[The stream is slated to start at 5 a.m. ET. Please refresh the page if you do not see a player above at that time.]
Major oil executives, policymakers and ministers convene in Abu Dhabi at ADIPEC this week to discuss energy markets as the world grapples with a transition to clean energy. It comes just weeks ahead of the COP28 climate talks, which will be held in Dubai later this year.
CNBC’s Steve Sedgwick is joined in Abu Dhabi by the CEOs of BP, Shell and other major international energy companies for a discussion on the challenges of the energy transition.
Titled “Actions for a net-zero world: solving the current energy trilemma,” Monday’s panel includes Murray Auchincloss, interim BP CEO, Occidental CEO Vicki Hollub, Eni CEO Claudio Descalzi, TotalEnergies CEO Patrick Pouyanne, Shell CEO Wael Sawan and Tengku Muhammad Tufik, the president and CEO of Petronas.
The Bank of Japan could be forced into hiking rates sooner than expected, if the Japanese yen weakens beyond 150 to the dollar.
Higher rates could then unwind the yen carry trade and spark a return of Japanese capital to its domestic bond markets, a move that could trigger market volatility.
The BOJ stands as an outlier as major central banks have hiked rates aggressively to combat burgeoning inflation. Decades of accommodative monetary policy in Japan — even as other global central banks tightened policy in the last 12 months — have concentrated carry trades in the Japanese yen.
Carry trades involve borrowing at a lower interest rate to invest in other assets that promise higher returns.
The Japanese yen slipped about 0.4% to around 148.16 against the dollar on Friday after the BOJ kept its negative rates unchanged, after the yen tested its lowest in almost 10 months at 148.47 per dollar Thursday.
The Japanese currency is under renewed pressure after the U.S. Federal Reserve on Wednesday held interest rates, and indicated it expects one more hike by year’s end. The yen has now weakened more than 11% against the greenback this year to date.
“I think where their hand could be forced is looking at dollar-yen. We’re awfully close to 150 … when that starts to get to 150 and higher, then they have to step back and think: the selloff in the yen is now starting to import probably more inflation than we want,” Bob Michele, global head of fixed income at JP Morgan Asset Management, told CNBC Thursday before the rate decision.
While a weaker yen makes Japanese exports cheaper, it also makes imports more expensive, given that most major economies are struggling to contain stubbornly high inflation.
“So, it may give them cover to start hiking rates sooner than the market’s expecting,” Michele added.
An electronic quotation board displays the yen’s rate 145 yen level against the US dollar at a foreign exchange brokerage in Tokyo on September 22, 2022.
Str | Afp | Getty Images
The BOJ had in July loosened its yield curve control to broaden the permissible range for 10-year Japanese government bond yields of around plus and minus 0.5 percentage points from its 0% target to 1% in Governor Kazuo Ueda’s first policy change since assuming office in April.
Yield curve control, the so-called YCC, is a policy tool where the central bank targets an interest rate, and then buys and sells bonds as necessary to achieve that target.
Economists have been watching for more changes to the BOJ’s yield curve control policy, part of the Japanese central bank’s efforts to reflate growth in the world’s third-largest economy and sustainably achieve its 2% inflation target after years of deflation.
Expectations of a quicker exit from the BOJ’s ultra-loose monetary policy spiked after Ueda told Yomiuri Shimbun in an interview published Sept. 9 that the BOJ could have sufficient data by the end of this year to determine when to end negative rates.
After that report, many economists brought forward their forecasts for policy tightening to sometime in the first half of 2024.
Central bank officials have been cautious about exiting its ultra-loose policy, even though core inflation has exceeded the BOJ’s stated 2% target for 17 consecutive months.
This is due to what the BOJ sees as a lack of sustainable inflation, deriving from meaningful wage growth that it believes would lead to a positive chain effect supporting household consumption and economic growth.
But there are inherent risks when the BOJ finally decides to tighten rates.
“Japan has been the mother of the carry trade for decades now and so much capital has been funded at a very low cost in Japan and exported to foreign markets,” Michele said.
With 10-year JGB yields hitting its highest in a decade at about 0.745% Thursday, Japanese investors have been starting to unwind positions across various asset classes in various foreign markets that used to offer better returns in the past.
“I worry as the yield curve normalizes and rates go up, you could see a decade — or longer — of repatriation,” he added. “This is the one risk I worry about.”
For households, that offers little relief from sky-high borrowing costs.
Altogether, Fed officials have raised rates 11 times in a year and a half, pushing the key interest rate to a target range of 5.25% to 5.5%, the highest level in more than 22 years.
“I’m worried for the consumer,” said Tomas Philipson, University of Chicago economist and a former chair of the White House Council of Economic Advisers. “People are hit on both fronts — lower real wages and higher rates.”
Since wage growth for many Americans hasn’t been able to keep pace with higher prices, those households are getting squeezed and are going into debt just when borrowing rates are spiking, Philipson said.
Real average hourly earnings fell 0.5% in August, while borrowers are paying more on credit cards, student loans and other types of debt.
“Borrowing is very expensive, period,” Philipson said.
The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.
Here’s a breakdown of how the central bank’s increases so far have affected consumers:
Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rose, the prime rate did as well, and credit card rates followed suit.
Credit card annual percentage rates are now more than 20%, on average — an all-time high. Further, with most people feeling strained by higher prices, more cardholders carry debt from month to month.
For those who carry a balance, there’s not much relief in sight, according to Matt Schulz, chief credit analyst at LendingTree.
“Even though the Fed chose not to raise rates in September, the truth is that no one should expect credit card interest rates to stop rising anytime soon,” he said.
In the meantime, knocking down that debt “should absolutely be the goal,” he said.
Although 15-year and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.
The average rates for a 30-year, fixed-rate mortgage “remain anchored north of 7%,” said Sam Khater, Freddie Mac’s chief economist.
“The reacceleration of inflation and strength in the economy is keeping mortgage rates elevated,” he said.
Other home loans are more closely tied to the Fed’s actions. Adjustable-rate mortgages and home equity lines of credit, or HELOCs, are pegged to the prime rate. Most ARMs adjust once a year after an initial fixed-rate period. But a HELOC rate adjusts right away. Already, the average rate for a HELOC is up to 9.12%, the highest in 22 years, according to Bankrate.
“That HELOC is no longer low-cost debt and it warrants a much higher focus on repayment than it has for a long time,” said Greg McBride, chief financial analyst at Bankrate.com.
Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans.
The average rate on a five-year new car loan is now 7.46%, the highest in 15 years, according to Bankrate.
Experts say consumers with higher credit scores may be able to secure better loan terms or shop around for better deals. Car buyers could save an average of $5,198 by choosing the offer with the lowest APR over the one with the highest, according to a recent report from LendingTree.
Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But undergraduate students who take out new direct federal student loans are now paying 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.
For those with existing debt, interest is now accruing again as of Sept. 1. In October, millions of borrowers will make their first student loan payment after a three-year pause.
Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that those borrowers are already paying more in interest. How much more, however, varies with the benchmark.
While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate. The savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.43%, on average, according to the Federal Deposit Insurance Corp.
Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are now paying over 5%, according to Bankrate, which is the most savers have been able to earn in more than 15 years.
Because the top online savings accounts are currently beating inflation, “money in a savings account is no longer a drag on your portfolio,” McBride said. And yet, only 22% of savers are earning 3% or more on their accounts, according to another Bankrate report.
“Boosting emergency savings is rewarded with returns exceeding 5%, if you’re putting the money in the right place,” McBride said.
The numbers: Construction of new U.S. homes fell 11.3% in August — falling short of Wall Street expectations — as builders scaled back new projects to focus on completions.
The pace of construction reversed course and fell as mortgage rates stayed over 7%, dampening home-buying demand. The last time construction of new homes was at this level was in June 2020.
So-called housing starts fell to a 1.28 million annual pace from 1.45 million in August, the government said Tuesday. That’s how many houses would be built over an entire year if construction took place at the same rate every month as it did in August.
Economists on Wall Street were expecting a drop in starts to 1.43 million. All numbers are seasonally adjusted.
Housing starts peaked at 1.8 million in April 2022.
The number of homes started in July was revised downwards, to an increase of 2% to 1.45 million, from an initial reading of a 3.9% gain.
New homes have dominated the housing market, but persistently high rates are beginning to spook home builders. In anticipation of waning demand, builders said they’ve started to ramp up price cuts to boost buyer demand in September, according to a survey by the National Association of Home Builders.
Building permits, a sign of future construction, rose 6.9% to a 1.54 million rate. That’s the highest level since October 2022.
Key details: The construction pace of single-family homes fell by 4.3% in August, and apartment-building construction fell by 26.3%.
But home builders ramped up single-family home construction in the South, where starts rose by 8.1% in August.
Housing starts fell the most in the West, by 28.9%.
Permits for single-family homes rose 2% in August, while permits for buildings with at least five units or more surged by 14.8%.
Around 1.69 million homes were under construction as of August.
Big picture: Builders are increasingly concerned about how 7% rates will impact demand, and they’re pulling back on starting new developments as a result.
Builder confidence in September fell to the lowest level in five months, according to the NAHB. Home builders are increasingly offering incentives, including cutting prices. The share of builders cutting prices to boost sales rose to the highest level in nine months, the NAHB noted, going up to 32% in September from 25% the previous month.
Nonetheless, given the long-term need for housing and a decade of underbuilding, builders may not see a sustained drop in demand.
What are they saying? Despite starts falling sharply in August, the uptick in building permits “suggests housing starts could pick up modestly again and today’s data could reflect some volatility,” CIBC Economics said in a note. “Nonetheless, the cooling in building activity is a good sign for the Fed which is expecting to limit housing market activity in an effort to contain inflation.”
Rates have peaked, but “will remain elevated for the rest of the year,” Capital Economics wrote in a note. And this means that with “a slowing economy, we expect this will lead single-family starts to flatten-off at around 900,000 annualised until mid-2024, after which an economic recovery will help spur buyer demand and supporting renewed homebuilder confidence,” they added.
The Federal Reserve is likely to skip an interest rate hike when it meets this week, experts predict. But consumers may not feel any relief.
The central bank has already raised interest rates 11 times since last year — the fastest pace of tightening since the early 1980s.
Yet recent data is still painting a mixed picture of where the economy stands. Overall growth is holding steady as consumers continue to spend, but the labor market is beginning to loosen from historically tight conditions.
At the same time, inflation has shown some signs of cooling even though it remains well above the Fed’s 2% target.
Even with a break in rate hikes, “the one thing that remains very clear is that the Fed is nowhere close to cutting rates,” said Greg McBride, chief financial analyst at Bankrate.com. “Rates remain really high and will stay there for a while.”
The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.
Here’s a breakdown of how the impact has already been felt:
Most credit cards come with a variable rate, which hasa direct connection to the Fed’s benchmark rate.
After the previous rate hikes, the average credit card rate is now more than 20% — an all-time high, while balances are higher and nearly half of credit card holders carry the debt from month to month, according to an earlier Bankrate report.
Although 15-year and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.
The average rates for a 30-year, fixed-rate mortgage “remain anchored north of 7%,” said Sam Khater, Freddie Mac’s chief economist. “The reacceleration of inflation and strength in the economy is keeping mortgage rates elevated.”
Now, the average rate for a HELOC is up to 9.12%, the highest in 22 years, according to Bankrate. “That HELOC is no longer low-cost debt and it warrants a much higher focus on repayment than it has for a long time,” McBride said.
Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans.
The average rate on a five-year new car loan is now 7.46%, the highest in 15 years, according to Bankrate.
Experts say consumers with higher credit scores may be able to secure better loan terms or shop around for better deals. Car buyers could save an average of $5,198 by choosing the offer with the lowest APR over the one with the highest, according to a recent report from LendingTree.
Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But undergraduate students who take out new direct federal student loans are now paying 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.
For those with existing debt, interest is now accruing again as of Sept. 1. In October, millions of borrowers will make their first student loan payment after a three-year pause.
Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that those borrowers are already paying more in interest. How much more, however, varies with the benchmark.
While the Fed has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate. The savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.43%, on average, according to the Federal Deposit Insurance Corporation, or FDIC.
Average rates have risen significantly in the last year, but they are still very low compared to online rates, according to Ken Tumin, founder of DepositAccounts.com.
Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are now paying over 5%, according to Bankrate, which is the most savers have been able to earn in more than 15 years.
However, if the Fed skips a rate hike at its September meeting, then those deposit rate increases are likely to slow, Tumin said.
President of the European Central Bank (ECB) Christine Lagarde gestures as she addresses a press conference following the meeting of the governing council of the ECB in Frankfurt am Main, western Germany, on July 27, 2023.
Daniel Roland | Afp | Getty Images
The European Central Bank on Thursday announced a 10th consecutive hike in its main interest rate, as the fight against inflation took precedence over a weakening economy.
Rate raises have now hauled the central bank’s main deposit facility from -0.5% in June 2022 to a record 4%. A key reason for the hike Thursday appeared to be upward revisions in newly published staff macroeconomic projections for the euro area, which see inflation averaging at 5.6% this year from a prior forecast of 5.4%, and 3.2% next year from a prior forecast of 3%.
However, it nudged its closely-watched medium-term forecast lower, from 2.2% to 2.1%.
In a market-moving statement, it also indicated that further hikes may be off the table for now.
“Based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target,” it said.
“The Governing Council’s future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary.”
The euro fell sharply on the announcement and was down 0.5% against the U.S. dollar at $1.0686 at 3 p.m. Frankfurt time, trading at a three-month low.
European stocks rallied following cautious trading through the morning, meanwhile, with the benchmark Stoxx 600 index up by 1.1%.
The ECB move on Thursday also takes the interest rates on its main refinancing operations and marginal lending facility 25 basis points higher, to 4.5% and 4.75%, respectively.
Staff also lowered economic growth projections for the euro area from 0.9% to 0.7% expansion in 2023, from 1.5% to 1% in 2024, and from 1.6% to 1.5% in 2025.
While the ECB has firmly signaled its next moves in previous meetings, economists and analysts were divided over whether the doves or hawks in Frankfurt would win out at this September meeting. Money markets indicated a roughly 63% chance of a hike through Thursday morning, up from a more even split in recent days.
Oil market reports suggesting tighter supply and higher prices through the rest of the year and beyond have fueled inflation fears, along with signs of wage growth. A Reuters article on Wednesday reporting the ECB now expects euro zone inflation to remain above 3% in 2024 appeared to increase market bets on a rate hike. The report came from a source ahead of the release of its projection Thursday.
“Some [Governing Council] members did not draw the same conclusion, and some governors would have preferred to pause and reserve future decisions once more certainty, more intelligence, would have resulted from the passing of time and the impact of our many previous decisions,” ECB President Christine Lagarde told CNBC’s Annette Weisbach in the press conference following the announcement.
“But I can tell you there was a solid majority of the governors to agree with the decision we have made.”
Lagarde said there was no concrete answer to whether rate hikes were finished since the Governing Council remains data-dependent — but she stressed the ECB’s current thinking was encapsulated in the statement around rates at current levels making a “substantial contribution” to the fight against inflation if held for long enough.
Germany is forecast to be the only major European economy to contract this year — though the wider picture is also downbeat, with euro zone business activity declining in August to its lowest level since November 2020.
Peter Schaffrik, chief European macro strategist at RBC Capital Markets, told CNBC that market focus would not so much be on the hike itself, but rather the language used by the central bank in its statement.
Schaffrik said one focus will be on the 2025 inflation forecast, which unlike forecasts for 2023 and 2024 was revised lower since this is typically what the ECB means when it talks about the medium term.
Another will be on its descriptor of rates being maintained for a “sufficiently long duration” — indicating the “path forward is flat for quite some time,” he said.
Gasoline prices for full serve and self serve are displayed at the Union 76 gas station ahead of the Labor Day weekend on August 28, 2023 in Beverly Hills, California.
Mario Tama | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Biggest monthly jump this year The U.S. consumer price index for August rose 3.7% from a year ago and a seasonally adjusted0.6% for the month, mostly in line with the expected 3.6% and 0.6%, respectively. Though expected, it’s still the biggest month-on-month increase in prices this year. Energy prices, which soared on the month, were mostly to blame. Core inflation, which excludes food and energy prices, was up 4.3% on the year and 0.3% on the month.
Optimistic markets U.S. markets were mixed Wednesday, with the Dow Jones Industrial Average the only major index to fall. Asia-Pacific stocks mostly rose Thursday. Japan’s Nikkei 225 climbed 1.47% even as shares of Softbank slipped slightly. Australia’s S&P/ASX 200 added around 0.55% as data showed unemployment rate in the country holding steady at 3.7% in August.
The risks of shadow banks in China The difficulties faced by China’s real estate sector recently have highlighted, once again, the risks of shadow banking — a term that refers to financial services offered outside the highly regulated banking system. Chinese developers “were able to borrow liberally from shadow banks,” a researcher said, which pushed up land prices and housing costs. That contributed to the developers’ huge debt today.
Taiwan is ‘not for sale’ At the All-In Summit, a conference on technology and markets, Elon Musk commented that China probably views Taiwan as “analogous to Hawaii or something like that, like an integral part of China that is arbitrarily not part of China.” It drew a swift rebuke from Taiwan’s Ministry of Foreign Affairs, which said Taiwan is “not part of the PRC and certainly not for sale!”
At first glance, August’s CPI report seems bad news. The month-over-month jump in prices is the highest in a year. And even core inflation came in hotter than expected. But look more closely and you’ll find things aren’t as terrifying as they seem.
The headline number was pushed up by rising oil prices, which have been steadily increasing in recent weeks, as we’ve talked about. Gasoline prices soared 10.6% in August, the largest contributor to inflation last month, according to the U.S. Bureau of Labor Statistics.
But it’s likely gasoline prices will fall after a month or two, according to Andrew Hunter, deputy chief U.S. economist at Capital Economics. And gasoline prices have actually retreated 3.3% from a year ago, suggesting that they’re still on a downward trend in the long run.
Excluding volatile energy prices, monthly core inflation was up 0.3% against the expected 0.2%. Here, shelter costs were the main culprit for the hotter-than-expected increase. “Housing continues to contribute an outsized share to the inflation measures,” said Lisa Sturtevant, chief economist at Bright MLS.
But, Sturtevant added, “rent growth has slowed considerably and median rents nationally fell year-over-year in August.” That slowdown in prices will show up in future reports, meaning that August’s core CPI numbers is just “a little bump in the road,” as Kayla Bruun, senior economist at Morning Consult, put it.
“It doesn’t mean it’s turning around and going in the other direction,” Bruun said. “Overall, most of the pieces are headed in the right direction.” Indeed, the annual measure of core CPI still dropped from 4.7% in July to 4.3% in August.
Markets took the numbers in their stride. The Dow was the only major index to fall, losing 0.2% as shares of 3M and Caterpillar sank. The S&P 500 added 0.12% and the Nasdaq Composite rose 0.29%, helped by gains in Tesla and Amazon. And traders are still betting the Federal Reserve won’t raise rates next week, according to the CME FedWatch Tool.
Markets can act in irrational ways sometimes. But sometimes, the crowd psychology of markets manifests as collective wisdom.
— CNBC’s Jeff Cox and Greg Iacurci contributed to this report
Steve Forbes doesn’t expect the Federal Reserve to raise rates in upcoming meetings, but the Forbes Media chairman doesn’t see cuts in the near term either.
“I think the Federal Reserve is not going to increase interest rates in the next few months. I think they’re going to pause,” Forbes said, citing the slew of contradictory U.S. economic data.
“Some things are weakening, the labor market usually is a lagging indicator. But the services [sector] report was pretty good,” he told CNBC’s Chery Kang on the sidelines of the Forbes Global CEO Conference held in Singapore.
“So that mixed picture gives them [an] excuse finally to do nothing,” he said.
The Federal Open Market Committee’s next meeting is scheduled for Sept. 19 to 20. There’s a 92% chance the central bank will leave rates unchanged after its September meeting, according to the CME’s FedWatch tool. But those probabilities shift to a 38.4% chance of a hike after the November meeting.
When asked whether the U.S. faces a potential government shutdown, Forbes said he reckons one may be looming.
Funding for the federal government is set to run out at the end of the month unless Congress takes action. Failure to pass spending legislation would result in a shutdown on Sept. 30.
Forbes said that Washington will go “right to the deadline” before coming up with a deal.
“But the danger on these things, [when] we’re gonna keep getting close to the cliff is you might slip and go over the cliff. You might get a government shutdown,” he said.
Forbes also said he expects the 2024 elections to be about the “pocketbook,” with the state of the economy being “issue No. 1.”
Other issues will include crime and foreign policy, such as Washington’s standing on the global stage as well as its approach toward Ukraine.
For Apple fans, it’s almost that time of year again.
The company is expected to launch the iPhone 15 at an event Tuesday, but don’t get too excited about the new phone. This year, the biggest change from Apple AAPL, +0.35%
could be the iPhone’s price.
That’s notable because iPhones are already pretty expensive, with the cheapest iPhone 14 Pro option selling for $999 and the priciest iPhone 14 Pro Max configuration going for $1,599.
“Given the popularity of the iPhone 14 Pro models compared to the iPhone 14 models, Apple may believe consumers will be willing to pay more without much fuss,” Monness, Crespi, Hardt & Co. analyst Brian White wrote in a recent report. “Moreover, Apple may feel a price hike is warranted given the inflationary forces that have disrupted the economy over the past couple of years.”
Morgan Stanley’s Erik Woodring is less certain that Apple will hike prices broadly. The company could boost the price of its Pro Max phone by $150 to account for an expected new rear-facing periscope lens, but it’s “very un-Apple-like to raise prices across the board in the midst of a smartphone market down 11%,” he wrote. He said he expects the company to keep prices the same on the regular Pro model and its two base-level options.
One key issue for iPhone enthusiasts — and Apple investors — is when the new phones will be ready for sale. Most of the iPhone models Apple introduced last year hit stores in mid-September, but there are some concerns about potential production delays this year.
“The broad availability of the iPhone 15 Pro Max could be October given some manufacturing challenges,” BofA Securities analyst Wamsi Mohan wrote recently.
iPhone feature updates have become more incremental in recent years, and Apple watchers aren’t expecting anything groundbreaking this time around either. New iPhones always tend to be a little faster than their predecessors, and this year’s models might charge more quickly too. There’s a catch, though, as Apple is expected to switch out its proprietary Lightning cable for the more universal USB-C cord.
While the Pro models get a lot of attention, White said that those looking to buy base-level models could see some enhancements. Reports “have highlighted the potential for the iPhone 15 and iPhone 15 Plus to be graced with certain features found on last year’s more expensive Pro models, including the A16 chip, Dynamic Island, and a 48-megapixel camera,” he wrote.
Why go Pro? Apple could move to a titanium frame from its prior stainless-steel casing and make camera enhancements. Mohan highlighted the potential for a periscope-type telephoto lens on Max versions.
Apple fans “should also see more casing quality color differentiation between the Pro and regular series to help drive vanity switchers to the higher-priced models,” Jefferies analyst Andrew Uerkwitz wrote recently.
There could be a dark blue color option for the iPhone Pro line this year, for example, according to 9to5Mac. That said, those content with the base-level model might be enticed by a pink version of that phone, with 9to5Mac noting that that’s one of several rumored pastel color options.
Apple is also expected to refresh its Apple Watch lineup at Tuesday’s event. Bloomberg News has reported that the Apple Watch Series 9 could feature a faster processor, though it will have the same general design as past models. Apple is also expected to keep the look the same on an upgraded version of its Ultra Watch, and that might come in a black color option.
The longer the stock market churns in place, the more time investors have had to cogitate over the causes of what could just be a standard and needed late-summer shakeout to reset stretched investor expectations, positioning and valuation. In recent weeks, these ponderings have been filtered through late-cycle psychology, the assumption that the economic expansion is beyond its prime — and that, like a healthy but older person — might be susceptible to shocks and disturbed by sudden changes in routine. As with all Wall Street preoccupations, there’s a plausible if conjectural basis for such a mindset: Unemployment at historic lows inherently has more upside than downside from here; the Federal Reserve is either finished or nearly so with an aggressive rate-hiking spree whose full impact is yet unknown; and now long-term Treasury yields, the U.S. dollar and crude-oil prices are all pushing against the upper end of their comfortable ranges, threatening to constrict economic activity beyond the Fed’s efforts. These macro factors are testing a market that lost momentum some six weeks ago, just as the consensus belatedly embraced the “soft landing” scenario, the indexes started running hot and the mood bordered on exuberant. .SPX YTD mountain S & P 500 YTD My last column before a late-summer hiatus, published July 15 with the S & P about 1% higher than Friday’s close, began: “Enough for now? “It’s the question to consider at moments like these, with the stock indexes running hot and investor attitudes swinging from decidedly downbeat to downright optimistic over a matter of months. “To start the year, it was a bold and minority position to predict the U.S. economy could land softly, that inflation would drop fast and the Federal Reserve would ease off the brake even while growth stayed resilient. Now, especially after the sturdy June jobs report a week ago and the reassuringly cool CPI print on Wednesday, this is something closer to the prevailing view.” There’s been no net progress since then after a modest push higher, 5% pullback and partial bounce. Bull-market pullback? If the job of a bull-market pullback is to digest big gains and rebuild a wall of worry, much progress has been made. All the sentiment surveys and investor-positioning gauges have come off the boil. Money-market funds in the latest week took in $68 billion, bringing the year-to-date total inflow to $1 trillion, more than ten times the net intake of equity funds in 2023. S & P 500 consensus earnings forecasts for the coming 12 months have inched up a couple of percent since mid-July even as the index has slipped, substantiating the notion that the quarter just past would be the trough for corporate profits, which are set to resume growing on a year-over-year basis. For sure, the 10-year Treasury yield has climbed half a percentage point over this period, hovering near 4.25%, the highs of last fall and before that 15 years ago. Much of this is because of sturdy economic performance for now and the pricing in of a Fed hoping to stay “higher for longer.” There’s no doubt the market is sensitive to these yield moves, unsure how the economy and market might handle them. That’s unclear, but it’s worth recalling that last year there was a similar reflexive anxiety when the 10-year was surmounting 3%. Under the right conditions, a new equilibrium among rates, consumption and equities can be reached. And even oil, which is in a speedy uptrend, is not at absolute prices that have proven particularly painful given current wage levels. There’s an insistence among plenty of cautious market participants that stocks are only as high as they are because eventual Fed rate cuts are anticipated. This is unprovable, really. Right now, the futures markets price in a potential rate cut by May. The Fed-funds futures market looking beyond a few months is something like the preseason college-football rankings: All we have available to work with before the season starts, but interesting mostly for how exactly they’ll be proven wrong. And note that just a few months ago, cuts were priced for the latter part of this year, and the market unwinding that assumption did not kneecap equities. This persistent anticipation of a reversal in Fed policy is another sign of late-cycle psychology, of course. Yet so far credit markets are registering no real concern, last week absorbing a record pace of new corporate-debt issuance right after Labor Day without pushing risk spreads appreciably higher. Bank of America credit strategist Oleg Melentyev on Friday took no great comfort in this: “A separate development driving credit markets here is the degree of a slowdown in net credit creation to 10th percentile [in the last three months]. Never mind the hype of a $50bn in [investment-grade] issuance out of the gate post-Labor Day, as it’s a normal seasonality that happened on the back of close to record low issuance over the summer, in percent of the market terms. This is the policy transmission in action – the lagged effects of tightening gradually working their way through the system.” Melentyev is among those seeing eventual rate cuts as the escape hatch, but doubts inflation will settle down enough to allow for them, arguing, “The most important considerations arguing against this benign outcome are wages, shelter, and oil.” Add these to the deep list of things offered as worries arriving this September, along with a possible UAW strike, Federal government shutdown, student-loan repayment restart and wobbly economies in Europe and China. It’s always healthy to have a litany of concerns to keep reckless optimism at bay – and in the current case it’s a good thing these headwinds are hitting a U.S. economy that was tracking near a 5% annual real GDP growth rate to start this quarter, according to the rough Atlanta Fed GDPNow tool. 2021 pattern Whether coincidentally or not, the way the stock market is metabolizing this macro flux has taken the S & P 500 on a path remarkably similar to the one traveled in 2021 – a year with a decidedly different set of underlying conditions. In the intervening year 2022, of course, the index peaked in early January and fell into October in a near-inverse of the 2021 trajectory, so this year is in effect a rather-symmetrical rebound. Not to be too literal, but this at least would suggest some more seasonal choppiness before a potential break higher. In a similar vein, Goldman Sachs head of hedge fund coverage Tony Pasquariello on Friday surveyed the push-pull of sturdy U.S. labor market, disinflationary momentum, a patient Fed, China’s struggles, the undeniable exceptionalism of mega-cap tech and the friction created by rising yields, to conclude: “Price action over the next month will likely resemble the past month … which is to say, uneven and choppy, not altogether good nor altogether bad … and then we’ll head into a seasonally strong Q4 period with lots to play for.” Remarkably, the parallel action between this year and 2021 is occurring at nearly the same index levels as well, which has made for a prolonged stutter-step in two-year trailing returns right around the flat line in recent months. As it happens, two prior times the two-year trailing return got stuck for a while at or just above zero occurred in early 2016 and late 1994, visible in the above chart made upon request by Bespoke Investment Group. Both of those prior periods were effectively mid-cycle slowdowns, a growth scare combined with bouts of financial stress just as Fed policy was around an inflection, resolving without a recession for years. Hard to know what to make of this, but it doesn’t seem it should be dismissed without a hearing.
Europe is facing the impact of a “double crisis,” but the region can avoid a recession, Paolo Gentiloni, the European Commissioner for economic affairs, told CNBC on Saturday.
“I think we are we facing the impact of the double crisis,” Gentiloni said in reference to the geopolitical impact from Russia’s full-scale invasion of Ukraine and the subsequent economic hit to the European continent.
“From a geopolitical point of view, [the crisis] impacted also, of course, the U.S. and all the world, but from the economic point of view, it impacted seriously Europe and Germany in particular,” he said.
Russia’s invasion of Ukraine in February last year sparked serious fears in Europe that the region would enter a significant economic slowdown.
However, the region has since been able to secure alternative energy supplies, which until then primarily came from Russia, and some governments were able to provide relief to consumers facing high energy costs.
The euro area, in the end, grew at a rate of 3.5% in 2022, according to the International Monetary Fund. The institution expects a growth rate of 0.8% for the euro zone this year and 1.4% in 2024.
“We had an excellent 2022, higher growth than the U.S. and China,” Gentiloni told CNBC’s Steve Sedgwick at the Ambrosetti Forum.
“The slowing down started from the last quarter of 2022 and it is there, but please don’t call this a recession, because I think we can avoid a recession, we are avoiding recession,” he said.
The European Commission, the executive arm of the EU, is publishing new economic forecasts for the whole region on Sept. 11. They will give an indication of the growth picture in the area.
However, recent economic data has raised concerns about a slowdown. For instance, European business activity contracted during August, to its lowest level since November 2020.
Inflation has eased in recent months, but the latest set of data showed the headline figure stable in August from the previous month at 5.3%. Though lower than earlier this year, it is still well above the European Central Bank’s target of 2%.
“Why after a strong rebound after the pandemic is our economy slowing down? I think because of the challenge to gain energy independence, which was very costly for our families and fueling inflation,” Gentiloni said.
An aerial view shows the Central Bank of India building, in Mumbai, India, 28 September, 2022. (Photo by Niharika Kulkarni/NurPhoto via Getty Images)
Nurphoto | Nurphoto | Getty Images
The global economy is set to slow down as inflation remains stickier than expected — but there may be some “pockets of resilience,” according to Moody’s Investors Service.
“We’re expecting globally a slowdown in growth, and that will have an impact on [emerging markets] Asia through trade conditions as well as access to financing in the region,” Marie Diron, managing director for global sovereign and sub-sovereign risk at Moody’s Investors Service, told CNBC Thursday.
Diron said the slowdown can be attributed to three factors: higher interest rates that persist, China’s slowing growth, as well as financial system stresses.
While central banks have managed to steer the global economy and “create a disinflationary trend” by raising interest rates, inflation risks are still a sticking point, she said.
“There are still risks out there that inflation could prove stickier … than currently expected, and that would lead to higher risks for longer and slower growth,” explained the managing director.
In the last year and a half, the U.S. central bank has raised the benchmark fed funds rate to between 5.25% to 5.5%. Fed Chair Jerome Powell last Friday warned that additional interest rate increases could be on the table.
A second risk is financial system stress, Diron said.
“We’ve seen banks absorbing that period of higher rates, which has had some positive impacts on margins for some, but also needed an adjustment in businesses, an adjustment to continue to attract deposits,” she explained.
“It could be that there are pockets of stress that currently have not quite emerged that materialize maybe later this year on to next year.”
Finally, China is a third source of vulnerability.
Moody’s is not expecting a quick turnaround in the world’s second largest economy and sees “relatively slow growth in China with implications across the region,” Diron said.
“It is an outlook really clouded by downside risks. And that may have an implication for default rates.”
While Moody’s expects a coming slowdown, there may be some “pockets of resilience,” Diron said.
She acknowledged that “we do see a slowdown from this year onto next year,” but added: “We see relatively robust growth and favorable conditions in markets like India and Indonesia.”
Indonesia in particular has the potential to materialize the country’s “vast natural resources” and develop the downstream sectors, through processing of minerals through the value chain, Diron noted.
The Southeast Asian nation carries large natural deposits including tin, nickel, cobalt and bauxite — some of which are important raw materials for electric vehicle production.
A help wanted sign on a storefront in Ocean City, New Jersey, US, on Friday, Aug. 18, 2023. Surveys suggest that despite cooling inflation and jobs gains, Americans remain deeply skeptical of the president’s handling of the post-pandemic economy. Photographer: Al Drago/Bloomberg via Getty Images
Al Drago | Bloomberg | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Job creation slowed Job growth in the U.S. slowed to 177,000 in August, according to payroll company ADP. That’s fewer than economists’ expectation of 200,000 — which is itself already much lower than July’s downwardly revised 371,000. It’s a sign the effects of high interest rate are starting to be felt, giving traders hope the Federal Reserve might pause hikes.
Markets regain ground U.S. stocks rallied Wednesday on the back of weaker-than-expected economic data, giving the S&P 500 a four-day winning streak. Asia-Pacific markets traded mixed Thursday. Japan’s Nikkei 225 rose around 1% as data showed retail sales for July jumping 6.8% year on year, sharply higher than the expected 5.4%. But China’s Shanghai Composite lost 0.5% as economic data disappointed again.
Mixed signs in China China’s factory activity in August shrank for the fifth straight month, but at a slower pace than July. Non-manufacturing activity expanded for the month, but dipped to its lowest level this year. Meanwhile, retail sales in August experienced a marked increase compared with July, according to the China Beige Book’s survey of Chinese businesses.
[PRO]China plus three Amid a prolonged downturn in China’s economy, investors are growing bearish on the stock market. But this could be an opportunity for investors to put their money into other Asian markets, analysts say. Here are the three Asian markets analysts recommend — and the best ways to play them.
Markets last week were gripped by the fear that interest rates will remain high — or go even higher than they already are — in the face of an unyieldingly strong economy and stubborn inflation. (Recall how the 10-year Treasury yield, which typically reflects rate expectations, hit a 16-year high last week.)
Those worries dissipated somewhat Wednesday.
New data showed that economic growth, while still hot enough to suggest a soft landing, was not quite as scorching as previously thought. Second-quarter gross domestic product the U.S. was revised downwards from 2.4% to 2.1% on an annualized basis.
Moreover, job creation for August was lower than expected. In another encouraging sign that inflation might be moderating, pay growth for workers slowed, regardless of whether they changed jobs or stayed in their current positions, according to ADP.
“This month’s numbers are consistent with the pace of job creation before the pandemic,” Nela Richardson, chief economist at ADP, said in a press release. “After two years of exceptional gains tied to the recovery, we’re moving toward more sustainable growth in pay and employment as the economic effects of the pandemic recede.”
In sum, there’s hope the Federal Reserve might loosen its grip on monetary policy, based on the weaker-than-expected economic data. Markets cheered the news.
The S&P 500 rose 0.38%. It might seem a small figure, but it’s statistically significant for a few reasons: One, it gives the index a four-day winning streak; two, it helped the index close above 4,500, breaking a key psychological barrier; three, it helped to trim August’s losses to around 1.6%, down from an intraday low of 5.53% on August 18. The Dow Jones Industrial Average inched up 0.11% and the Nasdaq Composite climbed 0.54%.
For tomorrow, look out for the personal consumption expenditures index, which measures how much consumers spent in July. If inflation numbers come in soft, then that completes the trifecta of data — economic growth, jobs and inflation — that the Fed wants to see slow down. Then markets can probably heave a sigh of relief, for now.
Federal Reserve Chairman Jerome Powell testifies before the House Committee on Financial Services June 21, 2023 in Washington, DC. Powell testified on the Federal Reserve’s Semi-Annual Monetary Policy Report during the hearing.
Win Mcnamee | Getty Images News | Getty Images
Since he took over the chair’s position at the Federal Reserve in 2018, Jerome Powell has used his annual addresses at the Jackson Hole retreat to push policy agendas that have run from one end of the policy playing field to the other.
In this year’s iteration, many expect the central bank leader to change his stance so that he hits the ball pretty much down the middle.
With inflation decelerating and the economy still on solid ground, Powell may feel less of a need to guide the public and financial markets and instead go for more of a call-’em-as-we-see-’em posture toward monetary policy.
“I just think he’s going to play it about as down the middle as possible,” said Joseph LaVorgna, chief economist at SMBC Nikko Securities America. “That just gives him more optionality. He doesn’t want to get himself boxed into a corner one way or another.”
If Powell does take a noncommittal strategy, that will put the speech in the middle of, for instance, 2022’s surprisingly aggressive — and terse — remarks warning of higher rates and economic “pain” ahead, and 2020’s announcing of a new framework in which the Fed would hold off on rate hikes until it had achieved “full and inclusive” employment.
Despite the anticipation for a circumspect Powell, markets Thursday braced for an unpleasant surprise, with stocks selling off and Treasury yields climbing. Last year’s speech also featured downbeat anticipation and a sour reception, with the S&P 500 off 2% in the five trading days before the speech and down 5.5% in the five after, according to DataTrek Research.
A day’s wavering on Wall Street, though, is unlikely to sway Powell from delivering his intended message.
“I don’t know how hawkish he needs to be given the fact that the funds rate is clearly in restrictive territory by their definition, and the fact the market has finally bought into the Fed’s own forecast of rate cuts not happening until around the middle or second half of next year,” said LaVorgna, who was chief economist for the National Economic Council under former President Donald Trump.
“So it’s not as if the Fed has to push back against a market narrative that’s looking for imminent easing, which had been the case from essentially most of the past 12 months,” he added.
Indeed, the markets seem finally to have accepted the idea that the Fed has dug in its heels against inflation and won’t start backing off until it sees more convincing evidence that the recent spate of positive news on prices has legs.
Yet Powell will have a needle to thread — assuring the market that the Fed won’t repeat its past mistakes on inflation while not pressing the case too hard and tipping the economy into what looks now like an avoidable recession.
“He’s got to strike that chord that the Fed is going to finish the job. The fact is, it’s about their credibility. It’s about his legacy,” said Quincy Krosby, chief global strategist at LPL Financial. “He’s going to want to be a little more hawkish than neutral. But he’s not going to deliver what he delivered last year. The market has gotten the memo.”
Energy prices have risen through the summer, and some factors that helped bring down inflation figures, such as a statistical adjustment for health-care insurance costs, are fading. A Cleveland Fed inflation tracker anticipates August’s figures will show a noticeable jump. Bond yields have been surging lately, a response that at least partly could indicate an anticipated jump in inflation.
At the same time, consumers increasingly are feeling pain. Total credit card debt has surpassed $1 trillion for the first time, and the San Francisco Fed recently asserted that the excess savings consumers accumulated from government transfer payments will run out in a few months.
Even with worker wages rising in real terms, inflation is still a burden.
“When all is said and done, if we don’t quell inflation, how far are those wages going to go? With their credit cards, with food, with energy,” Krosby said. “That’s the dilemma for him. He has been put into a political trap.”
Powell presides over a Fed that is mostly leaning toward keeping rates elevated, though with cuts possible next year.
Philadelphia Fed President Patrick Harker is among those who think the Fed has done enough for now.
“What I heard loud and clear through my summer travels is, ‘Please, you’ve gone up very rapidly. We need to absorb that. We need to take some time to figure things out,'” Harker told CNBC’s Steve Liesman during an interview Thursday from Jackson Hole. “And you hear this from community banks loud and clear. But then we’re hearing it even from business leaders. Just let us absorb what you’ve already done before you do more.”
While the temptation for the Fed now might be to signal it has largely won the inflation war, many market participants think that would be unwise.
“You’d be nuts to you know, to put out the mission accomplished banner at this point, and he won’t, but I don’t see any need for him to surprise hawkish either,” said Krishna Guha, head of global policy and central bank strategy for Evercore ISI.
Some on Wall Street think Powell could address where he sees rates headed not over the next several months but in the longer run. Specifically, they are looking for guidance on the natural level of rates that are neither restrictive nor stimulative, the “r-star (r*)” value of which he spoke during his first Jackson Hole presentation in 2018.
However, the chances that Powell addresses r-star don’t seem strong.
“There was a sort of general concern that Powell might surprise hawkish. The anxiety was much more about what he might say around r-star and embracing, high new normal rates than it was about how he would characterize the near-term playbook,” Guha said. “There’s just no obvious upside for him in embracing the idea of a higher r-star at this point. I think he wants to avoid making a strong call on that.”
In fact, Powell is mostly expected to avoid making any major calls on anything.
At a time when the chair should “take a victory lap” at Jackson Hole, he instead is likely to be more somber in his assessment, said Michael Arone, chief investment strategist at State Street’s US SPDR Business.
“The Fed likely isn’t convinced inflation has been beaten,” Arone said in a note. “As a result, there won’t be any curtain calls at Jackson Hole. Instead, investors should expect more tough talk from Chairman Powell that the Fed is more committed than ever to defeating inflation.”
Stocks fell Wednesday for the second consecutive day as investors digested news from the Federal Reserve. The Nasdaq Composite fell more than 1.15%, while the S&P 500 dropped 0.76%. The Dow Jones Industrial Average slipped by 180.65 points, or 0.52%. August has been a rocky month for stocks, and the major averages are well in negative territory. Valuations have also been falling from their lofty heights. Follow live market updates.
Federal Reserve Board Chairman Jerome Powell speaks during a news conference following a Federal Open Market Committee meeting, at the Federal Reserve in Washington, DC, on July 26, 2023.
Saul Loeb | AFP | Getty Images
The Federal Reserve released minutes from its latest meeting in July that showed officials are still concerned about the pace of inflation. Fed members also noted that more rate hikes could be coming unless conditions change. The Fed raised rates by a quarter percentage point at its July meeting, bringing the federal funds rate to the highest level in more than 22 years. The minutes also showed uncertainty among members, however, with some saying they thought the committee could skip a hike and see how previous efforts were affecting the economy.
Customers shop at a Walmart store on May 18, 2023 in Chicago, Illinois.
Scott Olson | Getty Images
Walmart‘s discount reputation keeps drawing customers. The big-box retailer raised its full-year forecast when it released its second-quarter earnings Thursday morning before the bell — a notable contrast to Target, which cut its forecast the day before. Walmart also topped analysts’ expectations for sales and profits. Chief Financial Officer John David Rainey told CNBC’s Melissa Repko that seasonal moments, such as the Fourth of July holiday and back-to-school, have helped drive sales. He also said Walmart is starting to see “modest improvement” with big-ticket purchases, which have seen weaker sales as consumers have focused on necessities such as food.
A view of a home that was destroyed by a wildfire on August 16, 2023 in Lahaina, Hawaii.
Justin Sullivan | Getty Images
The wildfires in Hawaii have left the town of Lahaina devastated. More than 100 people are missing and thousands more are homeless after the deadliest wildfire in the U.S. in more than century. The town of Lahaina in Hawaii will have to be completely rebuilt, and residents are now worried that outside developers will swoop in to buy up valuable land on Maui once the reconstruction process starts. Hawaii Gov. Josh Green even warned mainlanders not to invest in property, saying the Hawaii state government is considering acquiring land in Lahaina to protect it. Meanwhile, Hawaiian Electric, the state’s biggest power utility, is being investigated for the role it might have played in the fire, with a lawsuit arguing years of inaction and negligence contributed to the spread.
HOLLYWOOD, CA – JULY 20: General views of the ‘Barbie’ skyscraper billboard campaign at Hollywood & Highland on July 20, 2023 in Hollywood, California. (Photo by AaronP/Bauer-Griffin/GC Images)
Aaronp/bauer-griffin | Gc Images | Getty Images
Pink is the new black. “Barbie” has breezed past Batman to become the highest-grossing domestic movie in Warner Bros. Discovery‘s 100-year history. With $537 million at the domestic box office, “Barbie” has topped the company’s previous domestic record set in 2008 with “The Dark Knight.” The bubblegum pink box office hit has earned more than $1.2 billion worldwide since it was released July 21 and is on track to be the highest-grossing film of the year.
— CNBC’s Hakyung Kim, Alex Harring, Pia Singh, Jeff Cox, Spencer Kimball, Sarah Whitten, Melissa Repko and NBC News contributed to this report.
— Follow broader market action like a pro on CNBC Pro.
Federal Reserve officials expressed concern at their most recent meeting about the pace of inflation and said more rate hikes could be necessary in the future unless conditions change, minutes released Wednesday from the session indicated.
That discussion during a two-day July meeting resulted in a quarter percentage point rate hike that markets generally expect to be the last one of this cycle.
However, discussions showed that most members worry that the inflation fight is far from over and could require additional tightening action from the rate-setting Federal Open Market Committee.
“With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” the meeting summary stated.
That latest increase brought the Fed’s key borrowing level, known as the federal funds rate, to a range targeted between 5.25%-5%, the highest level in more than 22 years.
While some members have said since the meeting that they think the further rate hikes could be unnecessary, the minutes suggested caution. Officials noted pressure from a number of variables and stressed that future decisions will be based on incoming data.
“In discussing the policy outlook, participants continued to judge that it was critical that the stance of monetary policy be sufficiently restrictive to return inflation to the Committee’s 2 percent objective over time,” the document said.
Indeed, the minutes suggested considerable misgivings over the future direction of policy.
While there was agreement that inflation is “unacceptably high,” there also was indication “that a number of tentative signs that inflation pressures could be abating.”
“Almost all” the meeting participants, which includes nonvoting members, were in favor of the rate increase. However, those opposed said they thought the committee could skip a hike and watch how previous increases are impacting economic conditions.
“Participants generally noted a high degree of uncertainty regarding the cumulative effects on the economy of past monetary policy tightening,” the minutes said.
The minutes noted that the economy was expected to slow and unemployment likely will rise somewhat. However, staff economists retracted an earlier forecast that troubles in the banking industry could lead to a mild recession this year.
But there was concern over problems with commercial real estate.
Specifically, officials cited “risks associated with a potential sharp decline in CRE valuations that could adversely affect some banks and other financial institutions, such as insurance companies, that are heavily exposed to CRE. Several participants noted the susceptibility of some nonbank financial institutions” such as money market funds and the like.
For the future of policy, members emphasized two-sided risks of loosening policy too quickly and risking higher inflation against tightening too much and sending the economy into contraction.
Recent data shows that while inflation is still a good distance from the central bank’s 2% target, it has made marked progress since peaking above 9% in June 2022.
For instance, the consumer price index, a widely followed measure of goods and services costs, ran at a 3.2% 12-month rate in July. The Fed’s favorite measure, the personal consumption expenditures price index excluding food and energy, stood at 4.1% in June.
However, policymakers worry that declaring victory too soon could repeat critical mistake of the past. In the 1970s, central bankers raised rates to combat double-digit inflation, but backed off quickly when prices showed tentative signs of backing off.
Despite the intent of the hikes to slow down the economy, they’ve had seemingly little effect on overall growth.
GDP gains have averaged above 2% in the first half of 2023, with the economy on pace to rise another 5.8% in the third quarter, according to updated projections from the Atlanta Fed.
At the same time, employment growth as slowed some but still remains robust. The unemployment rate was at 3.5% in July, hovering around its lowest level since the late 1960s. Job openings have come in some from record levels but still far outnumber the pool of available workers.
Some Fed officials of late have indicated that while rate cuts are unlikely this year, increases could be over. Regional presidents John Williams of New York and Patrick Harker of Philadelphia, for instance, both said last week they could see a pathway to holding the line here. Market pricing is strongly pointing to no additional hikes, with less than a 40% chance of another increase price in before the end of the year, according to CME Group data.
“In most recessions, unemployment rises more for lower-income groups,” said Tomas Philipson, a professor of public policy studies at the University of Chicago and former acting chair of the White House Council of Economic Advisers.
“Although we are not in an overall recession yet, the demand for and wages of lower-income groups are outpacing higher-income groups.”
Maskot | Digitalvision | Getty Images
The start of the year was plagued by waves of layoffs: Employers announced plans to cut 481,906 jobs in the first seven months, up 203% from the 159,021 cuts for the year-earlier period, according to Challenger, Gray & Christmas, a global outplacement and business and executive coaching firm.
Some sectors, such as banking and tech, have been particularly hard hit, and a series of Wall Street layoffs earlier this summer fueled fears that a recession still looms driven by those professional job losses.
But there still aren’t enough workers to fill open positions in the service industry and the unemployment rate remains near a 50-year low at just 3.5%.
“Recession is a loaded term,” said Jacob Channel, senior economist at LendingTree. “White-collar jobs might not be as plentiful as they were last year, but they’re still around.”
And “at the end of the day, even if white-collar hiring does appear to be on the decline, that doesn’t mean that the entire economy as a whole is struggling,” Channel said.
“On the contrary, most current data indicates that despite numerous headwinds, the broader economy is doing remarkably well, all things considered,” he added.
But regardless of the country’s economic standing, many Americans are feeling the pain of higher prices and most have exhausted their savings and are now leaning on credit cards to make ends meet.
Several reports show financial well-being is deteriorating. Rather than a “richcession,” this more closely resembles a so-called K-shaped recovery, said Greg McBride, Bankrate.com’s chief financial analyst.
Wealthy Americans aren’t exactly suffering, but credit card debt is at an all-time high and 61% of adults are living paycheck to paycheck. “Those are signs of financial strain,” he said.
However this economic period is ultimately defined, it will only be in hindsight, McBride said. “Typically, by the time a recession is declared, the recovery is underway.”
China’s massive real estate market has struggled after decades of debt-fueled, rapid growth.
Bloomberg | Bloomberg | Getty Images
BEIJING — China reported July data that broadly missed expectations. The National Bureau of Statistics report also did not include the unemployment figure for young people, which has soared to record highs in recent months.
Retail sales rose by 2.5% in July from a year ago, below expectations for a 4.5% increase, according to analysts polled by Reuters.
Industrial production rose by 3.7% in July from a year ago, below the 4.4% increase analysts had expected.
Fixed asset investment rose by 3.4% for the first seven months of the year from a year ago, below the 3.8% forecast by the Reuters poll.
The urban unemployment rate ticked up to 5.3% in July from 5.2% in June.
We must intensify the role of macro policies in regulating the economy and make solid efforts to expand domestic demand, shore up confidence and prevent risks.
National Bureau of Statistics
Contrary to prior reports, the latest release did not break down unemployment by age. The age 16 to 24 category has seen unemployment far above the overall jobless rate, reaching a record high of 21.3% in June.
A spokesperson for the National Bureau of Statistics said the bureau is suspending the youth unemployment number release due to economic and social changes, and is reassessing its methodology.
On a year-to-date basis, real estate investment fell by 8.5% from a year ago as of July, a greater decline than as of June.
Online retail sales of physical goods rose by 6.6% in July from a year ago, a sharp slowdown from double-digit increases in recent months, according to CNBC calculations of official data.
Within retail sales, catering saw the biggest increase of 15.8%, while sports and entertainment products saw a 2.6% year-on-year increase. Big-ticket items such as autos and home appliances saw sales declines in July from a year ago.
Jewelry saw sales drop by 10% during that time.
Retail sales posted the slowest growth since a decline in December, according to official data.
The statistics bureau noted an “intricate and complicated” situation overseas and domestically, and “insufficient” domestic demand.
“We must intensify the role of macro policies in regulating the economy and make solid efforts to expand domestic demand, shore up confidence and prevent risks,” the bureau said in an English-language release.
After an initial rebound from the pandemic earlier this year, China’s economy has come to grips with long-standing problems and slowing global demand for its products.
Domestic demand has remained muted outside of summer tourism. Imports fell by 12.4% year-on-year in July and have mostly declined each month from the same period in 2022.
Weighing on the economy is an ongoing slump in the massive real estate sector. Property market troubles have come to the forefront again with developer Country Garden now on the brink of default.
Top leaders in late July signaled a shift away from its crackdown on real estate speculation. Authorities have announced a raft of measures to boost consumption, private sector investment and foreign investment.
But the overall approach to additional stimulus has been cautious, especially in real estate.
Read more about China from CNBC Pro
“Beijing has already done some things to ease the tensions in the property sector, but it has been too slow and too little, in our view,” Ting Lu, chief China economist at Nomura said in a note Monday.
“We believe that at some point in time Beijing will be compelled to take more measures to stem the downward spiral.”
Factory activity in July picked up to its highest since March, while core CPI, that strips out food and energy prices, actually posted its fastest increase in July since January.
This is breaking news. Please check back for updates.
