An inflation test looms over the economy and elections

An inflation test looms over the economy and elections

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Wall Street is increasingly divided over whether the Fed will cut interest rates by Election Day. New inflation data released this week will go a long way toward resolving that issue, as polls show President Biden is struggling to convince voters that he has done a good job on the economy.

It’s an important week for economic data, with mixed signals about inflation. Rising inflation in the first quarter forced the Fed to keep borrowing costs at the highest level in 23 years. Economists see a slight improvement, predicting that Wednesday’s April Consumer Price Index report will show that inflation moderated slightly last month.

This good news would follow a more moderate-than-expected May 3 employment report that saw wage growth slow. (Economists will also be watching Tuesday’s Producer Price Index and Wednesday’s retail sales data.)

What will it take for the Fed to start cutting rates? The central bank “will need to see at least three benign prints of underlying inflation, perhaps as many as four, before easing policy,” Wells Fargo senior economist Sarah House wrote in a research note last week. This makes CPI data crucial, she added, as “time is running out even for a late summer rate cut.”

Here’s what economists will be focusing on:

  • The core CPI, which excludes volatile food and fuel prices, is expected to rise 0.3% on a monthly basis – an improvement over the 0.4% monthly jumps seen in January, February and March.

  • On an annual basis, core CPI is expected to rise 3.6% – an improvement from March’s 3.8%, but still well above the Fed’s 2% target.

  • So-called shelter inflation, which includes rents and housing costs, is still hot. Any sign of easing will likely influence the Fed’s outlook on interest rates.

Consumers and businesses are worried about inflation. On Friday, the closely watched University of Michigan consumer sentiment survey showed that families are increasingly concerned about the cost of living and the slowing job market. This comes at a time of profits, when several dozen CEOs have told analysts that their less affluent customers are cutting back on spending due to high prices. This raises the question: are these signs that consumer spending is under pressure helping to reduce inflation?

The futures market on Monday predicted up to two rate cuts this year, with the first coming in September. But those odds have been falling steadily since the start of the year – and some rate hawks even see no cuts this year – as inflation recovered.

The European Union is reportedly ready to bring antitrust charges against Microsoft. The bloc’s executive arm, the European Commission, will accuse the tech giant of undermining rivals of its Teams collaboration app, according to The Financial Times. Such a move would come even after Microsoft offered to spin off Teams from its Office software suite worldwide, although the Financial Times said Microsoft could still resolve the case.

Mercedes-Benz workers in Alabama prepare for a historic union vote. This week’s vote follows a decisive victory for the labor movement at a Volkswagen plant in Tennessee last month. It’s the latest test of the United Automobile Workers’ effort to expand its presence to non-union U.S. factories, but the vote faces strong opposition from Republican lawmakers and other anti-union forces.

SoftBank Investments Help Beat Earnings Estimates. The Japanese technology investor reported 231 billion yen, or about $1.5 billion, in profit in the first quarter, compared with a loss of 57.6 billion yen a year ago; Driving this were gains on investments in Arm and other assets. (Its Vision Funds suffered from writedowns in its portfolio.) SoftBank CFO Yoshimitsu Goto said the company was prepared to invest heavily, especially in artificial intelligence.

Duke students protest Jerry Seinfeld at his graduation. When the comedian, who has been vocal in his support for Israel, received an honorary degree, dozens of people came out, chanting “Free, free Palestine,” while other students walked around campus calling on the school to divest of its Israel-related holdings. It was the latest sign of tensions on college campuses due to the war in Gaza; however, hedge fund billionaire Ken Griffin said the protests are “almost like performance art.”

Elon Musk was granted a reprieve in an Australian court on Monday after a judge refused to extend a ban on X publishing videos of a horrific knife attack at a Sydney church last month. The victory comes as Musk faces off against multiple governments over content on his social media platform: He says he is defending free speech, but others argue he is using X to advance his other business interests.

Musk is using X to boost Tesla and SpaceX, write Ryan Mac, Jack Nicas and Alex Travelli of The Times. His positions helped transform Javier Milei, Argentina’s right-wing libertarian president, into a rising political star. One possible reason: Argentina has huge reserves of lithium, an essential material for Tesla’s car batteries. “Elon Musk called me,” Miles said after taking office. “He is extremely interested in lithium.”

Musk has used the playbook elsewhere. In India, before he bought Twitter, the company often fought government efforts to eliminate content it didn’t like. Since Musk bought the company, he has praised Narendra Modi, the Hindu nationalist prime minister, on X, and supported some of his favorite causes.

X also served a controversial removal order. The company agreed to block links to a BBC documentary about Modi’s role in sectarian violence (Musk says he had no choice). In January, Musk said on X that India should get a permanent seat on the UN Security Council. Two months later, India reduced import tariffs on electric vehicles like Tesla’s Model 3 from 100% to 15% of the price of a car.

Critics say Musk is inconsistent. The company has stopped releasing transparency reports that detail the number of government requests to remove content or share the data with Harvard researchers. Tesla boss is “choosing” when to fight back, Nu Wexler, a former Twitter executive, told the Financial Times. “If a government wants something to be overturned, the calculation in [X] It’s now: is this country going to buy us electric cars?”

The death of Jim Simons at age 86 last week marked the loss of a transformative Wall Street figure.

It was Simons, a chain-smoking mathematician who jumped into finance after a career as an academic and Cold War codebreaker, who introduced the idea of ​​fast, computer-controlled trading — and made billions doing it.

Simons went against common wisdom. When he created what became Renaissance Technologies in 1978, Wall Street relied largely on old-school fundamental investing: the kind of painstaking analysis of company finances and an intuitive sense of where a stock would go that made financiers like Warren rich. Buffett.

But Simons believed that computers could ingest enormous amounts of data, discern patterns, and perform lightning-fast trades. His company made mistakes from the start—consider the brief moment when Renaissance cornered the Maine potato market—but went on to establish the field of quantitative investing.

The results spoke for themselves. At its peak, Renaissance’s flagship Medallion fund produced average returns of 66% before fees, The Wall Street Journal reports. This helped make Simons a billionaire, with a fortune estimated at $31 billion by Forbes.

So-called quantitative firms now manage about a third of all money, according to The Journal — and the approach has even been adopted by traditional asset managers.

Top investors paid tribute to Simons:

  • “Jim Simons was the greatest – an investor, philanthropist and man of unbelievably great character,” Ray Dalio of Bridgewater Associates wrote in X.

  • “There is a GOAT [greatest of all time],” billionaire Cliff Asness told The Journal. “His name was Jim Simons.”

  • “There are only a few individuals who have truly changed the way we view markets,” Theodore Aronson, founder of AJO Vista, told Bloomberg. “John Maynard Keynes is one of the few. Warren Buffett is one of the few. Jim Simons too.”

Simons also left his mark elsewhere. He donated enormous sums to philanthropy, including hundreds of millions to Stony Brook University, where he taught before entering the world of finance.

He has also become a major Democratic donor, donating $109 million since 2015 to the likes of President Biden and Hillary Clinton. (That said, Robert Mercer, an early Renaissance employee who later became co-CEO, has become a major donor to Republican politicians — including Donald Trump.)

– Evgeny Suvorov, the chief economist for Russia at Banco CentroCredit, moved this weekend for President Vladimir Putin of Russia to appoint economist Andrey Belousov as head of defense. Suvorov said it is a sign that Russia plans to invest more economic resources in its war effort in Ukraine.

In addition to inflation data, announcements about artificial intelligence services and profits are in the spotlight this week. Here’s what to watch.

Monday: OpenAI is set to announce updates for its GPT-4 AI model and its ChatGPT chatbot. The company is also close to a deal with Apple to power AI services in the latest version of iOS, according to Bloomberg.

(The Times has sued OpenAI and Microsoft for copyright infringement of news content related to AI systems.)

Tuesday: Home Depot, Sony, Alibaba and Bayer are expected to report earnings. And Google holds its annual developer conference, which will focus on AI

Thursday: Walmart, Deere and Under Armor report results.

Offers

  • The SEC’s closure of BF Borgers, the audit firm whose client was Donald Trump’s social media company, could derail the IPO plans of other start-ups. (FT)

  • Anglo American shareholders want the mining giant to speed up the announcement of its turnaround plan after the company rejected a $39 billion takeover offer from rival BHP. (Bloomberg)

Policy

  • “In DC, a new wave of AI lobbyists gains the upper hand” (Politico)

  • Senator Chuck Schumer, the majority leader, called on the FTC to take a closer look at Chevron’s dealings proposed acquisition of US$53 billion from a smaller rival, Hess, warning of potentially higher oil prices if it passes. (@SenSchumer)

The best of the rest

  • “Fast Food Forever: How the McHaters Lost the Culture War” (NYT)

  • Auction house Christie’s will continue this week with sales that normally represent more than half of its revenues, despite a cyberattack on Thursday that took down its website. (NYT)

  • Roger Corman, the B-movie producer who also helped boost the careers of Hollywood auteurs like Martin Scorsese and Francis Ford Coppola, died Thursday. He was 98 years old.

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