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Quick Fix
Markets starting to worry — Markets remain mostly ebullient as Covid-19 wanes while economic growth in the U.S. appears set to continue rocking this year despite significant dislocations in the labor market. But signs of stress are emerging as investors worry about the Delta variant of Covid and the prospect that the Federal Reserve may have to tighten monetary policy a bit sooner than planned to quash persistent inflation.
And as we noted on Tuesday, U.S. economic data does not look quite as robust under the surface as it does in some of the headlines. The services sector is clearly suffering from a lack of available workers and an inability to acquire necessary supplies. These problems should theoretically ease in the coming months with the expiration of additional federal unemployment benefits pushing people back into the labor force and supply chain issues improving.
But it’s not a lock that they will even as demand soars, pushing up prices. The combination of new Covid variant threats and the possibility of central bank tightening is starting to leak into global markets at least a bit.
Via Bloomberg this a.m.: “Once-bullish global risk sentiment is starting to cede ground to pockets of angst. Surging commodity prices and rising inflation expectations have given way to rallies in havens from Treasuries to the Japanese yen … while pockets of the tech world are in crisis.
“Investors are once again questioning the strength of the global recovery and mulling the threat of new Covid-19 variants and prospective central bank tightening … Benchmark 10-year Treasury yields slumped Tuesday to touch their lowest since February after a key gauge of service-sector activity fell more than expected, raising concern over the strength of the U.S. economic rebound”
GOOD WEDNESDAY MORNING — Email me on [email protected] and follow me on Twitter @morningmoneyben. Email Aubree Eliza Weaver on [email protected] and follow her on Twitter @AubreeEWeaver.
Driving the Day
President Biden at 9:30 a.m. holds a meeting with several Cabinet departments and intelligence agencies to discuss ransomware attacks … Biden then travels to Chicago and will give remarks at 2:05 p.m. on “the benefits the American Families Plan will deliver for working families across the country.” …
Treasury Secretary Janet Yellen travels to the G20 Finance Ministers and Central Bank Governors meeting in Venice, Italy. … JOLTS report at 10:00 a.m. expected to show yet another record high in job openings (see above) at 9.34 million.
INFLATION BITES IN SWING STATE OHIO — WP’s Tim Craig and Lenny Bronner in Woodsfield, Ohio: “In this impoverished pocket of the United States, the most recent round of stimulus payments — $1,400 for Americans who earn up to $75,000 — was the difference between getting a medical treatment and not, enrolling a child in college and not. But political divisions are deep here, and Trump voters, who make up the great majority of residents, are blaming the payments for a range of ills.
“Some here say the Biden stimulus checks are keeping people from work, fueling a sense that the undeserving are exploiting the system. As the price of basic goods climbs, others worry that the stimulus will lead to runaway inflation on wood, cars, even milk.”
WALL STREET SPLITS ON REMOTE WORK — WSJ’s Julia-Ambra Verlaine and David Benoit: “There is a growing divide on Wall Street: firms calling employees back and firms telling people they can work from home. Titans like Goldman Sachs Group Inc. and JPMorgan Chase & Co. are taking a hard-line approach, beefing up in-person staff five days a week in New York even though it might mean losing talent.
“Rivals including Citigroup Inc. are touting flexibility, betting that a softer approach will help them poach top traders and deal makers. While businesses across America are struggling with whether and how to have staff return full time, the issue has been particularly thorny at large U.S. banks, where leaders like Jamie Dimon and David Solomon have voiced strong opinions.”
Markets
S&P 500 SEES FIRST DECLINE AFTER SEVEN STRAIGHT GAINS — AP’s Damian J. Troise and Alex Veiga: “Banks and energy companies helped pull stocks mostly lower on Wall Street Tuesday, ending the S&P 500′s seven-day run of record high closes. The benchmark index fell 0.2 percent after having been down 0.9 percent. The Dow Jones Industrial Average fell 0.6 percent. Tech stocks rose, helping the Nasdaq to a modest gain that nudged the index to an all-time high.”
STOCKS WERE UNUSUALLY QUIET LAST MONTH — WSJ’s Akane Otani: “Traders are gearing up for a pickup in volatility following an unusually sleepy stretch for the stock market. The gap between the S&P 500’s daily peak and trough narrowed to 0.62 percentage point in June.
"That was down from 0.98 percentage point in May, marking the lowest level of intraday volatility within a month since December 2019, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.”
DIDI PLUNGE BELOW IPO AS CHINA EXPANDS CRACKDOWN — Bloomberg’s Filipe Pacheco and Matt Turner: “Didi Global Inc. plunged Tuesday in U.S. trading as the ride-hailing company faced scrutiny over its data security and a broader Chinese crackdown on companies listing their shares abroad.
"China’s State Council issued a sweeping warning to China’s biggest companies, vowing to tighten oversight of data security and overseas listings. That announcement followed the opening of a security review by China’s internet regulator last week and a demand for app stores to remove Didi.”
Fly Around
QUICKENING RECOVERY PUTS FED TAPER DISCUSSION IN FOCUS — Reuters’ Lindsay Dunsmuir: “More clues on just when and how the U.S. Federal Reserve may begin to cut its pandemic-induced bond-buying spree are likely to emerge on Wednesday when the central bank publishes minutes of last month's pivotal meeting.
"Fed officials opened debate on dialing down their $120 billion a month of bond purchases at the June 15-16 meeting and since then most Fed policymakers have offered broadly bullish views of an economy that by many measures is sprinting out of a recession triggered by the global Covid-19 pandemic.”
BITCOIN FRAUD CONCERNS DRAW SCRUTINY FROM REGULATORS — WSJ’s Dave Michaels and Andrew Ackerman: “Regulators are signaling they want more control over an expanded cryptocurrency universe that has pushed further into Wall Street activities without the investor and consumer protections that apply to traditional securities and financial services.
“The catch: no single regulator inspects crypto exchanges or brokers, unlike in the securities and derivatives markets. Regulators step in only when they believe U.S. law applies to a particular cryptocurrency or transaction, based on the way the asset was sold or traded.”
WHY CHINA IS INVESTIGATING TECH FIRMS LIKE DIDI — AP’s Zen Soo: “Chinese regulators have clamped down on the country’s largest ride-hailing app, Didi Global Inc., days after its shares began trading in New York. Authorities told Didi to stop new registrations and ordered its app removed from China’s app stores pending a cybersecurity review.
"The government said it was acting to prevent security risks and protect the public interest. Didi is the latest company to face intensified scrutiny in a crackdown on some of China’s biggest technology giants.”
SEC ADVISERS PUSH FOR DETAILS ON RACE, GENDER — Reuters’ Ross Kerber: “Mutual fund boards would be required to disclose information on the gender and racial diversity of their directors under a rule change recommended to the top U.S. securities regulator.
"The suggestion from an advisory subcommittee of the U.S. Securities and Exchange Commission, which would need further approval, goes further than subcommittee members had outlined in the spring and mirrors a growing focus from other quarters on the financial industry's lack of diversity.”
SOARING RENTS ARE THE STICKY INFLATION WITH STAYING POWER — Bloomberg’s Alexandre Tanzi: “The cost of renting a home is soaring in cities across the U.S., squeezing the finances of low-income households and posing a threat to the consensus that pandemic inflation will soon fade away.
"The median national rent climbed 9.2 percent in the first half of 2021, according to Apartment List. While part of the increase reflects a bounce-back in prices that dropped earlier in the pandemic, the real-estate firm says rents are now higher than if they had stayed on their pre-Covid track.”
MORE CREDIT SUISSE SENIOR BANKERS DEPART IN WAKE OF ARCHEGOS LOSS — WSJ’s Cara Lombardo and Maureen Farrell: “Credit Suisse Group AG is continuing to lose senior bankers to competitors in the wake of missteps including a $5.5 billion loss tied to the meltdown of Archegos Capital Management. Several investment bankers in the U.S. gave their notice in the past week, while others are considering leaving, people familiar with the matter said.”
For Your Radar
WEEKEND WEDDING — William Canning, an asset management associate at CWCapital, recently married Karolina Jewett, director of communication and marketing at St. Patrick's Episcopal Day School in D.C. and an Edelman and DKC alum. The wedding was at the Hotel Vermont, a property that is part of the Westport Hospitality Company, owned by Will’s father. The couple met through Will’s oldest brother Chris and are expecting a baby girl this September.
TRANSITIONS — Mikeisha Anderson Jones is now chief diversity, equity and inclusion officer at Milbank. She most recently was VP for global inclusion and diversity at American Express.
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