U.S. dollar retreats as markets re-assess Fed rate path

U.S. dollar retreats as markets re-assess Fed rate path

U.S. dollar retreats as markets re-assess Fed rate path
© Reuters. FILE PHOTO: U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022. REUTERS/Dado Ruvic

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The U.S. dollar slipped on Friday and posted its first weekly decline this month, as traders pared back bets on where interest rates may peak and brought forward their outlook on the timing of rate cuts to counter a possible recession.

A significant factor this week has been the fall in oil and commodity prices, which has eased inflation fears and allowed equity markets to rebound. This has eroded the safe-haven bid that has been boosting the dollar against major currencies.

“Falling commodity prices could help pull headline inflation prints downward – particularly into the autumn months – reducing the need for aggressive monetary tightening,” said Karl Schamotta, chief market strategist at payments company Corpay in Toronto.

U.S. fed funds futures on Friday priced in a 73% probability of a 75 basis-point increase at the July meeting. But for September the market has fully factored in just a 50-bps rise.

The market has also priced in a fed funds rates of 3.31% on Friday, from 3.51% a week ago.

In afternoon New York trading, the , which measures the U.S. unit against six major currencies, fell 0.2% to 104.013.

The safe-haven greenback slipped further after data showed new home sales jumped 10.7% to a seasonally adjusted annual rate of 696,000 units last month. May’s sales pace was revised higher to 629,000 units from the previously reported 591,000 units.

The University of Michigan consumer sentiment survey showed mixed results, with sentiment worsening in June to 50, from a final reading in May of 58. But the reading on five-year inflation expectations eased to 3.1 from the preliminary 3.3% estimate in mid-June.

The dollar, up around 9% this year, has lost some of its shine since investors started betting the Fed could slow the rate-tightening pace following another 75 basis-point increase in July. They now see rates peaking next March around 3.5% and falling nearly 20 bps by July 2023.

Graphic: Peak rates- https://fingfx.thomsonreuters.com/gfx/mkt/dwvkrmjjnpm/Pasted%20image%201656065287424.png

This rate hike repricing sent 10-year Treasury yields to two-week lows, while the dollar index has lost 0.5% this week.

For now though, Fed Chair Jerome Powell stressed the central bank’s “unconditional” commitment to taming inflation. Fed Governor Michelle Bowman also supported 50 bps hikes for “the next few” meetings after July.

Analysts noted terminal rate repricing across the developed world as recession fears grow.

“The Fed has said it will do its best to bring down inflation without dealing a significant blow to the economy,” said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington.

“But if a soft landing should ultimately prove elusive, then the Fed would likely have to change course and start to slash rates. So while the rate debate remains fluid, for now inflation fears have given way to hopes of looser policy if things really deteriorate.”

The Japanese yen, sensitive to changes in U.S. yields, was down 0.2% at 135.20 per dollar.

The euro rose 0.3% to $1.0553.

The greenback’s slide boosted even commodity-focused currencies such as the Australian dollar and Norwegian crown. The rose 0.8% to US$0.6946, and posted its weekly gain after two straight weeks of losses.

The Norwegian crown, fresh off Thursday’s 50 basis-point rate hike, was up 1.2% at 9.8495 per dollar.

The euro fell to its lowest since early March against the Swiss unit at 1.0052 francs. It was last flat at 1.0118 francs .

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Currency bid prices at 4:13PM (2013 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 104.1100 104.4000 -0.27% 8.830% +104.5100 +103.9400

Euro/Dollar $1.0554 $1.0523 +0.30% -7.16% +$1.0571 +$1.0513

Dollar/Yen 135.1850 134.9700 +0.17% +17.44% +135.3900 +134.3600

Euro/Yen 142.68 141.98 +0.49% +9.48% +142.7700 +141.4300

Dollar/Swiss 0.9584 0.9611 -0.27% +5.08% +0.9632 +0.9522

Sterling/Dollar $1.2278 $1.2262 +0.14% -9.21% +$1.2320 +$1.2243

Dollar/Canadian 1.2893 1.2997 -0.78% +1.99% +1.2999 +1.2894

Aussie/Dollar $0.6946 $0.6895 +0.74% -4.44% +$0.6957 +$0.6889

Euro/Swiss 1.0113 1.0114 -0.01% -2.47% +1.0138 +1.0051

Euro/Sterling 0.8593 0.8583 +0.12% +2.30% +0.8602 +0.8562

NZ Dollar/Dollar $0.6319 $0.6277 +0.70% -7.65% +$0.6327 +$0.6277

Dollar/Norway 9.8525 9.9750 -1.21% +11.86% +9.9780 +9.8500

Euro/Norway 10.4003 10.4953 -0.91% +3.87% +10.5146 +10.3595

Dollar/Sweden 10.1306 10.1702 -0.18% +12.34% +10.1878 +10.1043

Euro/Sweden 10.6933 10.7126 -0.18% +4.49% +10.7150 +10.6739

Wall Street climbs over 2% at end of strong week

Wall Street climbs over 2% at end of strong week

Wall Street climbs over 2% at end of strong week
© Reuters. FILE PHOTO: Traders work on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., May 20, 2022. REUTERS/Andrew Kelly/File Photo

By Lewis Krauskopf, Sruthi Shankar and Anisha Sircar

(Reuters) – Wall Street’s main indexes jumped more than 2% on Friday as signs of slowing economic growth and a recent pullback in commodity prices tempered expectations for the Federal Reserve’s rate-hike plans and set stocks on course for strong weekly gains.

All 11 sectors were up strongly, with financials, materials and industrials leading the way.

Financial markets have been roiled on worries that rapid rate hikes by the Fed to rein in 40-year-high inflation could cause a recession. Investors have been gauging when the market might hit its bottom after the benchmark S&P 500 earlier this month recorded a 20% drop from its January closing peak, confirming the common definition of a bear market.

“Some of the moves, the sellers just get exhausted so you don’t have as much capital moving out,” said Shawn Cruz, head trading strategist at TD Ameritrade.

“This might be a little bit of a relief rally,” Cruz said. “But I think I would not encourage anyone to start going in with both hands at the moment, because we have seen this repeatedly where these things can reverse themselves pretty quickly.”

The rose 687.08 points, or 2.24%, to 31,364.44, the S&P 500 gained 92.79 points, or 2.44%, to 3,888.52 and the added 268.59 points, or 2.39%, to 11,500.79.

U.S. consumer sentiment fell to a record low in June, but Americans saw a marginal improvement in the outlook for inflation, a survey showed on Friday. Data on Thursday pointed to slowing U.S. business activity in June.

Helping ease inflation fears was a sharp drop in commodity prices this week. The Refinitiv/CoreCommodity Index, which measures prices for energy, agriculture, metals and other commodities, fell to a roughly two-month low on Thursday after hitting a multi-year peak earlier in June.

” coming down is maybe a little bit of a glimmer of hope that inflation can at least moderate,” Cruz said.

Fed funds futures traders are now pricing for the benchmark rate to rise to about 3.5% by March, down from expectations last week that it would increase to around 4%.

Bank stocks rallied, with the S&P 500 banks index up 3.6%, after the Fed’s annual “stress test” exercise showed that the lenders have enough capital to weather a severe economic downturn.

In company news, FedEx Corp (NYSE:) shares jumped 7% after the parcel delivery company issued a stronger-than-expected full-year profit forecast.

Advancing issues outnumbered declining ones on the NYSE by a 5.88-to-1 ratio; on Nasdaq, a 2.66-to-1 ratio favored advancers.

The S&P 500 posted 1 new 52-week high and 29 new lows; the Nasdaq Composite recorded 29 new highs and 49 new lows.

Latin America’s leaders are waging ‘war’ on inflation; so far they’re losing

Latin America’s leaders are waging ‘war’ on inflation; so far they’re losing

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Latin America's leaders are waging 'war' on inflation; so far they're losing
© Reuters. FILE PHOTO: Demonstrators march past the Obelisk towards the Ministry of Social Development demanding fair employment and government support as inflation reaches historical numbers, in Buenos Aires, Argentina June 16, 2022. Picture taken with a drone. REU

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By Anthony Esposito, Isabel Woodford and Miguel Lo Bianco

MEXICO CITY/BUENOS AIRES (Reuters) – Latin America’s leaders have pulled no punches in the battle against inflation. The region has some of the highest interest rates in the world, with Mexico’s central bank making a record rate hike this week. But so far they are losing.

While the world grapples with rising food and fuel prices linked in part to Russia’s invasion of Ukraine, Latin America stands out. It accounts for around half of the top ten policy rates among larger global economies, Refinitv Eikon data show.

The resource-rich region’s struggle to tamp down prices, despite the aggressive tightening of monetary policy, sends a warning globally about how tough inflation busting will be. It’s also stoking anger and discontent in an already volatile region, which is a key global supplier of , corn, wheat and soy

“We’re fighting against prices. Inputs are exorbitant,” said Argentine truck driver Marcelo Vicente next to a road blockade against rising fuel prices and scarcity of diesel. Truckers are threatening to block exports.

In Ecuador, indigenous groups are leading major protests that have at times turned violent against the government of President Guillermo Lasso, complaining about high food and gas prices. Rising costs have also stoked unrest in Peru.

Central banks have taken note.

The Bank of Mexico on Thursday implemented a record rate hike and signaled more were in the pipeline with annual inflation at a 21-year high. Brazil hiked rates last week and Argentina did a 300 basis point hike to 52% earlier in June.

But inflation has continued to climb, hitting ordinary Latin Americans in a region where labor informality is high, food and fuel make up a huge chunk of family budgets and there is stark inequality.

“Everything has gone up in price, salaries don’t stretch far enough,” said Andrea Puente, a teacher at a middle school in Mexico City. “Each time you go to the market or the supermarket you can buy less. Everywhere things are more expensive.”

Graphic: Latin America inflation – https://graphics.reuters.com/LATAM-INFLATION/zjvqkdlmnvx/chart.png

‘NO MAGIC BULLET’

Argentine President Alberto Fernandez declared “war” against inflation earlier this year. In May, Mexican President Andres Manuel Lopez Obrador laid out a grand plan bring down the price of food staples such as corn, rice and beans. On Friday, he said he would propose crafting a joint anti-inflationary plan to his U.S. counterpart Joe Biden.

In Brazil, President Jair Bolsonaro has also been pushing for a range of inflationary relief measures, including cutting fuel taxes and providing cooking gas vouchers. He’s butted heads with state energy firm Petrobras over fuel price hikes. Consumer prices there rose above forecasts in the month to mid-June.

But analysts said there was no easy solution for the region’s woes.

“I would not put too much faith that this is going to be a bullet to deal with inflation. It’s not,” Goldman Sachs (NYSE:) economist Alberto Ramos, referring to Mexico’s anti-inflation push. He added the impact of rate hikes was dampened because there are more people outside formal banking and credit systems.

Supply chain disruptions are hitting nations globally, forcing the U.S. Federal Reserve into a major hike this month. The Russia-Ukraine war has snarled food and fuel supply, while pandemic lockdowns in China have hit shipping.

Fears of a global recession are rising, which is giving investors the jitters who have pulled back from some riskier emerging markets, hurting equities and bonds.

On the ground, many are simply trying to get by day-to-day where the impact of inflation is increasingly visible. In Argentina, inflation is above 60% despite the rate hikes and is expected to top 70% by the end of the year.

“The money we have is just not enough because one day you pay 100 pesos for a liter of milk and another it’s 150,” said Erica Sosa, a social cooperative worker in Buenos Aires and protest organizer raising awareness of poverty and hunger.

“Every day it’s the same. Every day prices rise.”

Graphic: Latin America: sky-high rates – https://graphics.reuters.com/LATAM-INFLATION/byprjaxempe/chart.png

Goldman Economist Sees US Inflation Ebbing as Recession Risk Rises

Goldman Economist Sees US Inflation Ebbing as Recession Risk Rises

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Goldman Economist Sees US Inflation Ebbing as Recession Risk Rises
© Bloomberg. Jan Hatzius, chief economist at Goldman Sachs & Co., speaks during a Bloomberg Television interview in New York, U.S., on Thursday, Dec. 14, 2017. Hatzius explained why he doesn’t expect to see an inverted yield curve in 2018.

2/2

(Bloomberg) — In the recession debate gripping Wall Street, Goldman Sachs & Co (NYSE:). Chief Economist Jan Hatzius might be considered a cautious optimist.

“We don’t have a recession in our base-line forecast,” he told Bloomberg Television’s Surveillance on Friday. “We do have significantly below-trend growth. That rebalances the imbalance in the labor market and that ultimately helps bring inflation back down.”

Hatzius spoke before publication of the University of Michigan’s final June reading of longer-term US consumer inflation expectations sparked a stock-market rally on Friday. The report showed the forecast drawing back from an initially reported 14-year high, potentially reducing the urgency for steeper Federal Reserve interest-rate hikes.

That meshes with Hatzius’s assessment of future Fed decisions. The central bank has hiked its benchmark overnight borrowing rate three times to an upper band of 1.75% this year to cool the hottest inflation in four decades.

“Our forecast is a terminal rate of 3.25% to 3.5% by the end of 2022,” Hatzius said. “We don’t have any additional rate hikes in 2023, basically because the economy is decelerating, inflation is coming down, and I think at that level, the Fed would probably hold.” 

To be sure, the Goldman economist says the risk of a recession has gone up. “If we do have a recession, it’s likely that it would be on the shallower end. Private-sector balance sheets are in better shape than at the end of previous business cycles.”

Also, Hatzius said, “while inflation is very high, I don’t think it’s as entrenched, certainly not as entrenched in inflation expectations, as it was in previous higher inflation episodes in the 1970s and early 1980s.”

For example, the five-year breakeven rate on Treasury Inflation-Protected Securities has retreated to around 2.82% after reaching 3.73% in March. The rate represents the expected average Consumer Price Index over the term of the notes.

“Look at inflation breakevens,” Hatzius said. The credibility from the perspective of the bond market or from forecasters of the Fed’s 2% inflation target “still seems intact.”

Still, one of the drivers of inflation has been a US labor force near full employment. 

“It is very difficult to reduce labor demand without the deterioration feeding on itself and then ultimately culminating in a recession,” Hatzius said. “So we’re giving a 1-in-3 chance of a recession in the next 12 months, and close to 50-50 over the next two years.”

©2022 Bloomberg L.P.

U.S. dollar slides as markets re-evaluate Fed rate path

U.S. dollar slides as markets re-evaluate Fed rate path

U.S. dollar slides as markets re-evaluate Fed rate path
© Reuters. FILE PHOTO: U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022. REUTERS/Dado Ruvic

By Sujata Rao and Gertrude Chavez-Dreyfuss

LONDON/NEW YORK (Reuters) – The U.S. dollar slipped on Friday and was on track for its first weekly decline this month, as traders dialed down bets on where interest rates may peak and brought forward their views on the timing of interest rate cuts to counter a possible recession.

A significant factor this week has been the fall in oil and commodity prices, which has eased inflation fears and allowed equity markets to rebound. This has eroded the safe-haven bid that has been boosting the dollar against other major currencies.

“Falling commodity prices could help pull headline inflation prints downward – particularly into the autumn months – reducing the need for aggressive monetary tightening,” said Karl Schamotta, chief market strategist at payments company Corpay in Toronto.

“Mid-curve interest rate expectations are also falling as market participants bet the Fed will overtighten in response to rising consumer inflation expectations – and then be forced into reversing direction,” he added.

U.S. rate futures priced in a 73% probability of a 75 basis-point increase at the July meeting. For September the market has factored in a 50-bps rise.

In late morning New York trading, the , which measures the U.S. unit against six major currencies, fell 0.3% to 104.06.

The safe-haven greenback slipped further after data showed new home sales jumped 10.7% to a seasonally adjusted annual rate of 696,000 units last month. May’s sales pace was revised higher to 629,000 units from the previously reported 591,000 units.

The University of Michigan consumer sentiment survey showed mixed results, with sentiment worsening in June to 50, from a final reading in May of 58. But the reading on five-year inflation expectations eased to 3.1 from the preliminary 3.3% estimate in mid-June.

The dollar, up around 9% this year, has lost some of its shine since investors started betting the Fed could slow the rate-tightening pace following another 75 basis-point increase in July. They now see rates peaking next March around 3.5% and falling nearly 20 bps by July 2023.

This rate hike repricing sent 10-year Treasury yields to two-week lows, while the dollar index has lost 0.5% this week.

For now though, Fed Chair Jerome Powell stressed the central bank’s “unconditional” commitment to taming inflation. Fed Governor Michelle Bowman also supported 50 bps hikes for “the next few” meetings after July.

Analysts noted terminal rate repricing across the developed world as recession fears grow.

“The repricing in the market … has held the dollar back but an offsetting force is the risk of a global downturn. The Fed is pretty much on autopilot. Until they take their foot off the brakes, dollar weakness will be limited,” BMO Capital Markets strategist Stephen Gallo said.

“Rate hikes are being taken out of the euro and sterling markets too,” he noted.

The Japanese yen, sensitive to changes in U.S. yields, was down 0.2% at 135.20 per dollar.

The euro rose 0.2% to $1.0574.

The greenback’s slide boosted even commodity-focused currencies such as the Australian dollar and Norwegian crown. The ticked up 0.7% to US$0.6944, though it remained on track for a third straight weekly decline.

The Norwegian crown, fresh off Thursday’s 50 basis-point rate hike, was up 1.0% at 9.871 per dollar.

The Swiss franc touched the highest since early March against the euro at 1.0055, rising 0.5% on the day.

========================================================

Currency bid prices at 11:07 AM (1507 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 104.0300 104.4000 -0.34% 8.746% +104.5100 +103.9400

Euro/Dollar $1.0557 $1.0523 +0.33% -7.13% +$1.0571 +$1.0513

Dollar/Yen 135.0750 134.9700 +0.08% +17.34% +135.2900 +134.3600

Euro/Yen 142.58 141.98 +0.42% +9.41% +142.7100 +141.4300

Dollar/Swiss 0.9544 0.9611 -0.68% +4.65% +0.9632 +0.9522

Sterling/Dollar $1.2305 $1.2262 +0.36% -9.01% +$1.2320 +$1.2243

Dollar/Canadian 1.2906 1.2997 -0.70% +2.07% +1.2999 +1.2906

Aussie/Dollar $0.6949 $0.6895 +0.80% -4.38% +$0.6951 +$0.6889

Euro/Swiss 1.0077 1.0114 -0.37% -2.82% +1.0138 +1.0051

Euro/Sterling 0.8577 0.8583 -0.07% +2.11% +0.8596 +0.8562

NZ $0.6321 $0.6277 +0.73% -7.62% +$0.6327 +$0.6277

Dollar/Dollar

Dollar/Norway 9.8570 9.9750 -1.01% +12.08% +9.9780 +9.8620

Euro/Norway 10.4091 10.4953 -0.82% +3.96% +10.5146 +10.3595

Dollar/Sweden 10.1179 10.1702 -0.29% +12.20% +10.1878 +10.1043

Euro/Sweden 10.6816 10.7126 -0.29% +4.37% +10.7150 +10.6770

Americans’ Inflation Expectations Ease From Highest in 14 Years

Americans’ Inflation Expectations Ease From Highest in 14 Years

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Americans’ Inflation Expectations Ease From Highest in 14 Years
© Bloomberg. A shopper holds a shopping basket with groceries inside a grocery store in San Francisco, California, U.S., on Monday, May 2, 2022. U.S. inflation-adjusted consumer spending rose in March despite intense price pressures, indicating households still have solid appetites and wherewithal for shopping.

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(Bloomberg) — The University of Michigan’s final June reading of longer-term US consumer inflation expectations settled back from an initially reported 14-year high, potentially reducing the urgency for steeper Federal Reserve interest-rate hikes.

Respondents said they expect inflation to rise 3.1% over the next five to 10 years, down from a preliminary reading of 3.3%, according to Friday’s report. They see prices advancing 5.3% over the next year, matching the initial figure.

“Overall, the late-June reversion in long run inflation expectations was generated by growth in the share of consumers expecting extremely low inflation in the years ahead,” Joanne Hsu, director of the survey, said in a statement. “About half of these consumers expressed bleak views about the risks of recession or unemployment during the interviews.”

The inflation-expectations results earlier this month played a key role in the Fed’s decision last week to raise interest rates by the most since 1994. Chair Jerome Powell said the Michigan data, along with other recent inflation metrics, helped steer policy makers toward a 75 basis-point hike, rather than 50 basis points.

At a press conference following the move, Powell said the pickup in expectations was “quite eye-catching” and emphasized how important it is for the central bank to keep long-term inflation expectations anchored. Still, Powell acknowledged that the preliminary number could be revised.

According to the report, consumers still expressed the highest level of uncertainty over long-run inflation since 1991, though respondents were broadly certain about the direction of Fed policy.

The jumped Friday after the report, and two-year Treasuries rallied.

Meantime, the university’s overall sentiment index was little changed at a record-low of 50, down slightly from the preliminary June reading and the 58.4 print in the prior month.

The sharp decline reflects decades-high inflation, a slump in stock prices over the past month, and generally downbeat views on the state of the economy amid growing fears of an imminent recession. 

The gauge of current conditions lost more ground late in the month. The gauge fell to a fresh low of 53.8. The measure of future expectations improved slightly from earlier this month. Still, the index was among the lowest on record. 

Buying conditions for household durable goods also deteriorated further, with the index dropping to a fresh record low, according to the University of Michigan report. 

“Continued pessimism on both personal finances and the economy could dampen consumer spending going forward,” Hsu said.

(Updates with market reaction in the seventh pargraph.)

©2022 Bloomberg L.P.

Wall St rallies as traders dial back rate-hike bets

Wall St rallies as traders dial back rate-hike bets

Wall St rallies as traders dial back rate-hike bets
© Reuters. FILE PHOTO: Traders work on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., May 20, 2022. REUTERS/Andrew Kelly/File Photo

By Sruthi Shankar and Anisha Sircar

(Reuters) – Wall Street’s main indexes rose over 1% on Friday as signs of slowing economic growth and falling commodity prices tempered expectations over how high the Federal Reserve will raise interest rates to rein in inflation.

Global financial markets have been roiled this month on worries that rapid rate hikes by major central banks could cause a recession, with the benchmark confirming a bear market last week as it recorded a 20% drop from its January closing peak.

The three main indexes on Friday looked set to notch their first weekly gain in four, boosted by megacap growth stocks and defensive sectors such as healthcare and utilities seen as safer bets during times of economic uncertainty.

“Conversations about the U.S. economy likely slowing which could lessen the hawkishness of the Fed, combined with lower commodity prices and bond yields – these are reasons investors are mentioning to justify why we could experience a near-term bounce,” said Sam Stovall, chief investment strategist at CFRA Research in New York.

“Yet, I do not think that it’s the final bottom.”

Data on Thursday showed U.S. business activity slowed considerably in June, driving investors to scale back bets on where interest rates may peak and even bring forward expectations of a rate cut.

The University of Michigan’s survey on Friday showed U.S. consumer sentiment hit a record low in June.

Sliding commodity prices this week also quelled worries about red-hot inflation, with prices heading for their biggest weekly fall in a year and set for a second weekly decline.

The Fed’s commitment to fight high inflation is “unconditional,” Chair Jerome Powell told lawmakers on Thursday, a day after saying it was not trying to provoke a recession but that was “certainly a possibility.”

All the major 11 S&P 500 sectors gained on Friday, led by gains in technology stocks and communication services with a 2% jump.

Heavyweights Apple Inc (NASDAQ:) and Tesla (NASDAQ:) rose 1.9% and 3.1%, respectively, as U.S. Treasury yields hovered near two-week lows hit on Thursday. [US/]

Rising interest rates tend to hurt shares of megacap growth companies as their valuations rely more heavily on future earnings.

At 09:43 a.m. ET, the was up 323.04 points, or 1.05%, at 31,000.40, the S&P 500 was up 51.38 points, or 1.35%, at 3,847.11, and the was up 208.26 points, or 1.85%, at 11,440.45.

FedEx Corp (NYSE:) jumped 7.2% after the parcel delivery company issued a stronger-than-expected full-year profit forecast despite softening global demand for shipping.

Bank stocks were mixed after the Federal Reserve’s annual “stress test” exercise showed that the lenders have enough capital to weather a severe economic downturn.

Citigroup Inc (NYSE:) slipped 1.5% and Bank of America Corp (NYSE:) fell 1.7% lower, while Morgan Stanley (NYSE:) gained 3.1%.

Zendesk Inc soared 29.0% after the software company said it would be acquired by a group of private equity firms led by Hellman & Friedman LLC and Permira for $10.2 billion.

Advancing issues outnumbered decliners by a 5.26-to-1 ratio on the NYSE and a 3.87-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week highs and 29 new lows, while the Nasdaq recorded 18 new highs and 18 new lows.

Remote Work Could Save Firms $206 Billion and Ease Pressure on the Fed 

Remote Work Could Save Firms $206 Billion and Ease Pressure on the Fed 

Remote Work Could Save Firms $206 Billion and Ease Pressure on the Fed 
© Reuters

(Bloomberg) — The rise of remote work could make the Federal Reserve’s task of taming inflation a bit easier, while saving employers more than $200 billion, according to new research.   

That’s because workers are willing to accept smaller pay increases for the convenience of working from home. In turn, that helps moderate business costs and slow what economists call the wage-price spiral — when companies pass higher expenses on to consumers in the form of higher prices.

About 4 in 10 firms said they’ve expanded opportunities to work remotely to lessen pressure on their labor budget over the past year, and a similar number expect to do so over the next 12 months, according to a working paper from the University of Chicago. The authors found it would reduce wage growth by 2 percentage points over two years.

“This moderating influence lessens pressures and (modestly) eases the challenge facing monetary policy makers in their efforts to bring inflation down without stalling the economy,” the authors wrote. They include Stanford University’s Nicholas Bloom, the University of Chicago Booth School’s Steven Davis, and Meyer, an economist at the Federal Reserve Bank of Atlanta. 

The 2 percentage-point labor savings for employers translates to $206 billion, according to a separate analysis conducted by Davis. That’s based on the $10.3 trillion in total wages and salaries paid to US employees in 2021, according to figures from the Bureau of Economic Analysis. 

Inflation Pressures

Fed Chair Jerome Powell said during June 22 congressional hearings that officials “anticipate that ongoing rate increases will be appropriate” to cool the hottest price pressures in 40 years. Steep interest-rate hikes potentially could tip the US economy into recession, he said, and managing a so-called soft landing would be “very challenging.”

The authors made clear that their analysis is not “grounds for complacency” about near-term inflation pressures. “Our evidence says only that the challenge is somewhat less daunting than suggested” by some economists, they wrote. 

“The key thing is the reduction on inflation, which is a huge issue for Jerome Powell and setting interest rates,” Bloom said via email. 

Remote Work

The analysis could provide some macroeconomic support for remote-work advocates, who also cite previous research from Bloom and other academics that have found the practice can improve job satisfaction and even lower quit rates without harming productivity. In earlier research, Bloom found that US workers would be willing to take a 6% pay cut to work from home two three days a week.

On the other side, those pushing for workers to get back to the office often claim that collaboration and innovation can suffer if workers aren’t together enough. 

The debate is playing out everywhere from Silicon Valley to Wall Street. Tesla (NASDAQ:) Inc. Chief Executive Officer Elon Musk has told his employees to get back to their desks or find work elsewhere, which unnerved employees at Twitter Inc (NYSE:)., the remote-friendly company Musk wants to acquire. Apple Inc (NASDAQ:). just backed away from a plan to have workers in three days a week after some staff complained. Goldman Sachs Group Inc (NYSE:). CEO David Solomon has called remote work an “aberration,” while JPMorgan Chase & Co. (NYSE:) chief Jaime Dimon has said it’s no substitute for in-person collaboration and idea generation.  

The combined impact of higher borrowing costs and so-called quantitative tightening is expected to come at some cost to jobs. Unemployment was near a 50-year low at 3.6% last month, but wage growth has not kept pace with inflation.

With fears of a recession mounting and employers starting to resort to hiring freezes or even layoffs, there’s a growing sense that employees might need to get back to the office more often to stay in the good graces of their bosses. Still, demand for remote work remains strong: FlexJobs, a job site focused on flexible work arrangements, attracted more than 3 million visits in May, an increase of 18% compared with the same month last year, according to researcher Similarweb (NYSE:).

Along with the moderating impact on wage growth, remote work can reduce labor costs in other ways, the paper also found, in part by leading to more use of part-time employees and independent contractors. 

©2022 Bloomberg L.P.

 

Fed’s Bullard Says US Recession Unlikely and Expansion Is in Early Stage

Fed’s Bullard Says US Recession Unlikely and Expansion Is in Early Stage

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Fed’s Bullard Says US Recession Unlikely and Expansion Is in Early Stage
© Bloomberg. James Bullard, president and chief executive officer of the Federal Reserve Bank of St. Louis, pauses during an interview at the 2019 Monetary and Financial Policy Conference at Bloomberg’s European headquarters in London, U.K., on Tuesday, Oct. 15, 2019. Bullard said U.S. policy makers are facing too-low rates of inflation and the risk of a greater-than-expected slowdown, suggesting he’d favor an additional interest rate cut as insurance.

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(Bloomberg) — Federal Reserve Bank of St. Louis President James Bullard said fears of a US recession are overblown, as consumers are flush with cash built up during the Covid-19 pandemic and the expansion is in an early stage.

“I actually think we will be fine,” Bullard said in a speech in Zurich Friday. “It is a little early to have this debate about recession probabilities in the US.”

Bullard repeated his call for further “front-loading” of rate hikes to contain inflation. The Federal Open Market Committee raised interest rates by 75 basis points last week and Fed Chair Jerome Powell indicated that either another move of that size, or of half a percentage point, will be on the table when policy makers meet again in late July.

While a growing number of economists have started to predict a US recession, Bullard said “this is in the early stages of the US recovery — or US expansion, we are beyond recovery. It would be unusual to go back into recession at this stage.“

“Interest-rate increases will slow down the economy but will probably slow down to more of a trend pace of growth as opposed to going below trend,” he added in the panel discussion hosted by UBS. “I don’t think this is a huge slowing. I think it is a moderate slowing in the economy.”

Bullard said households, which account for around 70% of the U.S. economy, are continuing to spend, bolstered by savings built up during the pandemic as well as housing wealth.

“Households seem to be in great position to spend going forward,” he said. “They are flush. They have still $3.5 trillion of kind of Covid aid that is more or less unspent” which is “something on the order of 10% of GDP still sitting in people’s bank accounts.”

The labor market “is very strong,” with about two job openings for every unemployed worker, Bullard said, and nonfarm payrolls are running at a pace higher than normal. “It just doesn’t seem from the household side like you’d be in imminent stages of households pulling back meaningfully.”

Bullard didn’t specifically address the July meeting in his comments, though has been among the most hawkish of Fed officials. 

Fed leaders seem to be lining up in favor of 75 basis points, with Fed Governor Michelle Bowman Thursday saying she backed raising rates by 75 basis points next month and continuing with hikes of at least 50 basis points after that until price pressures cooled. Governor Christopher Waller on Saturday said that he would support another 75 basis point move in July. 

Powell and his colleagues have pivoted aggressively to fight the hottest inflation in 40 years amid criticism that they left monetary policy too easy for too long as the economy recovered from Covid-19. They’ve raised rates by 1.5 percentage points this year and officials forecast about 1.75 points of further cumulative tightening in 2022.

Bullard, 61, president of the St. Louis bank since 2008, has pushed earlier than others for the central bank to pivot to aggressively fighting inflation, with the committee swinging to embrace that view over time.

 

©2022 Bloomberg L.P.

Wall St set for gains as traders scale back rate hike expectations

Wall St set for gains as traders scale back rate hike expectations

Wall St set for gains as traders scale back rate hike expectations
© Reuters. FILE PHOTO: Traders work on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., May 20, 2022. REUTERS/Andrew Kelly/File Photo

By Sruthi Shankar and Anisha Sircar

(Reuters) -Wall Street’s main indexes were set to open higher on Friday as signs of slowing economic growth and falling commodity prices eased expectations over how aggressively the Federal Reserve will raise interest rates to rein in inflation.

Global financial markets have been roiled this month on worries that rapid rate hikes by major central banks could cause a sharp economic downturn, with the benchmark confirming a bear market last week as it recorded a 20% drop from its January closing peak.

Data on Thursday showed U.S. business activity slowed considerably in June, driving investors to scale back bets on where interest rates may peak.

Sliding commodity prices also quelled worries about red-hot inflation, with prices heading for their biggest weekly fall in a year and set for a second weekly decline.

“Conversations about the U.S economy likely slowing which could lessen the hawkishness of the Fed, combined with lower commodity prices and bond yields – these are reasons investors are mentioning to justify why we could experience a near-term bounce,” said Sam Stovall, chief investment strategist at CFRA Research in New York.

“Yet, I do not think that it’s the final bottom.”

The Fed’s commitment to fight high inflation is “unconditional,” Chair Jerome Powell told lawmakers on Thursday, a day after saying it was not trying to provoke a recession but that was “certainly a possibility.”

The main stock indexes looked set to notch their first weekly gain in four, with healthcare, real estate and utilities – among sectors considered as safer bets during times of economic uncertainty – outperforming so far in the week.

Market heavyweights such as Apple Inc (NASDAQ:) and Tesla (NASDAQ:) rose 0.9% and 0.5% in premarket trading. Rising interest rates have hurt shares of the mega-cap growth companies as their valuations rely more heavily on future earnings.

At 08:45 a.m. ET, were up 208 points, or 0.68%, were up 27.5 points, or 0.72%, and were up 90.25 points, or 0.77%.

The University of Michigan’s survey on U.S. consumer sentiment in June and new home sales data will be published later in the day.

FedEx Corp (NYSE:) rose 3.4% after the parcel delivery company issued a stronger-than-expected full-year profit forecast despite softening global demand for shipping.

Bank stocks were mixed after the Federal Reserve’s annual “stress test” exercise showed that the lenders have enough capital to weather a severe economic downturn.

Citigroup Inc (NYSE:) slipped 0.9% and Bank of America Corp (NYSE:) edged lower, while Morgan Stanley (NYSE:) gained 1%.

Zendesk Inc soared 28.1% after the software company said it would be acquired by a group of buyout firms led by Hellman & Friedman LLC and Permira in a deal valued at $10.2 billion.