- ECB Tells Banks to Buckle Up as Ukraine War Hits Economy
- UK Inflation at a 40-Year High Engulfs Johnson and BOE in Crisis
- Japan’s Economy Shrank 1 Percent as Consumers Fled Covid
- Poor Countries Face a Mounting Catastrophe Fueled by Inflation and Debt
- Omens of Decline for Russia’s Once World-Leading Energy Industry
- How Russian Businesses Are Skirting Sanctions
- Yellen’s Grand Global Corporate Tax Plan Risks Flop in Congress
- IRS, Reversing Course, Tees Up Potential Tax Fight With Multinational Companies
- Powell Says Fed Has Resolve to Bring U.S. Inflation Down
- How a Trash-Talking Crypto Bro Caused a $40 Billion Crash
- As Musk Tweets, Advisers Plug Away to Keep Twitter Deal on Track
- Used Cars Become an Expensive Problem for Online Dealers Like Carvana
- JPMorgan Shareholders Reject Special $52.6 Million Payout to Jamie Dimon
- Cerebral Board Members Agree to Replace CEO Amid Federal Probe Into Prescription Practices
- The Long, Slow Death of Lehman Brothers Is Almost Complete
- Allianz Fund Managers’ Paydays Could Be Followed by Prison
As the war drags on in Ukraine, Western nations are looking to add to their sanctions roster, which had started to dry up in recent weeks. The U.S. is now considering a full block to Russia's ability to pay American bondholders, as the Kremlin navigates a web of sanctions by tapping domestic dollar reserves to make coupon payments (its funds are frozen in the West). Things could happen quickly if the Biden administration lets a temporary exemption expire next week that had allowed for payments that originate from non-U.S. accounts to be made through American financial institutions.
Snapshot: Some officials at the Treasury Department had previously argued that allowing Russia to pay its debt would further "drain its remaining valuable dollar reserves" that would otherwise be spent on funding the war of Ukraine. The thinking now is to intensify the pressure as Moscow looks to stave off a financial crisis via a set of emergency measures and strict capital controls. The ruble has already pared all the losses seen since the invasion to become the world's best performing currency this year, while economic activity is improving as Russia continues to make revenue on gas flows to the EU.
"It continues to be our baseline scenario that a default will happen," said Carlos de Sousa, emerging markets strategist at Vontobel Asset Management. "It is an interesting one," added Matthew Vogel, head of sovereign research at FIM Partners. "The move would leave Russia as a debtor seemingly desperate to make payments, but not allowed to do so."
Upping the ante: With a limited number of economic sanctions left in the pipeline, the West is also looking to strengthen the relationships of its armed forces. Finland and Sweden formally applied to join the NATO alliance today, breaking longtime defense doctrines of military neutrality. While NATO partner Turkey has voiced objections to their membership - citing ties to opposition groups that Ankara considers terrorists - the applications are expected to eventually get over the finish line with some concessions. (18 comments)
"If we have to go past neutral, we won't hesitate," Federal Reserve Chair Jerome Powell reiterated during the Wall Street Journal's Future of Everything Festival on Tuesday, without saying what he thinks the neutral interest rate is. Recall that the neutral rate is the point at which interest rates neither boost nor hinder economic growth. "We need clear and convincing evidence that inflation is coming down" before the Fed slows its pace of rate increases, he added, after consumer prices soared another 8.3% in the 12 months through April.
Quote: "The underlying strength of the U.S. economy is really good right now. The U.S. economy is strong, the labor market is extremely strong. It is still at very healthy levels. Retail sales numbers, the economy is strong. Consumer balance sheets are healthy. Businesses are healthy. The banks are well-capitalized. This is a strong economy. We think it is well-positioned to withstand less accommodative monetary policy and tighter monetary policy. Of course, we do monitor global events, and global events have been important to our economy. The war in Ukraine is something that has upset the global commodity picture, while also threatening the global world more broadly."
"As a policymaker, the way I'm thinking about it right now, we are raising rates expeditiously to what we have been seeing is a more normal level, which is something that we will reach maybe in the fourth quarter. But it is not a stopping point. It is not a looking around point. We don’t know with any confidence where neutral is. We don’t know where tightening is. We just know in this market, higher inflation and very strong growth. What we are going to be looking at, meeting by meeting, data reading by data reading, is what is happening in the financial conditions, what is happening with the economy."
Rip off the Band-Aid? When asked if the Fed isn't moving fast enough in raising rates, Powell defended the central bank's decision to tighten policy starting in March. "By the standards of central bank practices in recent years, we've moved about as fast as we have in several decades," he said. As to why the Fed isn't raising rates by more than 50 basis points per meeting, Powell referred to the importance of communicating to the public and the markets. "Monetary policy works through expectations," he added, outlining that "financial conditions, overall, have tightened significantly." (90 comments)
First quarter results from Walmart (WMT) rattled the retail sector on Tuesday, with a slew of other chains set to report earnings this week. Investors were shocked to hear about Walmart's 25% drop in earnings from January to April, sending the stock down more than 11% during the session for its biggest drop since 1987. Another black eye for the company was a major guidance cut, which now forecasts Q2 EPS and consolidated operating income to be "flat to up slightly" and full-year EPS to be "down about 1%."
CEO Doug McMillon: "Bottom line results were unexpected and reflect the unusual environment. U.S. inflation levels, particularly in food and fuel, created more pressure on margin mix and operating costs than expected. We're adjusting and will balance the needs of our customers for value with the need to deliver profit growth for our future."
Sales at stores opened at least a year at Walmart's U.S. division rose 3% Y/Y, below the Q4 clip of 5.6% and the 9.2% growth seen in Q3. Online sales only rose 1% Y/Y, slowing tremendously from the pandemic boost in early 2021, and down from the 8% advance in Q3. However, total revenues came in at $142B, up 2.4% Y/Y and beating consensus estimates on Wall Street.
Inflation winner? Bank of America looked past the guidance disappointment from Walmart to reiterate a Buy rating on the retailer. Analyst Robert Ohmes and team think the firm is well-positioned for high inflation compared to retail sector peers due to its ability to stand tall if consumers are more price sensitive. BofA also expects improving results through the balance of FY23 due to the impressive momentum with food/consumables sales, improving general merchandise momentum on more favorable weather, and shoppers expected to continue to favor WMT's variety of value-priced offerings including private label in food and rollbacks in general merchandise. (61 comments)
Executive pay has come under the microscope in recent years, with top brass increasingly making hundreds of times the pay of the average worker. Awareness of the pay scale is now prompting some shareholders to take action, though others caution that inflated compensation is what is needed to secure talent in the current environment. According to the AFL-CIO annual Executive Paywatch report, the average S&P 500 CEO made 299 times the average worker's pay in 2020, when factoring in salary, stock and bonuses.
Stinging rebuke: Only 31% of investors at JPMorgan's (NYSE:JPM) annual shareholder meeting yesterday voted in favor of a $52.6M stock option award that was part of CEO Jamie Dimon's 2021 compensation package. It was the first time the bank's board lost such a vote since it was introduced in 2009, and was significantly lower than the previous weakest level of investor support, which came in at 61.4% in 2015. While the shareholder vote is non-binding, the bank's board said it would take the feedback "seriously" and intended for the bonus to be a one-time event.
"The special award was extremely rare - the first in more than a decade for Mr. Dimon - and it reflected exemplary leadership and additional incentive for a successful leadership transition," said JPMorgan spokesman Joe Evangelisti. He also noted that the package was designed to keep Dimon at the helm for another five years by pegging the award to the bank's share price appreciation. Dimon would only be awarded if JPMorgan's stock rose above $148.73 in the coming years (it's currently trading at $122.18, but hit a high of $172.96 back in November).
Disapproval is spreading: Shares of Intel (INTC) climbed 3% on Tuesday after investors voted against the compensation of some of its top executives, including part of a $178.6M payout for CEO Pat Gelsinger. While the motion was also advisory and won't take immediate effect, it does send a signal to those that are closely watching the semiconductor giant's performance. Shareholders at AT&T (T) and General Electric (GE) also voted against hiking executive compensation packages this year following lackluster first-quarter results. (54 comments)
In Asia, Japan +0.9%. Hong Kong +0.2%. China -0.3%. India -0.2%.
In Europe, at midday, London flat. Paris flat. Frankfurt +0.2%.
Futures at 6:20, Dow -0.1%. S&P -0.2%. Nasdaq -0.4%. Crude -1.4% to $110.84. Gold flat at $1818.40. Bitcoin -1.8% to $29,989.
Ten-year Treasury Yield unchanged at 2.97%
Today's Economic Calendar
7:00 MBA Mortgage Applications
8:30 Housing Starts and Permits
10:30 EIA Petroleum Inventories
1:00 PM Results of $17B, 20-Year Bond Auction
4:00 PM Fed's Harker: Economic Outlook