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Japanese yen sees wild swing amid intervention fears after falling to nearly 1-year low versus dollar

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The Japanese yen roared back violently against the dollar Tuesday amid fears of intervention by Tokyo after trading at its weakest in nearly a year after a round of strong U.S. employment data.

The U.S. dollar fetched 148.92 Japanese yen
USDJPY,
-0.42%,
down 0.6%, after trading as low as 147.415 yen in a sharp tumble from a session high of 150.18 yen. The dollar hadn’t traded above the 150-yen level since Oct. 21, 2022, according to FactSet data.

Japanese authorities in the fall of 2022 intervened in the market, selling dollars and buying yen as the Japanese currency slumped. Currency traders had been on the lookout for renewed intervention as the yen extended its recent weakness. Japan’s Ministry of Finance has issued several verbal warnings over recent weeks, but they have failed to arrest the yen’s fall.

Finance Minister Shunichi Suzuki earlier Tuesday had warned that “all measures are on the table with a high sense of urgency,” according to Nikkei.

But FX analysts were skeptical the yen’s bounceback was due to intervention.

“Talk of intervention but I am skeptical. It seems like the market is doing it to itself with orders to sell dollar above JPY150. BOJ intervened three times last year, none was during US time zone,” said Marc Chandler, managing director at Bannockburn Global Forex, in a note to clients.

The dollar had initially extended its rally versus the yen and other major currencies after data showed U.S. job openings jumped unexpectedly to 9.6 million in September, up from a revised 8.9 million in August. Analysts surveyed by The Wall Street Journal had expected a reading of 8.8 million.

Continued strength in the labor market added to a rise in Treasury yields
BX:TMUBMUSD10Y,
which in turn boosted the dollar. The ICE U.S. Dollar Index
DXY,
a measure of the currency against a basket of six major rivals, remained up 0.1% at 107.06, after trading at its highest since November.

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October 3, 2023
Matt Gaetz files motion to oust Kevin McCarthy as House speaker

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Rep. Matt Gaetz of Florida filed a resolution late Monday to remove House Speaker Kevin McCarthy, a fellow Republican, from his post as their chamber’s leader.

The congressman had promised to make the move against McCarthy after the speaker on Saturday relied on the support of House Democrats to pass a short-term measure that averted a partial government shutdown. McCarthy had responded to Gaetz’s challenge by saying “Bring it on.”

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October 2, 2023
Newsom to name Laphonza Butler, former Kamala Harris adviser, to Feinstein’s Senate seat

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LOS ANGELES — California Gov. Gavin Newsom will name Laphonza Butler, a Democratic strategist and adviser to Kamala Harris’ presidential campaign, to fill the vacant U.S. Senate seat held by the late Sen. Dianne Feinstein, a spokesman in his office said Sunday.

In choosing Butler, Newsom fulfilled his pledge to appoint a Black woman if Feinstein’s seat should become open. However, he had been facing pressure by some Black politicians and advocacy groups to select Rep. Barbara Lee, a prominent Black congresswoman who is already running for the seat.

Butler will be the only Black woman serving in the U.S. Senate, and the first openly LGBTQ person to represent California in the chamber.

The long-serving Democratic senator died last Thursday after a series of illnesses. Butler leads Emily’s List, a political organization that supports Democratic women candidates who favor abortion rights. She also is a former labor leader with SEIU 2015, a powerful force in California politics.

Butler currently lives in Maryland, according to her Emily’s List biography.

She did not immediately respond to an email seeking comment. A spokesman in Newsom’s office who declined to be named confirmed to The Associated Press that Newsom had chosen Butler.

Democrats control the Senate 51-49, though Feinstein’s seat is vacant. A quick appointment by Newsom will give the Democratic caucus more wiggle room on close votes, including nominations that Republicans uniformly oppose. She could be sworn in as early as Tuesday evening when the Senate returns to session.

Feinstein, the oldest member of Congress and the longest-serving woman in the Senate, died at age 90 after a series of illnesses. She said in February she was would not seek reelection in 2024. Lee is one of several prominent Democrats competing for the seat, including Democratic U.S. Reps. Katie Porter and Adam Schiff. Newsom said he did not want to appoint any of the candidates because it would give them an unfair advantage in the race.

His spokesman Anthony York said the governor did not ask Butler to commit to staying out of the race. Dec. 8 is the deadline for candidates to file for the office.

Butler has never held elected office but has a long track record in California politics. She served as a senior adviser to Harris’s 2020 presidential campaign while working at a political firm filled with strategists who have worked for Newsom and many other prominent state Democrats. She also briefly worked in the private sector for Airbnb.

She called Feinstein “a legendary figure for women in politics and around the country,” in a statement posted after Feinstein’s death.

Emily’s List, the group Butler leads, focuses on electing Democratic women who support abortion rights. With the U.S. Supreme Court’s 2022 decision to overturn women’s constitutional right to abortion, the issue has become a galvanizing one for many Democrats.

It’s not Newsom’s first time selecting a U.S. senator, after being tasked with choosing a replacement for Kamala Harris when she was elected vice president; at that time he selected California Secretary of State Alex Padilla for the post. It was one of a string of appointments Newsom made in late 2020 and early 2021, a power that gave him kingmaker status among the state’s ambitious Democrats.

The seat is expected to stay in Democratic hands in the 2024 election. Democrats in the liberal-leaning state have not lost a statewide election since 2006, and the party holds a nearly 2-to-1 voter registration advantage over Republicans.

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October 1, 2023
Elizabeth Warren, Bernie Sanders urge FTC’s Khan to finalize controversial merger rules

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A group of Democrats in the House and Senate are imploring the country’s top antitrust enforcement cop to implement sweeping new changes to its merger-review protocol, according to a new letter viewed exclusively by MarketWatch.

The Federal Trade Commission, along with the Justice Department’s antitrust division, recently proposed changes to forms that companies proposing deals of a certain size must submit to the government, which critics say would suppress the market for mergers and acquisitions.

The new form will require companies to provide much more information to antitrust enforcers before they seek to consummate a deal. Most controversially, that would include narrative information about the strategic rationale for a transaction as well as studies, surveys, analyses and reports which were prepared by the company as it considered the deal.

“The new proposed [form] and associated instructions will facilitate efficient premerger review and ensure effective enforcement of antitrust laws,” wrote the lawmakers, including Sens. Elizabeth Warren, a Massachusetts Democrat, and Bernie Sanders of Vermont, an independent who votes with Democrats.

The letter, dated Sept. 27, was also signed by Democrats including Sen. Mazie Hirono of Hawaii, and Reps. Becca Balint of Vermont, Henry Johnson of Georgia, Rashida Tlaib of Michigan, Summer Lee of Pennsylvania, Lori Trahan of Massachusetts, Ilhan Omar of Minnesota, Mark Pocan of Wisconsin, Katie Porter of California and Greg Casar of Texas. No Republicans signed the letter.

The lawmakers lament the state of the U.S. economy today, arguing that the updated premerger process is necessary to combat growing concentration of industry and the digital transformation of the economy.

“Unchecked consolidation hurts consumers, small businesses, workers, and the economy,” the letter reads. “Consolidation leads to higher prices, less innovation, and reduced quality for consumers. It prevents small businesses from entering markets or competing fairly: for example it is twice as expensive for small businesses to borrow money compared to dominant ones, and there are fewer startups in states where a few companies dominate markets.”

The lawmakers note that since the current premerger notification process was instituted nearly 45 years ago, the required forms have not been updated, and only require companies to provide basic information that don’t “give regulators clarity as to whether a deal may substantially lessen competition.”

The FTC and DOJ proposed the changes in July, and then extended the period for accepting public comments on the proposal to Sept. 27, and it’s possible the final rule is amended before the agencies adopt it. There is no set timeline for when the FTC will vote to adopt any changes.

Some antitrust experts are skeptical that the proposed changes will hold up in court, if they are implemented as proposed.

“The proposed changes are likely to face a rocky path ahead,” wrote Justin Hurwitz of the University of Pennsylvania’s Center for Technology, Innovation & Competition, in a recent analysis.

“They appear to violate legislative intent that [the premerger process] not unduly delay transactions or require the production of materials the firms did not already create as par of evaluating the transaction.”

Hurwitz added that “the premerger notification process serves an important function, but it is a tax on on all mergers,” and predicted that the proposed changes will likely not “survive judicial review.”

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September 28, 2023
Why a surging U.S. dollar is about to become a problem for stock-market bulls

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Analysts are ringing alarm bells over a surge by the U.S. dollar, warning it may be set to serve as another “headwind” for U.S. stocks as they struggle through a losing September.

“Since early August, the USD (U.S. dollar) has climbed above its average [second-quarter] level. That means that for corporates, the USD switched back from tailwind to headwind…and an increasing one” as investors close out the third quarter this week, said Andrew Greenebaum of Jefferies, in a Saturday note.

A rapidly strengthening dollar is often seen as a problem for big, U.S. multinationals. A stronger dollar makes their goods more expensive to overseas buyers. And income earned overseas will be less valuable on their income statements.

The U.S. dollar went on a tear in 2022 as Treasury yields surged in response to the Federal Reserve’s aggressive series of interest-rate hikes. The ICE U.S. Dollar Index
DXY,
a measure of the currency against a basket of six major rivals, hit a 20-year high last September, but then retreated sharply.

The pullback, which saw the index drop from a high near 115 last fall to a low below 100 in July, was seen as a tailwind for stocks. The S&P 500
SPX
saw its bear-market bottom in October of last year, and built on its rally through the winter and spring. Since late July, stocks have suffered a pullback, with the large-cap benchmark down around 5.5% from its 2023 high set on July 31.

“After creating a substantial headwind to profits for U.S. multinationals, it’s been a tailwind [year to date]. But that all changed roughly 10 weeks ago,” Greenebaum wrote.

The DXY has ripped higher by around 4% in that short time frame, a move more than one standard deviation outside the norm, he noted. And that sort of move has tended have implications for both company fundamentals and asset allocation.

Jefferies

The chart above breaks out the average performance of key indexes, including the S&P 500, S&P 500 cyclicals, small-caps (RTY), the Nasdaq-100
NDX
and the MSCI All-World excluding U.S.

Small-caps are typically expected to outperform during periods of dollar strength, since most of their revenues come from within the U.S. Cyclical stocks are expected to suffer.

A rising dollar also tightens financial conditions, adding to other headwinds for stocks heading into the fourth quarter, said analysts at Morgan Stanley, in a Monday note (see chart below).

Morgan Stanley Wealth Management

“With the 10-year real rate at a 16-year high above 2.0%, the U.S. dollar is surging, producing meaningful headwinds for U.S. multinationals,” they wrote.

“Oil is becoming a constraint as well, with West Texas Intermediate crude
CL00,
+0.01%
up more than 30% from its spring trough. Together with indications that bank lending and credit availability are already shrinking, these factors suggest the liquidity backdrop may worsen,” they wrote.

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September 25, 2023
These 20 growth stocks are worth considering on a pullback, says Citi

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Citi has released a list of 20 large-cap growth stocks that it says present opportunities in the event of a pullback.

“Our call since early summer has been to hold Growth and look to buy on pullbacks,” Citi analyst Scott Chronert said in a note released Monday, adding that Citi has had a tactical preference for cyclicals. “However, on the heels of the strong Cyclicals surge during June and July, and our upwardly revised S&P 500 target of 4600, the messaging has been to buy on pullbacks more broadly,” he wrote.

Citi also notes that the Russell 1000 Growth Index
RLG
has sold off more than 6% from its mid-July high, although two-thirds of the stocks in the index are down 10% or more, with one-third down more than 20%. “This sets up for interesting intermediate to long-term stock selection opportunities,” Chronert said.

Related: Preorders for the iPhone 15 have begun, and here’s a sign they’ve been ‘solid’

The analyst acknowledged that there is still a risk of economic softening ahead, if not a recession. “Yet, the argument that Growth stocks can show fundamental resilience during periods of broader economic weakening is a theme that we have considered for several years now,” he said.

Set against this backdrop, the analyst firm has compiled a tech-heavy list of 20 stocks that have a buy rating from Citi, have at least 75% of market cap assigned to growth, according to Russell, and have experienced a decline of 10% or more from year-to-date highs since March 31. Other common characteristics of the stocks include consensus estimates of free cash flow per share above March 31 levels and free cash flow per share within or above market-implied five-year-forward estimates.

Tech heavyweights Apple Inc.
AAPL,
+0.74%
and NVIDIA Corp.
NVDA,
+1.47%
are on the list, along with Pinterest Inc.
PINS,
-2.47%,
Lam Research Corp.
LRCX,
+0.24%,
Teradata Corp.
TDC,
+0.36%,
Datadog Inc.
DDOG,
+0.09%,
MongoDB Inc.
MDB,
-0.73%,
HubSpot Inc.
HUBS,
+0.18%
and KLA Corp.
KLAC,
+0.79%.
The other stocks cited by Citi are Lockheed Martin Corp.
LMT,
-0.18%,
DraftKings Inc.
DKNG,
-1.44%,
Las Vegas Sands Corp.
LVS,
-0.98%,
Chipotle Mexican Grill Inc.
CMG,
-0.85%,
Netflix Inc.
NFLX,
+1.31%,
TKO Group Holdings Inc.
TKO,
-1.93%,
Rockwell Automation Inc.
ROK,
+1.09%
and Paycom Software Inc.
PAYC,
+0.45%,
and healthcare stocks Bruker Corp.
BRKR,
+1.04%,
Insulet Corp.
PODD,
-0.66%
and Intuitive Surgical Inc.
ISRG,
+1.75%.

Related: Will Nvidia stock be like Apple or Cisco in the AI era?

Shares of Apple, which recently launched its iPhone 15, are down 5.5% in the last three months. Shares of chip maker NVIDIA are up 2.8% over the same period, while Lockheed Martin is down 8.9% and DraftKings is up 8.6%. Las Vegas Sands is down 21.8% and Chipotle is down 8.8%, while Netflix is down 7.8%.

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September 25, 2023
U.S. dollar scores first ‘golden cross’ since July 2021, signaling more trouble for stocks ahead

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The U.S. dollar has completed its first “golden cross” since July 2021, which could mean the greenback is going higher, creating more problems for stocks.

Heading into Friday’s settlement, the 50-day average on the ICE U.S. Dollar Index
DXY,
a gauge of the buck’s value against a basket of its biggest rivals that’s heavily weighted toward the euro, stands at 103.15, higher than the 200-day moving average, which was 103.11.

The index itself finished at 105.56 on Friday, trading at its highest level since March 10, 2023, the day that the Silicon Valley Bank collapsed, sparking a brief rally in safety plays like the dollar. It climbed 0.2% this week, booking its 10th straight weekly advance, its longest such streak since a 12-week sprint that ended in October 2014.

FACTSET

A golden cross occurs when the 50-day moving average closes above the 200-day moving average. It’s a popular signal among technical analysts and often — though definitely not always — signals that momentum is building in a given direction.

On the other hand, a “death cross” occurs when the 50-day moving average breaks below the 200-day. A “death cross” in the U.S. dollar occurred on Jan. 10. Afterward, the buck trended lower for the next six months, ultimately hitting its lowest level of 2023 on July 14. Since then, the buck has been in a sustained uptrend that some currency strategists think has grounds to continue, now that the Federal Reserve bolstered its forecast to keep interest rates above 5% through 2024.

According to an analysis by Dow Jones Market Data, the dollar typically continues to climb during the three months following a golden cross, gaining an average of 1.9%, while trading higher 79.2% of the time over. Performance is more mixed one year out, with the buck higher 58.3% of the time, with an average gain of 1.5%.

And if the previous golden cross is any guide, the dollar’s recent gains could be just the beginning of a larger advance. After a previous golden cross on July 29, 2021, the dollar index gained roughly 25%, advancing from about 91 to just shy of 115 in late September of 2022, when it touched its strongest level in two decades, according to FactSet data.

Some analysts have warned that the dollar’s advance, alongside rising Treasury yields, could create more problems for stocks. The S&P 500
SPX
fell more than 1.6% on Thursday, its biggest drop in a single day since March 22, according to Dow Jones Market Data.

“A new cycle high in yields and a golden-cross in the dollar are strong headwinds for the market,” said Jeffrey deGraaf, a technical strategist at Renaissance Macro Research, in a note to clients.

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September 24, 2023
Sen. Menendez of New Jersey and wife indicted on bribery charges as probe finds $100,000 in gold bars, prosecutors say

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U.S. Sen. Bob Menendez of New Jersey and his wife were indicted Friday on bribery charges after an investigation that turned up $100,000 in gold bars and $480,000 in hidden cash at their home, prosecutors said.

Federal prosecutors announced the charges against the 69-year-old Democrat nearly six years after an earlier criminal case against him ended with a deadlocked jury. They said a search of Bob Menendez’s home turned up $100,000 in gold bars and $480,000 in hidden cash.

The latest indictment is unrelated to the earlier charges that alleged Menendez accepted lavish gifts to pressure government officials on behalf of a Florida doctor.

The Senate Historical Office says Menendez appears to be the first sitting senator in U.S. history to have been indicted on two unrelated criminal allegations.

A lawyer for Menendez’s wife hasn’t responded to a message seeking comment. Messages were left for Menendez’s Senate spokesperson and his political consultant.

The first time Menendez was indicted, he had been accused of using his political influence to help a Florida eye doctor who had lavished him with gifts and campaign contributions.

The new charges follow a years-long investigation that examined, among other things, the dealings of a New Jersey businessman — a friend of Menendez’s wife — who secured sole authorization from the Egyptian government to certify that meat imported into that country meets Islamic dietary requirements.

Investigators also asked questions about the Menendez family’s interactions with a New Jersey developer.

Menendez’s political career had looked as though it might be over in 2015, when a federal grand jury in New Jersey indicted him on multiple charges over favors he did for a friend, Dr. Salomon Melgen.

Menendez was accused of pressuring government officials to resolve a Medicare billing dispute in Melgen’s favor, securing visas for the doctor’s girlfriends and helping protect a contract the doctor had to provide port-screening equipment to the Dominican Republic.

Menendez has always maintained his innocence. His lawyers said campaign contributions and gifts from Melgen — which included trips on his private jet to a resort in the Dominican Republic and a vacation in Paris — were tokens of their longtime friendship, not bribes.

Prosecutors dropped the case after a jury deadlocked in November 2017 on charges including bribery, fraud and conspiracy, and a judge dismissed some counts.

The Senate Ethics Committee later rebuked Menendez, finding that he had improperly accepted gifts, failed to disclose them and then used his influence to advance Melgen’s personal interests.

But months later, New Jersey voters returned Menendez to the Senate. He defeated a well-financed challenger in a midterm election that broke a Republican lock on power in Washington.

Melgen was convicted of health care fraud in 2017 but former President Donald Trump commuted his prison sentence.

Menendez is widely expected to run for reelection next year.

The son of Cuban immigrants, Menendez has held public office continuously since 1986, when he was elected mayor of Union City, New Jersey. He was a state legislator and spent 14 years in the U.S. House of Representatives. In 2006, Gov. Jon Corzine appointed Menendez to the Senate seat he vacated when he became governor.

At least two other senators — Kay Bailey Hutchinson, R-Texas; Richard Kenney, D-Delaware — were indicted on multiple occasions while still in office, but each senator’s indictments covered overlapping allegations, according to the Senate Historical Office.

Neither Kenney nor Hutchinson were ultimately convicted, and both went on to serve their full terms. In total, 13 senators have been indicted throughout history, of which six have been convicted, according to the Senate Historical Office. Two of those convictions were overturned.

Menendez first publicly disclosed that he was the subject of a new federal investigation last October.

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September 22, 2023
U.S. stocks end lower, S&P 500 drops third straight week as Fed worries linger
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U.S. stocks ended modestly lower Friday, with the Dow Jones Industrial Average falling for a fourth consecutive day in its longest daily losing streak since June. The S&P 500 and Nasdaq each logged a third-straight weekly decline as rising bond yields rocked equities in the wake of the Federal Reserve meeting on Wednesday.

How stock indexes traded
- The Dow Jones Industrial Average
  DJIA
  fell 106.58 points, or 0.3%, to close at 33,963.84.
- The S&P 500
  SPX
  shed 9.94 points, or 0.2%, to finish at 4,320.06.
- The Nasdaq Composite
  COMP
  dropped 12.18 points, or 0.1%, to end at 13,211.81.
For the week, the Dow fell 1.9%, the S&P 500 dropped 2.9% and the Nasdaq Composite slumped 3.6%. The S&P 500 and Nasdaq each booked their biggest weekly percentage drop since March, according to Dow Jones Market Data.
What drove markets

Stocks slipped after two days of selling sparked by the Federal Reserve projecting its policy interest rate would remain above 5% well into next year.

The notion in markets that the Fed would be cutting rates soon was “offsides,” leading to a “knee-jerk reaction” in bond markets that hurt stocks, said Michael Skordeles, head of U.S. economics at Truist Advisory Services, in a phone interview Friday. In his view, the central bank may cut its benchmark rate just once in the second half of next year, if at all, as inflation remains too high in a “resilient” U.S. economy with a “still fairly strong” labor market.

Rapidly rising Treasury yields have been blamed for much of the pain in stocks. The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
climbed 11.7 basis points this week to 4.438%, dipping on Friday after on Thursday rising to its highest level since October 2007, according to Dow Jones Market Data.

Senior Fed officials who spoke Friday voiced support for the more aggressive monetary policy path signaled by Fed Chair Jerome Powell on Wednesday.

Boston Federal Reserve President Susan Collins said rates are likely to stay “higher, and for longer, than previous projections had suggested,” while Fed Gov. Michelle Bowman said it’s possible the Fed could raise rates further to quell inflation. The latest Fed “dot plot,” released following the close of the central bank’s two-day policy meeting on Wednesday, showed senior Fed officials expect to raise rates once more in 2023.

Meanwhile, the S&P 500 finished Friday logging a third straight week of declines, with consumer-discretionary stocks posting the worst weekly performance among the index’s 11 sectors by dropping more than 6%, according to FactSet data.

“Markets weakened this week following an extended period of calm, as the hawkish tone adopted by Fed Chair Powell following the FOMC meeting caused the decline,” said Mark Hackett, Nationwide’s chief of investment research, in emailed comments Friday. “Bears have wrestled control of the equity markets from bulls.”

Economic data on Friday showed some weakness in the U.S. services sector, while manufacturing activity recovered slightly but remained in contraction, according to S&P U.S. purchasing managers indexes.

Still the U.S. economy has been largely resilient despite a hawkish Fed, with “strong economic growth driving fears of continued inflation pressure,” said Hackett. He also pointed to concerns that a “too strong” economy and “developing clouds” such as strikes, a potential government shutdown, and student loan repayments “will impact consumer activity.”

Read: Government shutdown: Analysts warn of ‘perhaps a long one lasting into the winter’

Jamie Cox, managing partner at Richmond, Virginia-based wealth-management firm Harris Financial Group, said by phone on Friday that he’ll become concerned about the impact of a government shutdown on markets if it stretches for longer than a month.

“I’m only worried if it goes past a month,” said Cox, explaining he expects “little” economic impact if a government shutdown lasts a couple weeks.

Meanwhile, United Auto Workers President Shawn Fain said Friday that the union is expanding its strike to 38 General Motors Co.
GM,
-0.40%
and Stellantis NV’s
STLA,
+0.10%
auto-parts distribution centers in 20 states, hobbling the two carmakers’ repair network.

“We’re seeing strike after strike,” which overtime could fuel wage growth that’s already “robust,” said Truist’s Skordeles. That risks adding to inflationary pressures in the economy, he said. And while U.S. inflation has eased “dramatically,” said Skordeles, “it isn’t down to where it needs to be.”

Companies in focus

Activision Blizzard Inc.
ATVI,
+1.70%
rose 1.7% after the U.K. Competition and Markets Authority said that Microsoft Corp.’s
MSFT,
-0.79%
revised proposals to modify its Activision acquisition makes it possible for the $75 billion deal to be cleared. Under the revised deal, Activision would sell cloud-gaming rights to French videogame publisher Ubisoft Entertainment SA
UBI,
+4.47%,
whose shares rose in Paris.

Chinese stocks including e-commerce group Alibaba Group Holding Limited
BABA,
+4.98%,
electric vehicle-maker NIO Inc.
NIO,
+0.95%
and e-commerce platform JD.com Inc.
JD,
+2.01%
ended Friday with gains. Reports suggested Friday that China is considering a relaxation of rules that limit foreign ownership of publicly traded firms.

Steve Goldstein contributed to this report.
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September 22, 2023
The Fed’s got inflation dead wrong. That’s why a 2024 recession is likely, says Duke professor.

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Campbell Harvey, a Duke University finance professor best known for developing the yield-curve recession indicator, says the Federal Reserve’s read on inflation is out of whack. And, as a result, the likelihood that the U.S. slips into a recession is increasing.

The big question now is the severity of the economic downturn to come, if the central bank continues unabated on its high-interest-rate path.

On Wednesday, the Fed, which began raising rates from near zero last year, held them at a range of 5.25% to 5.5%, a 22-year high, in its effort to get inflation under control.

“The [inflation gauge] that the Fed uses makes no sense whatsoever, and it’s totally disconnected from market conditions,” Harvey told MarketWatch in a phone interview.

The Fed’s measures of inflation are heavily weighted toward shelter costs, which reflect the rising price of rental and owner-occupied housing. For example, shelter inflation has been running at 7.3% over the past 12 months, and also as of the most recent consumer-price index, for August. Shelter represents around 40% of the core CPI reading.

Harvey says that’s a problem because shelter’s retreat loosely follows the broader trend lower for headline inflation but at a lag, and the Fed wouldn’t be properly accounting for that lag if it decided to keep its target interest rates restrictively high.

Separately, MarketWatch’s economics reporter, Jeff Bartash, notes that CPI also fails to capture the millions of Americans who locked in low mortgage rates before or during the pandemic and who are now paying less for housing than they had previously.

“The Fed is … using inflation, in what I call a false narrative,” Harvey said.

Opinion: Fed’s ‘golden handcuffs’: Homeowners locked into low mortgage rates don’t want to sell

Also see: U.S. mortgage rates ‘linger’ over 7%, Freddie Mac says, slowing the housing market further

Harvey said that if shelter inflation were normalized at around 1% or 1.5%, overall core inflation would measure closer to 1.5% or 2%. In other words, at — or substantially below — the Fed’s 2% target.

Consumer prices ex-shelter were up 1.9% on a year-over-year basis in August, up from 1% in July, according to the Labor Department.

The Canadian-born Duke professor says that the Fed risks driving the U.S. economy into recession because it has achieved its goal of taming inflation, which peaked at around 9% in 2022, and isn’t making it clear that its rate-hike cycle is complete.

“Now, the higher those rates go, the worse [the recession] is,” he said.

Harvey pioneered the idea that an inverted yield curve is a recession indicator, with the curve’s inversion depicting the yield on three-month Treasurys rising above the rate on the 10-year Treasury note
BX:TMUBMUSD10Y.
Longer-term Treasurys typically have higher yields than shorter-term U.S. government debt, and the inversion of that relationship historically has predicted economic contractions.

Harvey says that that his yield-curve-inversion model has an unblemished track record — 8-out-of-8 — for predicting recessions over the past 70 years. A recent inversion of U.S. yield curves implies that a U.S. recession is still a possibility.

Opinion: The U.S. could be in a recession and we just don’t know it yet

Also see: Are markets getting more worried about a recession? Invesco says a Fed pivot is coming.

On Thursday, the Dow Jones Industrial Average
DJIA
fell 1.1%, while the S&P 500
SPX
tumbled1.6% and the Nasdaq Composite
COMP
slumped 1.8%, marking one of the worst days for stocks in months.

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September 22, 2023
At a peak? Bank of England makes 5-to-4 vote to pause interest rates

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The Bank of England decision promised to be a cliff hanger, and it was, even for the nine people deciding what to do.

Breaking a string of 14 consecutive rate rises, the Bank of England opted to hold rates at 5.25%.

It was a narrow 5-4 vote in favor of the pause, with Gov. Andrew Bailey on the side of the majority.

The…

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September 21, 2023
Treasury yields near highest levels in more than a decade after hawkish Fed projections

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Treasury yields tested their highest levels in more than a dozen years on Thursday as investors continued to absorb the Federal Reserve’s message of higher-for-longer interest rates.

What’s happening

What’s driving markets

Treasury yields continued to climb on Thursday as investors continued to absorb the Federal Reserve’s projections, delivered Wednesday, that suggested another interest-rate increase this year and that borrowing costs were likely to be cut in 2024 by less than previously thought.

Markets…

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September 21, 2023
U.K. inflation surprisingly slips, making Bank of England decision a close call

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Inflation in the U.K. surprisingly eased in August against expectations it would accelerate, a welcome showing for central bankers just a day ahead of an interest-rate decision.

The U.K. consumer price index fell a touch to 6.7% year-over-year in August from 6.8%, the Office for National Statistics said Wednesday.

CPI was expected by economists…

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September 19, 2023
Republican Texas AG Ken Paxton is acquitted of all 16 corruption charges at impeachment trial

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Texas Attorney General Ken Paxton was acquitted Saturday of all charges at a historic impeachment trial that divided Republicans over whether to remove a powerful defender of former President Donald Trump after years of scandal and criminal charges.

The verdict reaffirmed Paxton’s durability in America’s biggest red state and is a broader victory for Texas’ hard right after an extraordinary trial that put on display fractures within the GOP nationally heading into the 2024 elections. In the end, Paxton was fully cleared by Senate Republicans, who serve alongside his wife, state Sen. Angela Paxton.

Angela Paxton was not allowed to vote. But she attended all two weeks of the trial, including the reading of the verdict, when all but two of her fellow 18 Republican senators consistently voted to acquit her husband on 16 impeachment articles that accused him of misconduct, bribery and corruption. Ken Paxton, who was absent for most of the proceedings, did not attend the verdict.

It clears the way for Paxton to reclaim his role as Texas’ top lawyer, more than three months after his stunning impeachment in the Texas House forced him to temporarily step aside.

The outcome far from ends Paxton’s troubles. He still faces trial on felony securities fraud charges, remains under a separate FBI investigation and is in jeopardy of losing his ability to practice law in Texas because of his baseless attempts to overturn the 2020 election.

The jury of 30 senators spent about eight hours deliberating behind closed doors before emerging for the historic vote. A two-thirds majority is required to convict Paxton on any of the charges that accuse Paxton of bribery, corruption and unfitness for office.

The trial has plunged Texas Republicans into unfamiliar waters as they confronted whether Paxton should be removed over allegations that he abused his office to protect a political donor who was under FBI investigation.

For nearly a decade, Paxton has elevated his national profile by rushing his office into polarizing courtroom battles across the U.S., winning acclaim from Donald Trump and the GOP’s hard right.

The case centered on accusations that Paxton misused his office to help one of his donors, Austin real estate developer Nate Paul, who was indicted in June on charges of making false statements to banks. Paul has pleaded not guilty.

Eight of Paxton’s former deputies reported him to the FBI in 2020, setting off a federal investigation that will continue regardless of the verdict. Federal prosecutors investigating Paxton took testimony in August before a grand jury in San Antonio , according to two people with knowledge of the matter who spoke on condition of anonymity because of secrecy rules around the proceeding.

One of the impeachment articles centered on an alleged extramarital affair Paxton had with Laura Olson, who worked for Paul. It allegeed that Paul’s hiring of Olson amounted to a bribe.

Paxton faces an array of legal troubles beyond the impeachment. Besides the federal investigation for the same allegations that gave rise to his impeachment, he also faces a bar disciplinary proceeding over his effort to overturn the 2020 election and has yet to stand trial on state securities fraud charges dating to 2015. He pleaded not guilty in the state case, but his lawyers have said removal from office might open the door to a plea agreement.

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September 16, 2023
House Speaker McCarthy announces impeachment inquiry into President Biden

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House Speaker Kevin McCarthy on Tuesday announced an impeachment inquiry into President Joe Biden, saying that House Republicans have in recent months uncovered credible allegations about his conduct.

“Today I am directing our House committees to open a formal impeachment inquiry into President Joe Biden,” McCarthy told reporters on Capitol Hill. He said the move would give the panels “the full power to gather all the facts and answers for the American people.”

Punchbowl News reported earlier that the California Republican was poised to tell House Republicans this week that launching an impeachment inquiry into Biden is the “logical next step” in the GOP’s probes of the president and his son Hunter.

House Republicans are probing the business dealings of Hunter Biden but so far have not produced evidence linking him to the president.

Ian Sams, a White House spokesman, said in a message on X that Republicans “have turned up no evidence of wrongdoing” by President Biden and noted that McCarthy had previously called for a House vote before opening an inquiry.

“Extreme politics at its worst,” wrote Sams.

In July, McCarthy said that GOP probes of the Bidens were “rising to the level of impeachment inquiry.”

With Congress staring down a Sept. 30 deadline to fund the government or risk a partial shutdown, McCarthy has been feeling some heat from his right flank. Rep. Matt Gaetz, a Florida Republican who is critical of McCarthy, was planning to deliver a speech Tuesday intended to lay groundwork for a potential move to oust him as speaker, according to the New York Times.

McCarthy’s announcement comes as the 2024 White House campaign is heating up. Speaking on MSNBC, Rep. Debbie Wasserman Schultz, a Florida Democrat, called House Republicans an arm of former President Donald Trump’s 2024 election campaign.

“They are succumbing to the pressure from Donald Trump and from their right-wing MAGA base,” she said.

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September 12, 2023
Morocco earthquake kills at least 600 people

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RABAT, Morocco (AP) — A rare, powerful earthquake struck Morocco late Friday night, killing hundreds of people and damaging buildings from villages in the Atlas Mountains to the historic city of Marrakech.

Morocco’s Interior Ministry said Saturday morning that at least 632 people had died, mostly in Marrakech and five provinces near the quake’s epicenter. Another 329 people were injured. Casualty figures were expected to rise more as the search continues and as rescuers reach remote areas.

Moroccan television showed scenes from the aftermath, as many stayed outside fearing aftershocks.

Anxious families stood in streets or huddled on the pavement, some carrying children, blankets or other belongings.

Emergency workers looked for survivors in the rubble of buildings, their reflective yellow vests illuminating the nighttime landscape. The quake ripped a gaping hole in a home, and a car was nearly buried by the chunks of a collapsed building.

Baskets, buckets and clothing could be seen amid scattered stones in the remains of one building.

Moroccan media reported that the 12th century Koutoubia Mosque in Marrakech, one of the city’s most famed landmarks, suffered damage, but the extent was not immediately clear. Its 69-meter (226-foot) minaret is known as the “roof of Marrakech.”

Moroccans also posted videos showing damage to parts of the famous red walls that surround the old city in Marrakech, a UNESCO World Heritage site.

The head of a town near the earthquake’s epicenter told Moroccan news site 2M that several homes in nearby towns had partly or totally collapsed, and electricity and roads were cut off in some places.

Abderrahim Ait Daoud, head of the town of Talat N’Yaaqoub, said authorities are working to clear roads in Al Haouz Province to allow passage for ambulances and aid to populations affected, but said large distances between mountain villages mean it will take time to learn the extent of the damage.

Local media reported that roads leading to the mountain region around the epicenter were jammed with vehicles and blocked with collapsed rocks, slowing rescue efforts.

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September 9, 2023
U.S. stock futures slide as sour news on global economy hits sentiment
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U.S. stock index futures slipped early Tuesday as rising bond yields defied dour economic news from China and Europe.

How are stock-index futures trading
- S&P 500 futures
  ES00,
  -0.19%
  dipped 20 points, or 0.4%, to 4502
- Dow Jones Industrial Average futures
  YM00,
  -0.07%
  fell 119 points, or 0.3%, to 34763
- Nasdaq 100 futures
  NQ00,
  -0.38%
  eased 95 points, or 0.6%, to 15421
On Friday, the Dow Jones Industrial Average
DJIA
rose 116 points, or 0.33%, to 34838, the S&P 500
SPX
increased 8 points, or 0.18%, to 4516, and the Nasdaq Composite
COMP
dropped 3 points, or 0.02%, to 14032. U.S. markets were closed on Monday for the Labor Day break.

What’s driving markets

U.S. traders returned from the Labor Day holiday with global markets in a generally risk-off mood after more disappointing news from the world’s second biggest economy.

A Caixin survey showed China’s service sector expanded in August at its slowest pace in eight months, providing further evidence that the country’s post-pandemic recovery is faltering.

Also, a eurozone survey showed output in the bloc contracting at its fastest pace in nearly three years.

Asian and European bourses mostly turned lower, affecting U.S. equity index futures.

“Sentiment has turned downbeat again on China as fresh brushstrokes are painted on the picture of its slowing economy,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown.

“The data has overshadowed relief that the struggling property giant Country Garden
2007,
-0.98%
has managed to make key interest payments on its debt, reducing, for now, concerns about contagion in the financial sector. China appears to be taking one step forward, but two steps back, as optimism one day turns to pessimism the next,” Streeter added.

Concerns about economic growth might be expected to support sovereign debt markets, but here too the tone was grim, with Treasury yields rising amid concerns recent increases in oil prices
CL.1,
-0.35%
–though down a bit on Tuesday — may revive inflationary pressures.

“Oil prices have surged to reach new highs in 2023, a development poised to have significant repercussions on the upcoming August consumer price index reports…[which] presents a fresh challenge for central banks as they continue their diligent efforts to bring inflation levels back in line with their desired targets,” said Stephen Innes, managing partner at SPI Asset Management.

“This growing concern has notably impacted sovereign bonds, triggering a sell-off primarily driven by heightened inflation expectations. And, of course, stocks do not like the cut of that new inflation jib,” Innes added.

U.S. economic updates set for release on Tuesday include July factory orders, due at 10 a.m. Eastern.

Companies in focus

Blackstone Inc.
BX,
-1.77%
rose 4% in premarket trade, while shares of Airbnb Inc.
ABNB,
+0.87%
were up 5% after S&P Dow Jones Indices announced that both names would gain inclusion in the S&P 500 index. The changes take effect before the start of trading Sept. 18.
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September 5, 2023
Unemployment surge to 3.8% may be a summer-jobs mirage

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The U.S. unemployment rate jumped to an 18-month high of 3.8% in August. Does that mean the economy is tottering and layoffs are rising from near record lows? Ah, no.

The big increase in the jobless rate — from 3.5% in July — stemmed almost entirely from more people in the labor force.

People generally look for a job when they think it’s easy to find one and the pay is good. That’s a sign of a robust labor market, not a weakening one.

An estimated 736,000 people entered the labor force last month, but only about one-third found a job.

The other half million didn’t find a job right away, so they would be considered unemployed. The government includes anyone without a job who is actively searching for work in the unemployment rate.

Ergo, that’s why the jobless rate jumped three-tenths to 3.8%.

Digging a little deeper, the summer-jobs market for young people may have played an outsized role.

About 45% of the people who reportedly entered the labor force in August were between the ages of between 16 and 24 years old, noted Omair Sharif, president of Inflation Insights.

As it turns out, a similar 724,000 spike in the size of the labor force took place in August 2022. And once again it was driven by an increase in young jobseekers.

What’s going on? Young people working summer jobs may have simply stayed on a bit longer than the government’s employment survey could account for.

“This looks like an anomaly associated with the summer jobs market,” said chief economist Stephen Stanley of Santander Capital Markets.

What happened after August 2022? The size of the labor force fell or moved sideways for the next three months. The unemployment rate also declined.

If the same scenario plays out again this fall and the labor force shrinks, the unemployment rate could drop back down again in the next few months.

There also could be another, less positive, explanation for the large increase in the number of people seeking work in August. Maybe they need the spending money to keep their current standard of living in light of high inflation and the depletion of their Covid-era savings.

“This could also be a possible sign of stress, with households having to come back to the labor market to pay bills and maintain current spending habits,” said senior economist Sam Bullard of Wells Fargo.

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September 1, 2023
U.S. stock futures edge higher ahead of data that could show hiring slowdown
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U.S. stock futures pointed higher on Friday, ahead of data that could show a slowing pace of hiring, which would reassure investors that the Federal Reserve won’t take interest rates much higher.

What’s happening
- Dow Jones Industrial Average futures
  YM00,
  +0.39%
  rose 78 points, or 0.2%, to 34869.
- S&P 500 futures
  ES00,
  +0.34%
  gained 9 points, or 0.2%, to 4525.
- Nasdaq 100 futures
  NQ00,
  +0.17%
  increased 12 points, or 0.1%, to 15551.
On Thursday, the Dow Jones Industrial Average
DJIA
fell 168 points, or 0.48%, to 34722, the S&P 500
SPX
declined 7 points, or 0.16%, to 4508, while the Nasdaq Composite
COMP
gained 16 points, or 0.11%, to 14035.

What’s driving

Ahead of Friday’s barrage of heavy-hitting economic data, U.S. stocks saw modest pressure, as inflation data was largely benign but jobless claims dented an emerging picture of an economic slowdown. Dollar General’s
DG,
-12.15%
profit warning, however, pointed to a consumer under pressure.

Friday will see the release of nonfarm payrolls data at 8:30 a.m. Eastern, with expectations that 170,000 jobs were created in August. That would be the weakest showing since Dec. 2020, a month that saw 268,000 jobs lost.

“There have been indicators that the U.S. jobs market is finally starting to lose some of its tightness, and if the NFP print confirms this trend, it will be one less thing for the FOMC to worry about given labor market resilience has long been a source of inflationary pressure,” said Tim Waterer, chief market analyst at KCM Trade.

There’s also the Institute for Supply Management’s manufacturing index, as well as monthly auto sales, that will get released. Thursday’s after hours releases saw mixed responses, with Dell Technologies
DELL,
+0.99%
stock rallying but Broadcom shares
AVGO,
+3.43%
wilting after results.

In China, August Caixin manufacturing PMI came in above expectations, rising to 51, a level that indicates improving conditions, as the country also lowered down-payment requirements on homes. The Hong Kong market was shut over storm-related concerns.
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September 1, 2023
Super-rare super blue moon tonight: What time will it appear?
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Talk about something happening once in a blue moon — Wednesday night’s lunar event won’t be repeated for another 14 years.

The Aug. 30 moon will be the biggest and brightest full moon of the entire year, a so-called super blue moon. Tonight’s moon is an especially rare one for several reasons:
It’s a full moon, meaning it’s as close as we get to seeing the sun illuminate the entire side of the moon. This happens once or sometimes twice a month.

It’s also a blue moon, which means two different things. First, it’s a monthly blue moon, or the second full moon of the month, which is how a blue moon is commonly defined. But it’s also a seasonal blue moon, as NASA notes, meaning it’s the third full moon in an astronomical season that has four full moons. But despite the colorful name, the moon itself will not appear blue.

Finally, this also a supermoon, meaning the moon appears larger — about 14% larger, according to NASA — and brighter than usual, even to the naked eye. This is because its orbit is at its closest point to the Earth — a moment known as its perigee, when the moon is just 226,000 miles from us — at the same time that the moon is full.

Supermoons are slightly more common than blue moons, NASA says. While about 25% of all full moons are supermoons, just 3% of full moons are blue moons. That’s why the phrase “once in a blue moon” is used to describe a rare event. And the length of time between super blue moons is even more irregular. On average it’s 10 years, according to NASA, but it sometimes stretches as long as 20 years. After tonight, we won’t see another until we get a pair of super blue moons in January and March 2037.

Tonight’s super blue moon, NASA adds, also coincides with the Hindu Raksha Bandhan festival, also known as Rakhi or Rakhi Purnima, which celebrates the bond between brothers and sisters. And it falls near the middle of the month for many lunisolar and lunar calendars, such as the Chinese, Islamic and Hebrew calendars, which carries some spiritual significance. It comes during Elul in the Hebrew calendar, for example, which is a time of preparation for the High Holy Days of Rosh Hashanah and Yom Kippur.

Related: Nobel Prize-winning economist Robert Shiller draws a link between moon landing and remote work

Now that you know what the super blue moon is, how can you catch it?

The super blue moon will be officially full at 9:36 p.m. Eastern time on Wednesday, Aug. 30. That is when the moon will be 180 degrees from the sun, or completely opposite the sun in the sky over the Earth, Space.com explains.

The super blue moon will set on Thursday morning just before the sun rises at around 6:46 a.m. Eastern.

If you want to catch the moon looking especially huge, it’s recommended that you catch the moon either rising in the east in the evening or setting in the west in the early morning. This is because when the moon is nearest to the horizon, a “moon illusion” makes it seem bigger. Photographers can exaggerate this illusion by taking pictures of the moon low on the horizon, using a long lens and having buildings, mountains or trees in the frame, NASA says. If you’re angling for that perfect shot, you can find the rising and setting times for your area using the U.S. Navy’s moonrise calendar.

If the sky is overcast in your area or buildings or other obstacles block your view, you can catch the action online instead. The Virtual Telescope Project will be providing a free livestream of the super blue moon rising over Rome beginning at 11:30 p.m. Eastern on Aug. 30.

In other lunar news, India became the fourth country to successfully land a spacecraft on the moon last week. You can watch the Indian rover explore the moon’s south pole here.
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August 30, 2023