Bet on soft landing- POLITICO
Editor’s note: Morning Money is a free version of the morning newsletter POLITICO Pro Financial Services, which is delivered to our subscribers every morning at 5:15. The POLITICO Pro platform combines the news you need with tools you can use to take action on the most important news of the day. Check out the news from POLITICO Pro.
Raising stock prices? – Shares have recently increased after the ugly beginning of 2022. The S&P 500 has risen 6 percent since Wednesday last week, when the Federal Reserve raised interest rates and announced several more increases this year. The result: investors are worried, but they are optimistic that the economy is strong enough to withstand what lies ahead.
Bond yields have risen, although the spread between the 10-year treasury and the two-year has narrowed, suggesting that these investors are more nervous than their counterparts in the stock (as might be expected). But this dynamic at the moment mostly seems to signal expectations of slower growth rather than an open recession.
One piece of data that gives cause for optimism on Wall Street: a booming job market. Last month, the economy created 678,000 new jobs. In addition, the number of unemployment claims last week fell to its lowest level since September 1969 (replicas of Brian Adams), another indication of how strong the work environment is now.
“It seems pretty silly to worry about a recession when the number of unemployment claims is at a minimum for 53 years,” said Guy Lebas, chief financial income strategist at Jenny Montgomery Scott.
However, Liz Ann Saunders, chief investment strategist of Charles Schwab, said she was not too pleased with the recent stock rally. Some of the money coming into the market probably reflects that fact investors in bonds this year have suffered, She said, and warned not to draw any long-term conclusions.
But the interaction is worth a look. In the decades after World War II, the correlation was almost always negative: as bond yields declined, stock prices rose, Saunders said. “It was against the background of inflation.” But after the 1970s, bond and stock yields rose together, usually signaling positive sentiment rather than inflationary fears. Which relationships prevail can now give some useful cues.
“The Fed, admittedly, is far behind the curve. Inflation is extremely high, ”Saunders said. “But in the current environment, if we can continue to grow, a strong labor market, high productivity, perhaps the stakes are this: well, we can handle tougher monetary policy.”
So what will the so-called soft landing look like? Most likely, this will mean that price jumps will cool down significantly on their own with some help from the Fed, although inflation still remains well above the central bank’s 2 percent target. Meanwhile, growth will slow, but not enough to jeopardize the economy.
“The best case for the Fed is if they cut inflation to 2.8 percent, and they just put a flag in it and declare victory,” said Mark Spindel, chief investment officer of Potomac River Capital.
He said markets are likely to have assured that the Fed is finally withdrawing its support, showing that they are not “sleeping on the switch”. This is a shift from recent years, when investors have often welcomed the disappointing news that they believe will make the Fed softer.
Not everyone is pleased to see the movement of the central bank. “The Fed is adding confusion to the fire, and we already have enough confusion,” said William Springs, a professor at Howard University and chief economist at AFL-CIO. “They contribute because people believe, ‘Oh, the economy is overheating.’
His message: these are supply problems, and the Fed can do little about it. “American interest rates have nothing to do with what Putin will do, and it will not produce a single chip for the car plant.”
happy friday – We lived another week. Kate Davidson will be back in your inbox on Monday! Send her any advice at [email protected] or @KateDavidsonand to Aubrey Eliza Weaver at [email protected] or @AubreeEWeaver. And you can always contact me [email protected].
NATO SWEAR TO ACKNOWLEDGE ASSISTANCE TO UKRAINE; ZELENSKI WARNS THAT IT IS NOT GIVEN – From our colleagues David M. Hersenhorn and Lily Bayer in Europe: “NATO leaders pledged on Thursday to increase aid to Ukraine in the battle against the Russian invasion, but Ukrainian President Volodymyr Zelensky accused them of shunning the threat of confrontation with Vladimir Putin and naively thinking that Russia’s aggression against their own countries would not continue.
“We are determined to do our utmost to support Ukraine,” NATO Secretary General Jens Stoltenberg said after a summit of alliance leaders in Brussels, to which Zelensky spoke by video. But in response to questions about Zelensky’s specific requests for assistance – including the closure of Ukrainian airspace to Russian military aircraft and the donation of tanks, fighters and other weapons – Stoltenberg made it clear that “all we can” did not include much that the President of Ukraine requested. “
BIDEN RELEASES RARELY USED SANCTUARY WEAPONS – Jeff Stein of WaPo and Jeanne Whelan: “Biden’s senior officials a study of the sharp escalation of administrative sanctions against Russia as the death toll from the war in Ukraine grows, and the impact of existing sanctions on Russia’s economy remains unclear.
“Today, sanctions imposed by the United States prevent American banks and firms from making deals with Russian banks, oligarchs, defense firms, and other parts of the Russian economy. But now White House officials are preparing rarely used measures that will also punish third parties in other countries for interacting with parts of the Russian economy that have been sanctioned by the United States, according to four people known about administration talks who spoke on condition of anonymity to describe private negotiations. “
WATERS PROCESS FINANCIAL GROUPS FOR RUSSIA INFORMATION – Department of Financial Services of the House Maxine Waters (California) on Thursday pressed for information from more than 30 financial industry lobby groups about which of their companies went out of business in Russia and which are still employed there. “I am delighted with the number of companies in the financial services industry and in corporate America that have taken action beyond what US sanctions clearly call for,” she wrote in a letter. “Despite the fact that several companies have voluntarily left Russia, the Committee currently lacks a clear idea of the scale of these sales.”
GILIBRAND, LUMMIS PLAN A NEW CRYPT REGULATION FRAMEWORK – Our Sam Satan and Katie O’Donnell: “Sens. Kirsten Gilibrand and Cynthia Lamis working together on legislation that could give the crypto industry what it has always longed for – clarity of regulation. Lawmakers are creating “a broad regulatory framework for how the industry could potentially be regulated in the future,” Gillibrand said at the POLITICO Live event on Thursday afternoon.
“The work we are doing will be a very complex and intensive review of various aspects of the industry – some parts will be regulated [Commodity Futures Trading Commission]some parts will be adjustable according to [Securities and Exchange Commission]”,” said Gillibrand.
NEW NORMAL? – Zhanna Smelek from NYT: “The pandemic, and now the war in Ukraine, has changed the way the American economy works. While economists have spent months waiting for conditions to return to normal, they begin to wonder what “normal” means.. Some changes are noticeable in everyday life: more popular work at home, burrito bowls and travel are more expensive, and it is harder to buy a car or a sofa made abroad.
“But all of these are symptoms of broader changes spanning the economy that could become a big problem for consumers, businesses and politicians if they get stuck. Consumer demand has been hot for months, workers are desperately needed, wages are rising rapidly, and prices are rising at the fastest pace in four decades due to vigorous consumer clashes with shattered supply chains. Interest rates are expected to rise higher than ever in 2010, when the Federal Reserve is trying to curb inflation.
THE GREAT RESIGNATION BEGINS IN REVERSE – Megan Cassel of Barron’s: “When the pandemic first struck, Celeste Lyons quit her job at a law firm in Connecticut and began hiding at home, living on her retirement savings and inheritance from her parents as she tried to avoid illness. She wanted to work again eventually, though It was almost two years before the 63-year-old Lyon started a new concert as a real estate analyst – this is a position that allows her to work from home when Covid’s cases are dramatically exacerbated.
“I’m tired of spending my retirement money. I thought, “I need to top up my account,” Lyons said of his decision to return to work. She also adds, during all this time at home: “I just missed the skull.”
MORTGAGE RATES TO ACHIEVE THREE YEARS – Ben Eisen from WSJ: “There are buyers and homeowners face the highest mortgage interest rates in three yearsrapid growth, which threatens to cool the hot housing market.
“The average 30-year fixed mortgage rate has risen to 4.42% this week, more than a quarter of a percentage point from a week ago and more than a full point since the beginning of the year, according to mortgage firm Freddie Mac. Other firms that track mortgage costs have tied the average rate even higher. ”
BIDEN AIDE EXPLOSES OPENING OF RUSSIAN EXCHANGE “PATEMKIN” – Our Nahal Tusi: the official key of the Biden administration to the imposition of sanctions against Russia The Kremlin blew up on Thursday when it partially restored the Moscow Stock Exchange after a month break.
Dalip Singh, deputy national security adviser on the international economy, called the move a “charade” and a “discovery of the Potemkin market.” “After the markets were closed for almost a month, Russia announced that it would allow trading only 15% of listed shares, foreigners were banned from selling their shares, and short selling was generally banned,” Singh said in a statement. The White House.
DANGER OF THE SHADOW BANKING WEST – New report from Better Markets“Problems in the non-banking financial sector have not only caused or exacerbated financial market turmoil during times of stress, but they have also made a problem that is too big to fail in the financial sector harder to solve.”
FINK: GLOBALIZATION OF POST-COLD WAR JUMPED – From your guest presenter: “BlackRock CEO Larry Fink said on Thursday that the breakdown due to Russian sanctions and the war in Ukraine are stimulating the steps of governments and firms around the world to reconsider globalization and look inside.
“Russia’s invasion of Ukraine has put an end to the globalization we have experienced over the past three decades,” wrote Fink, who heads the world’s largest asset management company. his annual letter to shareholders. The war “overturned the post-Cold War world order more than 30 years ago.”
GOLDMAN pushes directors for more climate data – Ross Kerber of Reuters: “Goldman Sachs’ large asset management department will take a tougher stance in voting for directors of companies that do not disclose information about their greenhouse gas emissionsthe chief executive said Thursday, adding pressure on business leaders to provide more data on climate impact.
“Starting with annual meetings to be held this spring in companies around the world, Goldman’s $ 2.5 trillion asset management unit will cast a trusted vote against directors, often on the audit committee, who oversees emissions reporting and doesn’t disclose enough information “.