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This Morning
After more than 15 hours of amendments and a "vote-a-rama" session that stretched into Sunday afternoon, the U.S. Senate narrowly passed the Inflation Reduction Act. The measure - which aims to cut government deficits and consumer medical bills while boosting climate spending - passed by a margin of 51-50, with Vice President Kamala Harris casting the tie-breaking vote following a year of Democratic infighting. The bill now goes to the House for a vote, which will likely take place on Friday as representatives briefly reconvene during the Congressional summer recess.
Quote: "Today, Senate Democrats sided with American families over special interests, voting to lower the cost of prescription drugs, health insurance, and everyday energy costs and reduce the deficit, while making the wealthiest corporations finally pay their fair share," announced President Biden following the measure's passage. "I ran for president promising to make government work for working families again, and that is what this bill does - period."
The Inflation Reduction Act somewhat embodies earlier incarnations of the Build Back Better plan, albeit with a price tag of around $430B (in place of $3.5T, and a revised version of $2.2T). It also gives Biden a major legislative achievement ahead of midterm elections, and another win for his economic agenda after Congress pulled through on the Chips for America Act. While both sides of the aisle agreed to the semiconductor spending, Republicans slammed the latest bill as "another reckless taxing and spending spree" in an era of "runaway inflation."
The price tag: Democrats argue that the Inflation Reduction Act will help tame inflation because it dampens medical and energy costs while paying for itself. According to initial estimates, the measure would raise a total of $739B in revenue, and spend a total of $433B, reducing the budget deficit by roughly $300B over a decade. The non-partisan Congressional Budget Office also found that the package would reduce the deficit by about $102B over the next 10 years, and would be in-line with the deficit reductions claimed by Sens. Chuck Schumer and Joe Manchin if revenue from tax enforcement was included in the calculations. (36 comments)
Healthcare policies: The measure will cap Medicare recipients' out-of-pocket prescription-drug costs at $2,000 a year, while Obamacare subsidies will reduce 13M Americans’ annual medical-insurance premiums by $800. The measure also grants Medicare the ability for the first time to negotiate some bulk discounts with drug companies for pharmaceuticals - something many private companies currently do. Meanwhile, the $35 insulin cap for Medicare beneficiaries remains in place, but GOP lawmakers were successful in removing the provision from the private market, which could have impacts for top insulin makers Eli Lilly (LLY), Novo Nordisk (NVO) and Sanofi (SNY).
Tax legislation: The bill will impose a 15% corporate minimum tax on large corporations - some of which report significant profits but pay little or nothing in income taxes due to credits and deductions - such as Amazon (AMZN), Nike (NKE) and FedEx (FDX). It would also impose a new 1% tax on corporate stock buybacks, though plans to tax the wealthy were removed, as well as taxing "carried interest" payments of private equity fund managers. $80B of funding was still earmarked to the Internal Revenue Service, with the aim at improving customer service, increasing the number of audits and modernizing technology.
Climate investment: Incentives like a $4,000 tax credit for the purchase of used EVs, and $7,500 for new ones, will drive up interest in companies like Tesla (TSLA) and Ford (F) that are assembling vehicles in the U.S. The new credits would apply to trucks, vans and SUVs priced under $80,000 and cars up to $55,000 (only families with adjusted gross incomes of up to $300,000 would be eligible). There are also energy rebates for heat pumps, rooftop solar, electric HVAC and water heaters, as the U.S. aims to lower carbon emissions by around 40% by 2030. (36 comments)
The jobs report on Friday blew it out of the water, with nonfarm-payrolls expanding by 528,000 in July, more than double expectations of a 250,000 increase. The unemployment rate fell to a further 3.5%, marking its lowest level since 1969, while average hourly earnings grew at 5.2% Y/Y. That data doesn't look too consistent with the last two quarters of economic contraction, and indeed, it has sparked "recession" talk once again ahead of the CPI report on Wednesday.
Snapshot: While stocks traded mixed on the news, the 2y10y yield curve inverted by the highest margin since the dot-com crash. The thinking here is that the job gains will give the Fed more room to tighten, especially as accelerated wages intensify a threat of more entrenched inflation. The central bank is also trying to restrict monetary policy without negative consequences for the consumer and economy, but the recent figures could complicate its efforts of engineering a more temperate employment environment.
"Jobs haven't slowed at all in response to Federal Reserve tightening. This is a double-edged sword," wrote Michael Gapen, chief U.S. economist at Bank of America. While the odds of a "near-term recession is lower... the risk of a hard landing is rising."
Statistics: Traders now see a 68.5% chance of a third 75-basis-point move in September, according to the CME Group's FedWatch tool that measures pricing in the fed funds futures markets. (9 comments)
Japan's SoftBank Group (OTCPK:SFTBY) has posted a record $23B quarterly net loss after its Vision Fund got hammered by a global tech selloff triggered by rising interest rates and soaring inflation. Not helping the situation was a plunge in IPO volumes and China's tech crackdown, as well as rising skepticism over money-losing startups. It comes as the Japanese conglomerate continues to lose a growing number of top executives, like COO Marcelo Claure and Chief Strategy Officer Katsunori Sago.
Quote: "When we were turning out big profits, I became somewhat delirious, and looking back at myself now, I am quite embarrassed and remorseful," said Chief Executive Masayoshi Son. "Now seems like the perfect time to invest when the stock market is down so much, and I have the urge to do so, but if I act on it, we could suffer a blow that would be irreversible, and that is unacceptable."
Instead, the company has pledged to go into "defense" mode by reeling back on investments and preserving cash to weather the downturn. It has also offloaded its stakes in ride-hailing giant Uber (UBER) and home-selling platform Opendoor Technologies (OPEN) for a total of $5.6B. Looking to further appease investors, SoftBank authorized a share buyback program worth up to $3B, and raised over $10B by using its shares in Alibaba (BABA) for prepaid forward contracts.
Go deeper: Softbank is not the only miserable hedge fund in town. Competitor Tiger Global saw its flagship fund plunge 50% in the first half of 2022 after underestimating the tech selloff and surging inflation across the economy.
Today's Markets
In Asia, Japan +0.3%. Hong Kong -0.7%. China +0.3%. India +0.8%.
In Europe, at midday, London +0.5%. Paris +0.9%. Frankfurt +0.6%.
Futures at 6:20, Dow +0.3%. S&P +0.3%. Nasdaq +0.3%. Crude -1% to $88.14. Gold +0.1% to $1793.30. Bitcoin +4.7% to $24,086.
Ten-year Treasury Yield -4 bps to 2.8%
Today's Economic Calendar
12:30 PM Investor Movement Index
Companies reporting earnings today »
What else is happening...
Baidu (BIDU) wins China's first fully driverless robotaxi licenses.
Could mobile advertising be Apple's (AAPL) next big thing?
CVS Health (CVS) seeking purchase of Signify Health (SGFY) - WSJ.
Carlyle (CG) CEO Kewsong Lee will step down at the end of 2022.
UPS (UPS) nears deal for Italian healthcare logistics provider Bomi.
Musk challenges Twitter (TWTR) CEO to debate over 'bot percentage.'
Oz Minerals (OTCPK:OZMLF) rejects BHP's (BHP) A$8.4B takeover bid.
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