Friday Morning Reads
- Europe’s Gas Crisis
- It’s the Economy, Stupide
- Is Gruyère Still Gruyère
- Shipping Congestion
- Demand for Chocolate
- Consumer Prices Popped
- Fed’s ‘Most Important Task’s
- What Inflation and Rate Hikes Mean for Your Portfolio
- Tesla Is Inching Dangerously Close
- Steal the Truck Race
- Smart Headlights
- The Florida Financiers
- C.E.O.s Were Our Heroes, at Least According to Them
Investors this morning will get a better picture on the financial standing of the economy as the biggest U.S. banks publish their quarterly results. Reports from JPMorgan (JPM), Citigroup (C) and Wells Fargo (WFC) will mark the unofficial start to the fourth-quarter earnings season as banks take much of the spotlight over the next week. The sector has also recently benefited from equity inflows as a rising rate environment triggers a rotation out of growth and into value stocks.
On watch: Pandemic stimulus has been good for Wall Street's biggest banks, with profits for 2021 set to hit record highs. For example, JPMorgan has seen its deposits swell by more than 50% to $2.5T over the last two years, which can be used to make loans and other interest earning products. Stay on the lookout for expectations about loan growth for the coming year, which could profit from rising rates (as long as they don't rise too rapidly). Total U.S. loans reached $10.8T at the end of December, up 2.8% from the end of September, and close to the high notched shortly after the pandemic began in 2020.
A booming stock market has also helped fuel robust trading activity, as well as more demand for mergers and IPOs (and the lucrative investment banking fees that come with them). It will be interesting to watch compensation, and how much of the big bucks and bonuses will be returned to investment banking dealmakers. Meanwhile, corporate lending also took a backseat with companies able to raise money easily during the pandemic, but analysts think that may change in 2022.
Some caution: Keeping an eye on the coming year, investors are curious what the banks have to say about the Omicron economy. Consumer spending weakened as the variant emerged toward the end of 2021, and those trends could impact the markets and economy for the rest of 2022. Banks also built up their reserves when they were expecting big pandemic loan losses, and while recent releases have boosted their bottom lines, those are anticipated to be much smaller going forward.
Reports suggest that the Fed may be getting a diverse makeover as President Biden fills out the ranks of a seven-member panel that wields much influence over the world's largest economy. Biden came into office with one vacancy on the Fed's Board of Governors (from Janet Yellen), but saw the subsequent retirement of Richard Clarida and Randal Quarles due to trading scandals. Governors are appointed by the president and confirmed by the Senate for staggered 14-year terms, while the Fed Chair and Vice Chair serve four-year terms. Meet the new candidates:
Sarah Bloom Raskin: She served as a Fed governor from 2010 to 2014 before moving on to become former President Barack Obama's deputy Treasury Secretary. She's also the wife of U.S. Rep. Jamie Raskin (D-Md) and is a notable climate change advocate who argues that financial regulators should use their powers to mitigate the risks of climate-related events. If confirmed, she would become the central bank's vice chairwoman of supervision (i.e. the government's most influential overseer of the American banking system).
Lisa Cook: She currently serves as a Michigan State economics and international-relations professor and formerly worked as a senior economist on Obama's Council of Economic Advisers. If approved, Cook would become the first Black female to serve on the Fed's board. She has also written extensively about the economic consequences of racial disparities and gender inequality, as well as wages, poverty and income distribution.
Philip Jefferson: He is a former Fed economist who currently serves as dean of faculty and academic-affairs vice president at North Carolina's Davidson College. If confirmed, Jefferson would be only the fourth Black man to sit on the panel and the first in more than 15 years. For some or all of the nominees, prepare for opposition during confirmation hearings in the Senate, where Democrats and Republicans each hold 50 votes. Vice President Kamala Harris can provide a 51st Democratic vote to break ties in party-line disagreements, but only if all Democrats approve of someone the entire GOP opposes.
The verdict is in on the Biden administration's vaccine mandates, with separate rulings for two of the orders. In a vote of 6-3, the Supreme Court blocked a mandate that required businesses with more than 100 employees to have them vaccinated or tested weekly, calling the requirement an "encroachment into the lives" of two-thirds of the private sector. In a separate 5-4 ruling, the High Court let stand another mandate that would require vaccinations for more than 10M healthcare workers whose facilities participate in Medicare and Medicaid.
The decision: "Although Congress has indisputably given OSHA the power to regulate occupational dangers, it has not given that agency the power to regulate public health more broadly," the court wrote. "COVID-19 is also spread at home, in schools, during sporting events, and everywhere else that people gather... The Act empowers the Secretary [of labor] to set workplace safety standards, not broad public health measures. Requiring the vaccination of 84M Americans, selected simply because they work for employers with more than 100 employees, certainly falls in the latter category."
Responding to the decision, President Biden said he was disappointed the court blocked "common-sense life-saving requirements for employees at large businesses that were grounded squarely in both science and the law." While the cases have sown tension between federal and state governments, Biden went on to say that "it is now up to states and individual employers to determine whether to make their workplaces as safe as possible for employees, and whether their businesses will be safe for consumers during this pandemic by requiring employees to take the simple and effective step of getting vaccinated."
Healthcare ruling: "COVID–19 is a highly contagious, dangerous, and - especially for Medicare and Medicaid patients - deadly disease," the majority opinion wrote. "Indeed, their [healthcare industry] support suggests that a vaccination requirement under these circumstances is a straightforward and predictable example of the health and safety regulations that Congress has authorized the Secretary to impose. After all, ensuring that providers take steps to avoid transmitting a dangerous virus to their patients is consistent with the fundamental principle of the medical profession: first, do no harm."
While some companies like Robinhood (HOOD) and Twitter (TWTR) are planning for a remote-first future, others are making big bets on employees coming back to work. Google (GOOG, GOOGL) is shelling out $1B to acquire the rest of London's colorful Central Saint Giles building, where it already occupies a number of floors. That's beside a new 11-story U.K. headquarters that it is building nearby, which sits on a plot behind in the recently gentrified King's Cross neighborhood.
Quote: "We believe that the future of work is flexibility," wrote Ronan Harris, VP of Google U.K. and Ireland. "Whilst the majority of our UK employees want to be on-site some of the time, they also want the flexibility of working from home a couple of days a week. Some of our people will want to be fully remote. Our future UK workplace has room for all of those possibilities."
"We'll [also] be introducing new types of collaboration spaces for in-person teamwork [at Central Saint Giles], as well as creating more overall space to improve well-being. We'll introduce team pods, which are flexible new space types that can be reconfigured in multiple ways, supporting focused work, collaboration or both, based on team needs. The new refurbishment will also feature outdoor covered working spaces to enable work in the fresh air."
Outlook: At the beginning of 2021, Google said it would spend $7B over the course of the year to expand its footprint of offices and data centers across the U.S. It seems to now be executing a similar strategy abroad, adding 700 employees to its current roster of 6,400 employees in the U.K. Once the construction of its new London complexes is complete, Google will have the capacity for a 10,000-strong workforce in the city.
In Asia, Japan -1.3%. Hong Kong -0.2%. China -1%. India flat.
In Europe, at midday, London flat. Paris -0.6%. Frankfurt -0.6%.
Futures at 6:20, Dow +0.3%. S&P +0.2%. Nasdaq flat. Crude +1.3% at $83.15. Gold flat at $1822. Bitcoin -3.8% to $41921.
Ten-year Treasury Yield +3 bps to 1.74%
Today's Economic Calendar
8:30 Retail Sales
8:30 Import/Export Prices
9:15 Industrial Production
10:00 Business Inventories
10:00 Consumer Sentiment
10:00 Fed's Harker: Economic Outlook
11:00 Fed's Williams Speech
1:00 PM Baker-Hughes Rig Count
What else is happening...
China to launch blockchain infrastructure to support NFT deployment.
Congressional Jan. 6 committee subpoenas Big Tech and Reddit.