in the winter.

    The country’s adjusted trade surplus–the balance of exports and imports of goods–dipped to 14.4 billion euros ($15.72 billion) in May, compared with a revised EUR16.5 billion in April, data from the country’s statistics office Destatis showed Tuesday.

    In May, exports ticked down 0.1% on month on a calendar and seasonally adjusted basis to EUR130.5 billion, suggesting global demand for German manufacturing goods receded somewhat.

    Economists polled by The Wall Street Journal expected the trade balance at EUR17.6 billion and exports to rise by 0.5%.

    However, imports increased 1.7% to EUR116.1 billion, a sign that domestic demand could be growing. Domestic consumption slumped in Germany over the winter as the economy suffered a recession, contracting by 0.5% in the fourth quarter of 2022 and 0.3% in the first of this year.

    Outside the European Union, the country receiving the most German exports in May was the U.S., though exports there declined by 3.6% on month, Destatis said. Exports to China increased 1.6%, while they rose by 5.8% to the U.K., it added.

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

    

    

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    Construction spending inches up, showing signs of a recovery in housing
    
			
    Construction spending inches up, showing signs of a recovery in housing
    
			
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    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.
    
			
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    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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    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
    
			
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    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
    
			
     [ad_1]
    

    

    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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  • 
		
		
    
			
    Eurozone Unemployment Held at Record Low in May
    
			
    Eurozone Unemployment Held at Record Low in May
    
			
     [ad_1]
    

    

    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
    
			
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    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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  • 
		
		
    
			
    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
    
			
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    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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    German Consumer Sentiment to Weaken in July on Gloomier Outlook
    
			
    German Consumer Sentiment to Weaken in July on Gloomier Outlook
    
			
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    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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  • 
		
		
    
			
    German Business Sentiment Fell in June as Manufacturing Outlook Worsens
    
			
    German Business Sentiment Fell in June as Manufacturing Outlook Worsens
    
			
     [ad_1]
    

    

    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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  • 
		
		
    
			
    U.S. economy running close to 2% growth rate in second quarter, S&P says
    
			
    U.S. economy running close to 2% growth rate in second quarter, S&P says
    
			
     [ad_1]
    

    

    This version corrects the manufacturing PMI data which fell to a six-month low of 46.3 in June from 48.4 in the prior month.
    

    The numbers: The S&P Global “flash” U.S. service sector activity index fell to a 54.1 in June from 54.9 in the prior month, a two-month low. 
    

    

    Economists surveyed by the Wall Street Journal has forecast a reading of 53.3.
    

    The S&P Global “flash” U.S. manufacturing sector index, meanwhile, slid to a six-month low of 46.3 from 48.4 in May. Economists had expected a 49 reading. 
    

    Readings above 50 signifies expansion; below that, contraction.
    

    Key details: In the services sector, new orders increased at a strong rate in June. The pace of expansion was  close to May’s 13-month high. 
    

    On the other hand, manufacturers recorded the fastest rate of contraction in new orders since last December. They linked the drop to muted consumer confidence.  Foreign client demand was also subdued.
    

    Inflation was seen as moderating. The overall rate of selling prices for goods and services dropped to the lowest level since late 2020. 
    

    Big picture: The S&P PMIs try to look ahead at the health of the economy, a critical question with even Federal Reserve officials saying that the outlook for the U.S. is hidden in a fog. 
    

    A composite output index from S&P showed the fifth straight month of increases in private sector activity. 
    

    What S&P Global said:  “The overall rate of expansion of business activity in the
    US remained robust in June, consistent with GDP rising at a rate of 1.7% to put second quarter growth in the region of 2%,” said Chris Williamson, chief business economist at S&P Global.
    

    Market reaction: Stocks
    
        DJIA,
    
        -0.65%
    

            SPX,
    
        -0.77%
    
       opened lower on Friday on talk of more interest rate hikes from global central banks. The yield on the 10-year Treasury note
    
        TMUBMUSD10Y,
    
        3.741%
    
       fell to 3.72%. 
    

    

    

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  • 
		
		
    
			
    U.S. housing starts surge as builders rev up single-family home construction in May, while a housing shortage drags on 
    
			
    U.S. housing starts surge as builders rev up single-family home construction in May, while a housing shortage drags on 
    
			
     [ad_1]
    

    

    The numbers: Construction on new American homes jumped 21.7% in May, as homebuilders ramp up building single-family homes to meet strong demand from buyers.
    

    Housing starts rose to a 1.63 million annual pace last month from 1.34 million in April, the government said Tuesday. That’s how many houses would be built over an entire year if construction took place at the same rate in every month as it did in May.
    

    

    Economists were expecting a slight decline of about 0.8%.  The numbers are seasonally adjusted.
    

    This is the second month in a row that starts are up. The pace of construction was the highest since last April, when starts hit a 1.8 million pace.
    

    The surge in construction this spring was led by the Midwest.
    

    Both single and multi-family construction rose in May. Keen interest from would-be home buyers is creating strong demand for new homes. These buyers continue to face a lack of options in the resale market. 
    

    Building permits, a sign of future construction, rose 5.2% to a 1.49 million rate.
    

    Key details: As the weather warms up, construction pace has picked up considerably.
    

    The construction pace of single-family homes rose 18.5% in May while apartment building rose 28.1%.
    

    Home builders were most active in the Midwest, where housing starts rose by 67% from the previous month. The Midwest also led the nation in terms of single-family construction.
    

    Permits for single-family homes rose 5.2% in May while permits in buildings with at five units or more rose 7.8%.
    

    Housing starts are up on an annual basis for the first time in nearly a year. The annual rate of total housing starts rose 5.7% from last May.
    

    Big picture: New construction is a bright spot in an otherwise despondent housing market. For the buyers who brave 6% mortgage rates, there are few options in the resale market, which continues to funnel demand for new homes. 
    

    In fact, demand is so strong that homebuilders are pulling back on sales incentives, such as price cuts, the National Association of Home Builders reported on Monday. 
    

    Builders also reported that they were feeling upbeat about the housing market for the first time in nearly a year.
    

    What are they saying? “To say that we did not see this one coming would not even come close to capturing the degree to which the May residential construction data caught us off guard,” Richard Moody, senior vice president and chief economist at Regions Financial Corporation, wrote in a note. 
    

    “This is without question an exaggeration of the underlying reality and a reminder that the housing starts data are among the most volatile and random of the government’s major economic indicators,” Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, wrote in a note. 
    

    “Having said that,” he added, “the housing sector broadly appears to be healing remarkably fast after enduring a historic shock in affordability last year, when 30-year mortgage rates more than doubled.”
    

    Market reaction: U.S. stocks
    
        DJIA,
    
        -0.59%
    

            SPX,
    
        -0.39%
    
       were  down in early trading on Tuesday. The yield on the 10-year Treasury note
    
        TMUBMUSD10Y,
    
        3.721%
    
       rose above 3.7%.
    

    

    

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    U.S. stock futures slip after three-day break
    
			
    U.S. stock futures slip after three-day break
    
			
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    U.S. stock index futures slipped lower Tuesday after a three-day break, with Chinese equities wilting on disappointment over the monetary stimulus efforts in the world’s number-two economy.
    

    What’s happening
    

      

    • 
      Dow Jones Industrial Average futures
      
        YM00,
      
        -0.31%
      
       fell 109 points, or 0.3%, to 34,495.
      

      • 

    • 
      S&P 500 futures
      
        ES00,
      
        -0.26%
      
       dropped 11 points, or 0.2%, to 4,442.
      

      • 

    • 
      Nasdaq 100 futures
      
        NQ00,
      
        -0.16%
      
       decreased 28 points, or 0.1%, to 15,239.
      

      • 

    

    On Friday, the Dow Jones Industrial Average
    
        DJIA,
    
        -0.32%
    
       fell 109 points, or 0.32%, to 34299, the S&P 500
    
        SPX,
    
        -0.37%
    
       declined 16 points, or 0.37%, to 4410, and the Nasdaq Composite
    
        COMP,
    
        -0.68%
    
       dropped 93 points, or 0.68%, to 13690.
    

    

    What’s driving markets
    

    Investors were in a cautious mood following the U.S. long weekend in honor of the Juneteenth federal holiday, but that’s after a strong run. The S&P 500 gained 2.6% last week, its fifth week in a row of gains, as the tech-heavy Nasdaq Composite took its winning run to eight weeks.
    

    Mike Wilson, Morgan Stanley’s chief U.S. equity strategist, said both retail and institutional investor sentiment are at their highest levels in over two years.
    

    “We note that the consensus is right about 80% of the time, which means such shifts in sentiment and positioning can often be right as the collective intelligence of the market knows best,” he said. “However, given our fundamental view on growth, we find it hard to get on board with the current excitement and narrative supporting it. In other words, if second half growth re-accelerates as expected, then the bullish narrative being used to support equity prices will be proven correct.” 
    

    One event that investors have to weigh is the resumption this fall of student loan payments, and what that may mean for consumers’ disposable income.  Student loan payments have been paused since the start of the pandemic in March 2020. 
    

    China cut its 1- and 5-year lending rates by 10 basis points, which investors viewed to be modest, particularly after a Friday state council meeting didn’t result in other concrete measures. According to Societe Generale, there were expectations the 5-year rate, the benchmark for mortgages, would be cut by 15 basis points.
    

    The Hang Seng
    
        HSI,
    
        -1.54%
    
       fell 1.5% in Hong Kong.
    

    Alibaba
    
        BABA,
    
        -0.11%    ,
    
       the Chinese internet giant, also was in the spotlight after announcing that its CEO and chairman will step down to focus on the cloud division, with Brooklyn Nets owner Joseph Tsai becoming chairman.
    

    Tuesday’s economic data include housing starts data, which showed a 21.7% rise in May after a revised 2.9% drop in April. Building permits also climbed 5.2% in May. 
    

    A panel later Tuesday will include both New York Federal Reserve President John Williams and Fed Vice Chair for Supervision Michael Barr. On Wednesday Fed Chair Jerome Powell is due to deliver semi-annual congressional testimony.
    

    Companies in focus
    

    

    

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    America may now be in a youth-cession: Consumers over age 60 are propping up the economy
    
			
    America may now be in a youth-cession: Consumers over age 60 are propping up the economy
    
			
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    Is America going into a recession or not? That depends on who you ask—and how old they are.
    

    Consumer households from their 20s to their 50s are now spending sharply less on their credit and debit cards than they were a year ago reports Bank of America, after crunching the numbers on its customers.
    

    At this point it’s mostly those over 60, and…
      
    

    

    

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    UK Economy Rebounded in April on Service-Sector Boost
    
			
    UK Economy Rebounded in April on Service-Sector Boost
    
			
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    The U.K. economy grew in April, boosted by the services sector, though resilient high inflation and Bank of England interest-rate rises could put a lid on an uplift through the year.
    

    The country’s gross domestic product grew 0.2% on month in April, from a decline of 0.3% in March, data from the Office for National Statistics showed Wednesday.
    

    This…
      
    

    

    

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  • 
		
		
    
			
    ‘Greedflation’ is replacing inflation as companies raise prices for bigger profits, report finds
    
			
    ‘Greedflation’ is replacing inflation as companies raise prices for bigger profits, report finds
    
			
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    That’s the practice by many S&P 500 food and consumer companies of raising prices to protect what a new report calls their “cushioned corporate profits,” and it has enabled them to boost margins through the current inflationary period.
    

    

    Companies including Kimberly-Clark Corp.
    
        KMB,
    
        -0.45%    ,
    
       PepsiCo Inc.
    
        PEP,
    
        -0.18%    ,
    
       General Mills Inc.
    
        GIS,
    
        -0.88%
    
       and Tyson Foods Inc.
    
        TSN,
    
        -0.36%
    
       have on recent earnings calls touted their ability to raise prices, earning tidy profits and rewarding their shareholders as they go,  according to the report from Accountable.US, a liberal-leaning consumer-advocacy group. 
    

    And they have signaled their intention to continue to take “price actions” even as the Federal Reserve has hiked interest rates an unprecedented 10 times in an effort to tame inflation. 
    

    “Higher interest rates haven’t stopped S&P companies, especially in the big food industry, from raising consumer prices despite reporting billions in extra net earnings and over a trillion dollars in new giveaways to wealthy investors,” said Liz Zelnick, director of economic security and corporate power at Accountable.US.
    

    “Corporate greed is a stubborn thing and requires serious action from Congress. The Fed has not seen an adequate return on its investment in a policy that has already created fissures in the economy that could lead to recession. It’s just not worth it,” she said. 
    

    Now read: Skip, pause or hike? A guide to what is expected from the Fed on Wednesday.
    

    Accountable.US is not alone in calling out price hikes on essentials including food. Walmart Inc.
    
        WMT,
    
        +0.73%
    
       is also unhappy with packaged-food companies that have steadily raised prices in dry grocery and consumable goods, according to a recent report from research company CFRA.
    

    “Given Walmart’s enormous bargaining power over its suppliers, we expect the retail giant to push back on further price increases from its packaged-food suppliers,” he said. That is expected to hurt margins, especially if volume growth does not recover.
    

    For more, see: Inflation in goods from cereal to soup has given a boost to consumer food stocks. Can Walmart help bring prices, both food and stock, down?
    

    May inflation data released Tuesday found that food prices were up 0.2% from April, after remaining flat for the previous two months. Food prices are up 6.7% over the last year. The food-at-home index is up 5.8% over the last year, while the index for cereals and bakery products is up 10.7%. 
    

    Food prices started to rise about two years ago, when supply-chain issues and higher fuel and commodity prices led companies to pass some of those costs on to customers. 
    

    But companies appear determined to raise prices even more, despite a decline in shipping and gas costs. Gasoline was down 5.6% in May from April and fuel oil fell 7.7%, according to consumer-price-index figures.
    

    Also read: U.S. inflation slows again, CPI shows, and might keep Fed on sidelines
    

    Kimberly-Clark executives told analysts on its recent earnings call that the company is able to “rapidly implement broad pricing actions” and acknowledged that “pricing has continued to be a big driver behind our top-line growth.” 
    

    The company’s first-quarter earnings topped expectations and it raised guidance for the full year. That’s after it raised prices by 10% for a second straight quarter, driving margins wider by 340 basis points.
    

    Shareholders were rewarded to the tune of $425 million during the quarter, the Accountable.US report notes.
    

    See also: Colgate-Palmolive’s stock pops after earnings beat as company raises prices by double-digit percentage
    

    PepsiCo Chief Executive Ramon Laguarta told analysts on that company’s recent earnings call that most of its price increases are behind it.
    

    However, he said, “obviously, there are some markets, highly inflationary markets around the world, where we might have to take additional pricing. If you think about Argentina, Turkey, Egypt — those kinds of markets where the currencies are suffering. But the majority of our pricing is already done,” he said, according to a FactSet transcript.
    

    PepsiCo’s 2022 earnings rose 16.9% to nearly $9 billion, and it spent more than $7.6 billion on stock buybacks and dividends, with the former up 1,313% from 2021. 
    

    General Mills, meanwhile, bragged about “getting smart about how we look at pricing” on its recent call. The parent of brands including Cheerios, Nature Valley, Blue Buffalo pet products and Pillsbury raised its fiscal 2023 guidance in February. 
    

    And Tyson executives touted the “significant pricing power of our portfolio with a year-over-year increase of 7.6%.” Tyson’s latest quarter included a surprise loss, as it was hit by weak demand for meat, along with plant closures and job cuts. 
    

    For more, see: Tyson Foods stock slides after meat producer swings to surprise loss
    

    But Tyson had net income of over $3.2 billion in 2022, up from $3 billion in 2021, and it rewarded shareholders with $1.35 billion in buybacks and dividends. 
    

    For Accountable.US, it’s more compelling evidence that the Fed’s rate-hike strategy “has failed to root out one of the main drivers of inflation and should give the [Federal Open Market Committee] pause before lifting rates again this week to the detriment of jobs and the economy.” 
    

    The Consumer Staples Select Sector SPDR exchange-traded fund
    
        XLP,
    
        +0.36%
    
       has fallen 1.6% to date in 2023, while the SPDR S&P Retail ETF
    
        XRT,
    
        +1.89%
    
       has gained 4.6%. The S&P 500
    
        SPX,
    
        +0.62%
    
       has gained 13% in the same period. 
    

    

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