US consumer spending fell by 1.2% YoY in April, according to data released by Bank of America. The decline, the first since February of this year, could suggest the “final, stubborn economic shoe” is dropping, said Unhedged, but analysts said it was important to distinguish a slowdown from wider stress. "Lower-income households continue to outperform higher-income households in terms of YoY spending growth" a BofA note said. Home Depot, Target and Walmart are among the retailers reporting this week. Inflation-beset consumers had thus far refused to cut back spending, but some analysts argued that a change could be on the way.
Anaemic gains in private-label groceries also suggested consumers were not pushing back hard against higher prices from suppliers, said retail analyst Rahul Sharma. Sharma said previous patterns of lower spending around discretionary goods during times of economic downturn were not currently in evidence in the US, but dramatic fluctuations in supply chains and pricing were still possible. Meanwhile, Walmart reported a reduction in price increase requests from suppliers in recent weeks but a continuing shift in sales from discretionary goods to groceries.
Although Uber confirmed that insurance claims made up the largest component of its cost of revenues in most markets, Unhedged readers argued the deeper question was not the costs themselves but the supply and demand dynamics that set the returns, after costs, of Uber versus Airbnb. They made the point that a car ride was a commodity product whose main feature in the eyes of customers was price, whereas houses and apartments had crucial variable features. Airbnb set prices, while Uber customers would pay more for special occasions or geographies where elasticities of preference for price were low.
Elon Musk has denied receiving financial advice from Jeffrey Epstein after a court ordered him to hand over evidence relating to alleged dealings between the two men. The US Virgin Islands has demanded that Musk provide documents or payment records concerning Epstein and investment bank JP Morgan, as well as any evidence he may have regarding Epstein’s sex trafficking. The jurisdiction has sued JP Morgan, accusing the bank of facilitating Epstein’s activities on Little St James by ignoring warnings about him. Musk also claimed that Tesla had no dealings with JP Morgan.
US Federal Reserve Chair, Jerome Powell, is facing a critical time, with a fight against inflation, recession worry and an increased criticism of the Fed's oversight of the financial sector. Biden's nomination of a new vice-chair for the central bank may be viewed as a vote of confidence in Powell, but there is no doubt that it poses a test of his stewardship as he navigates the direction of interest rates, the lowest public approval rating of any recent Fed chief thus far, and an unusual call for an external review of Fed supervision. If Powell does his job well, he may be remembered as the Fed leader who tamed inflation without a recession and kept a stressed financial system intact, but if he hypothetically loses control of the situation, he may have to resort to punishing rate hikes to regain it. Powell and his colleagues are trying to curb inflation without causing a recession and increased unemployment heading into a presidential election.
BlackRock, the world’s largest asset manager, is asking staff to return to the office at least four days a week, while allowing for one day of remote work, starting September 11. Other Wall Street firms like JPMorgan, Goldman Sachs, and Morgan Stanley have also been changing their work from home policies as pandemic restrictions ease. JP Morgan has asked all managing directors to return to the office five days a week. Wall Street CEOs like Jamie Dimon have been advocates of in-office work.
Japanese investment bank Nomura has hired two investment bankers to head its greentech unit’s coverage of mobility and automotive clients in the US and Europe. The company hopes to capitalise on the consolidation among older vehicle and equipment makers and newer rivals, many of whom were initially funded by SPACS, which have come to the fore on Wall Street this year. Nomura’s global co-head of Nomura Greentech, Duncan Williams, said venture-backed EV firms and low-emission vehicle producers will benefit from subsidies in many countries, but may face cash shortfalls as a result of higher borrowing and economic fears.
The US economy is under pressure due to lower-than-expected earnings from Home Depot and the impact of a long-running trade war, which could cause a recession if consumer spending slows. The S&P 500 index dropped 0.2%, the Dow Jones Industrial Average fell by 0.6%, while the Nasdaq Composite rose 0.3% in afternoon trading on Tuesday. Energy producers were among the heaviest weights on the market, while retailers, including Lowe's, fell on reports of disappointing earnings. Pressure is on other retailers, including Target and Walmart, to produce good results.
BlackRock, the world's largest money manager with over $8tn under management, has told its employees they must return to working in the office for at least four days a week from September. The shift towards the move from remote work is reminiscent of the pre-pandemic norm as leaders of large companies are seeking to restore the energy of the past and grow the new generation of leaders within their organisation. The new policy follows JP Morgan's recent announcement telling its senior bankers they had to return to the office for a full five days.
According to reports, multinational banks, including Goldman Sachs and Morgan Stanley, are reportedly scaling back their goals and expansion plans in China due to the "deteriorating geopolitical climate" and the increasingly authoritarian direction of President Xi Jinping's government. In particular, the banks are struggling to compete against China's state-owned enterprises, which are "well-entrenched" in the market, making it difficult for global banks to compete. In the face of slowing growth for its economy, China has introduced the most sweeping changes to its financial services, including full ownership of insurers, banks, brokers, and asset managers by foreign firms.
However, the country's ongoing geopolitical nuances have caused Wall Street firms to become more cautious about the China market; publicly, everyone is saying the same thing - China is still a massive opportunity, and they have no plans of withdrawing, particularly since such considerable money has already been spent. Privately, Wall Street executives told Bloomberg that it's challenging to maintain the confidence of both sides as tensions escalate, which is expected to intensify as the US election cycle approaches.
Many Wall Street giants are considering more drastic job cuts as there is a realization that a fundamental rethink on the world’s No. 2 economy is necessary due to the weakened business climate, fewer opportunities for outsized profits and China's approach to the financial market. While planning to build onshore brokerage, Morgan Stanley is focusing its efforts on its derivatives and futures businesses.
Japan's GDP figures for the first quarter are set to be the highlight for Asian markets on Wednesday, with expectations of annualised growth of 0.7%, the fastest rate in three quarters, leading to Tokyo stocks opening up 0.2%. China's weaker than expected economic data for April has resulted in slumps across Chinese financial assets, with April house prices also due on Wednesday. Although offshore investors have a new scheme to link Hong Kong with the mainland in order to access interest rate derivatives to help hedge their Chinese bond exposure, concerns about debt demand have cast extra doubt over the yuan's ability to gain reserve currency status.
US antitrust tsars Lina Khan and Jonathan Kanter are scaring corporate executives with their willingness to sue to block deals that promote rampant consolidation, according to the FT. The Federal Trade Commission’s recent decision to file a lawsuit to block Amgen's $28.3bn acquisition of Horizon Therapeutics surprised many in the industry. So far, mergers challenged or blocked by the duo (with the help of friendly regulators in the UK and EU) include Microsoft’s $75bn acquisition of gaming company Activision Blizzard, Lockheed Martin’s planned $4.4bn acquisition of US missile products supplier Aerojet Rocketdyne, and the $2.2bn merger of Penguin Random House and Simon & Schuster. The duo have said they will try to sue to block deals even if they know they might lose. Vince McMahon, the founder of World Wrestling Entertainment, relied on merchant bank Raine Group for strategic advice and its help in selling his company. Raine will earn $65m from the $21bn transaction.
Two drilling rigs, valued at $40m and $30m but unbought since 2019, are being auctioned off by Texas-based Kruse Asset Management at heavily discounted starting prices of $12.9m and $2.3m respectively, following the oversupply of drilling equipment. The oversupply signals that the US shale energy industry has reached peak drilling, responding to the demand from Wall Street that surplus cash be spent on shareholders following falling commodity prices.
Indian stocks are expected to open lower after Wall Street closed lower amid the debt ceiling negotiations in the US; Asian markets were also affected. Investors are also expected to be booking profits after a 5% increase in the benchmark Nifty 50 since the beginning of the fiscal year in 2024. The National Stock Exchange reported that foreign institutional investors have extended their buying streak for the 14th consecutive session, adding $172.1m worth of shares in the period. Analysts are watching the results of companies including Jubilant FoodWorks, Whirlpool of India and Devyani International.
European stocks fell on Wednesday, with investors spooked by policymakers in Washington failing to agree on a deal to increase the US’ spending limit. US futures were holding gains, with S&P 500 and Nasdaq 100 contracts tracking up 0.2% and 0.1% respectively prior to the New York open. However, Jefferies’ Mohit Kumar warned that markets will start to price in debt ceiling concerns toward mid-June. Treasury Secretary Janet Yellen has warned the US could default on its debt as early as next month if lawmakers fail to reach a compromise. The dollar index was up 0.3% on Tuesday’s close and bond yields edged higher as uncertainty grew over the US situation.
Stellantis, a major car manufacturer with brands including Vauxhall, Peugeot and Citroen, has warned it may close British factories unless the UK government renegotiates its Brexit agreement with the European Union. The carmaker has committed to making electric vehicles in the UK, but says it is impossible to source enough components locally to meet new rules requiring 45% of component value to originate from the UK or EU. The regulations are required to avoid a ten percent export tariff on EVs. The company warned manufacturing would become “unsustainable” if it could not secure competitive prices, potentially resulting in factory closures.
Experts have suggested that it would be challenging to find businesses that could meet the 45% local component requirements. The production of a battery alone typically represents 40% of an EV’s value. Sir Keir Starmer, leader of the opposition Labour Party, has described the threat as an “existential crisis” for the UK car industry, warning of “800,000 jobs” at risk. The head of the Society of Motor Manufacturers and Traders, Mike Hawes, has called for greater investment in battery production in the UK.
Other companies, including Nissan, have expressed concerns regarding local content regulations. Last year, Nissan and Tesla both warned of the increased costs they may face as a result of rules that will require them to relocate factories or double down on supply chain and procurement strategies to avoid punitive export tariffs.
Greenpeace has said that the UK relies too heavily on lithium battery manufacturing and argued that the move away from the low-carbon market would result in greater global reliance on a small handful of multimillion-dollar mining companies, “where the human and environmental costs are generally high”.
Target has forecasted a low-single digit decline in sales for 2Q amid consumers shunning non-essentials such as electronics and home goods due to persistently higher prices. The company has been trying to shift its focus to household essentials and groceries as inflation and higher interest rates continue to prompt consumers to trade down. The retailer also warned that theft and organised crime could reduce profitability by more than $500m compared to 2022. However, the company has maintained its 2023 annual profit forecast.
Comments from Federal Reserve officials on high interest rates have impacted US markets, with bond yields and rate futures reacting to the news. Chicago Federal Reserve President Austan Goolsbee said on Tuesday that it was "too premature" to consider interest rate cuts. The New York Fed's John Williams also noted inflation remained high. Loretta Mester, President of the Cleveland Fed, stated that rates were not going to be put on hold yet. Meanwhile, US President Joe Biden has cut his trip to Japan short amid the ongoing debt ceiling crisis, with just two weeks to go before a US debt default.
Global shares have dipped as the US dollar strengthens, reflecting the risk aversion of investors. Despite an hour-long discussion between US Democratic President Joe Biden and top congressional Republican Kevin McCarthy, the two sides remain far apart on an agreement to lift the spending limit, or debt ceiling. Economists warn that without an agreement, the government may not be able to pay its bills and the chance of a recession could be raised.
Debt ceiling threat: Time to take this political football off the field
CNN
23-05-17 16:31
The debt ceiling debate in Washington should be abandoned to save US living standards, family budgets, and global financial stability, according to economics experts. Theoretically, the debt ceiling should work as a fiscal restraint during the budgeting process. But after near meltdowns in 2011, 2013 and recently, economists argue it is time to take the political football off of the field. The CEO of JPMorgan Chase, Jamie Dimon said last week that he would be in favour of getting rid of the debt ceiling. The Fed's former vice-chairman, Roger Ferguson, said the debt ceiling is an antiquated mechanism that should be scrapped.
Elizabeth Holmes, founder of Theranos, will go to prison after a court ruled that she could not stay out of jail, despite an appeal. Holmes was scheduled to report to prison on 27 April, but it has not yet been confirmed when she will now be incarcerated. Meanwhile, a leading Chinese comedy company has been fined CNY14.7m ($2.13m) by the Chinese government for a military joke. Finally, Tesla is to break with tradition and try advertising, according to CEO Elon Musk.
Synopsys sees Q3 revenue above estimates as AI drives upbeat results
Reuters
23-05-17 20:48
Chip-design software provider Synopsys has reported Q2 revenue of $1.4bn, surpassing estimates, as increased AI usage and automation in the industry boosted its business. Though analysts had estimated adjusted earning per share at $2.46, Synopsys beat that number with $2.54 profit per share. The firm anticipates a Q3 revenue of $1.47bn to $1.5bn and adjusted earnings per share in the range of $2.70 to $2.75.
