Economic warning light flashes red
Global consumer confidence continues to rise
From CNN Business’ Paul R. La Monica
Cue the Nina Simone. Consumers around the world are feeling good. The Conference Board said Wednesday that global consumer confidence hit a new all-time high during the second quarter, up slightly from the first quarter.
The reasons are pretty obvious. More Covid-19 vaccine distributions have helped boost the economy and stock market. People are going back to work. They’re traveling. And coronavirus cases, despite an alarming uptick in some parts of the world due to the Delta variant, are still declining.
The Conference Board said that confidence was up in 42 of 65 markets surveyed, with the biggest jumps in North America and Europe — where vaccination rates are higher. But confidence fell in Asia (particularly in India) as well as Latin America.
The global economic recovery “remains highly uneven“, according to Dana Peterson, chief economist of The Conference Board.
She added that many economies are still struggling to contain Covid-19 because of a shortage of vaccines, new variants, and supply-chain bottlenecks that are raising prices.
Still, Peterson noted that “the elevated level of global consumer confidence bodes well for spending and, consequently, the global economic revival in the second half of this year and into 2022.”
Of course, consumers aren’t always the most reliable judges of what’s next for the economy. Sentiment is a tricky thing that often follows news headlines and the state of the stock market.
Consumers have notoriously been overly bullish just before economic or market meltdowns. That was the case in January 2000. Consumer confidence hit a then record high just as tech stocks were about to implode. Sentiment was also at a high level in 2007 before the housing market crashed.
Steven Mnuchin says Fed Chair Jerome Powell is wrong on inflation
From CNN Business’ Matt Egan
Former Treasury Secretary Steven Mnuchin suggested Wednesday that Federal Reserve Chairman Jerome Powell is not worried enough about inflation.
“I respectfully disagree with him on his not being concerned,” Mnuchin told CNBC, referring to Powell’s stance on inflation.
Mnuchin, who pushed former President Trump to nominate Powell, praised the Fed chairman’s performance and described him as a “close friend who I have a lot of admiration for.”
But Mnuchin said he agrees with BlackRock CEO Larry Fink, who said Wednesday he doesn’t think inflation will be transitory.
“It’s important for the Fed to make sure they get ahead of the curve so they don’t end up with 4% or 5% interest rates, which would really slow down this recovery,” Mnuchin said, adding that Treasury and Fed models “can’t really predict” what will happen to inflation after massive stimulus by the central bank and federal government.
The former Treasury Secretary also called for the Fed to scale back its asset purchases.
During prepared remarks on Wednesday, Powell reiterated his view that inflation will remain “elevated in coming months before moderating.”
Meanwhile in the CNBC interview, though Mnuchin confidently expressed his take on inflation, he repeatedly declined to say whether Trump is lying when he says the 2020 election was stolen.
Wells Fargo made nearly $4 billion last quarter, despite tumbling loans
From CNN Business’ Matt Egan
Wells Fargo swung back into the black during the second quarter as the US economy rebounded from the pandemic.
The troubled bank earned $6 billion, recovering from a loss of $3.8 billion a year ago. Wells Fargo’s per-share profit blew away expectations.
Wells Fargo (WFC) also slashed its allowance for credit losses by $1.6 billion, with CEO Charlie Scharf saying credit quality remained “exceptionally strong.”
Booming markets also sparked big gains for Wells Fargo’s venture capital and private equity investments.
Kyle Sanders, analyst at Edward Jones, said his team was “encouraged” Wells Fargo did not report new costs linked to the bank’s various scandals.
“Wells’ revamped leadership team is very talented and has brought a heightened sense of urgency to address past miscues,” Sanders said in an email.
However, like other banks, Wells Fargo is dealing with shrinking demand for its key money maker: loans. The bank reported a 10% drop in average consumer loans and a 22% tumble in commercial loans.
Scharf acknowledged the “headwinds of low interest rates and tepid loan demand remained.”
Wells Fargo’s share price, which for years badly trailed rivals, climbed 3% Wednesday morning.
US stocks climb ahead of Fed testimony
From CNN Business’ Matt Egan
US markets kicked off trading solidly higher on Wednesday.
- The Dow jumped 175 points, or 0.5%.
- The S&P 500 also gained 0.5%.
- The Nasdaq climbed 0.8.%.
The rally comes despite another hotter-than-expected inflation report that showed producer prices jumped by 7.3% in June.
Federal Reserve Chairman Jerome Powell is likely to get grilled on inflation by lawmakers during a hearing later on Wednesday. In his prepared remarks, Powell reiterated that inflation will remain elevated for several months before cooling off.
US stocks retreated modestly on Tuesday on renewed inflation worries.
Jerome Powell: Inflation will stay hot before cooling off
From CNN Business’ Matt Egan
Federal Reserve Chairman Jerome Powell expects inflation to stay hot in the coming months before cooling off, according to prepared remarks Wednesday.
“Inflation has increased notably and will likely remain elevated in coming months before moderating,” Powell said in testimony to the House Financial Services Committee.
Powell noted that inflation metrics are being exaggerated by the fact that prices completely crashed last spring when the pandemic erupted. As the year-over-year comparisons become more typical, this temporary phenomenon will go away in the coming months.
But the Fed chief expects these “rapid” price hikes to “partially reverse” as bottlenecks ease.
Powell reiterated that the Fed “would be prepared” to act if officials saw signs that inflation expectations were persistently above the central bank’s goals.
Given the rapid recovery and surging inflation, the Fed discussed removing some of its emergency stimulus during its June meeting. Powell said the Fed will continue to discuss in upcoming meetings whether it should scale back its asset purchases.
“We will provide advance notice before announcing any decision to make changes to our purchases,” Powell said.
Strong start to the Jane Fraser era at Citigroup
From CNN Business’ Paul R. La Monica
Citigroup CEO Jane Fraser took over the bank earlier this year, making her the most powerful woman on Wall Street. The bank is off to a roaring start during her brief tenure at the top.
Citigroup announced Wednesday that its earnings and revenue easily topped analysts’ forecasts. Fraser credited the rebounding economy for the bank’s solid results. Shares of Citigroup (C) were up slightly following the report.
“The pace of the global recovery is exceeding earlier expectations and with it, consumer and corporate confidence is rising. We saw this across our businesses,” Fraser said in the release, noting that Citi’s investment banking unit posted a strong quarter and that the bank also benefited from “markedly increased spending” from its credit card customers.
Citi, like rivals JPMorgan Chase (JPM), Bank of America (BAC) and other banks, also released some of its reserves for bad loans, a sign that the bank feels consumer credit quality is increasing following last year’s Covid-related economic downturn.
“While we have to be mindful of the unevenness in the recovery globally, we are optimistic about the momentum ahead,” Fraser added.
Still, Citi is lagging its big bank brethren in one regard. The company held its dividend steady following the most recent Federal Reserve stress tests. Most other top banks boosted their payouts to shareholders.
Despite another loss Delta sees a return to “solid” profitability
From CNN Business’ Chris Isidore
Delta reported another quarterly loss Wednesday but said that it returned to profitability in June and expects to be profitable going forward.
“Domestic leisure travel is fully recovered to 2019 levels and there are encouraging signs of improvement in business and international travel,” said CEO Ed Bastian, who added that this week it bought additional used aircraft to restore some of the capacity it shed during the pandemic.
“The recovery picking up steam, we are making investments to support our industry-leading operation,” he said.
The company lost $678 million when adjusted for special items such as another round of financial support from US government. But that’s far better than the loss of nearly $900 million expected by Wall Street, let alone the $2.8 billion loss it reported a year ago.
Revenue has not fully recovered to pre-pandemic level due mostly to the lucrative business and international travel still being only a fraction of pre-pandemic levels. Overall revenue from airline operations was down 49% compared to the same quarter of 2019, ahead of the pandemic.
Shares of Delta climbed in pre-market trading as did shares of the other three major US airlines – American, United and Southwest.
BlackRock’s Larry Fink fears inflation isn’t ‘transitory’
From CNN Business’ Paul R. La Monica
Federal Reserve chairman Jerome Powell and other central bankers continue to say ad infinitum that inflation is “transitory.” The rising prices for used cars, food and other goods are due to Covid-related supply chain disruptions and will eventually pass.
But Larry Fink, the CEO of asset management giant BlackRock (BLK), isn’t buying that argument.
“I worry about inflation. I do not believe inflation is going to be transitory. It’s going to be more systematic,” Fink said in an interview on CNBC Wednesday morning after the company reported stellar earnings. He added that it will be “very important” to see how the Fed and other global central banks navigate the threat of higher inflation.
Fink told CNBC he’s also concerned about the extremely contagious Delta variant of Covid-19.
“Can that slow down parts of Asia? We are seeing a real disconnect between the companies that are very vaccinated and moving forward on vaccination and countries that have been late in vaccination,” he said.
Fink said that as a result, there will be “unevenness” in the global recovery and there could be “disappointments going forward.” But he’s still bullish because of continued fiscal and monetary stimulus.
Apple poised to hit another record high
From CNN Business’ Paul R. La Monica
Wall Street is growing increasingly excited about the likely debut of a new iPhone later this year. (The unlucky 13? Skip and go straight to the 14? The XIII if Apple wants to adopt Roman numerals like the Super Bowl? Scrap the number nomenclature entirely? I digress.)
Shares of Apple (AAPL) were up about 2% in premarket trading and are on track to open at another new all-time high. The company is now worth a stunning $2.4 trillion. But Apple could have a lot more room to run.
Citi analyst Jim Suva raised his earnings forecasts for Apple Wednesday morning, saying in a report that “we expect shares will outperform ahead of the new iPhone launch in September,” adding that “consensus estimates are too low.”
Apple is apparently expecting the device to fly off the shelves. Bloomberg reported late Tuesday that the company is looking to ramp up iPhone production by 20% this year.
And Suva added that he likes Apple’s product diversity, noting that there should be strong demand for PCs and wearables like the Apple Watch.
Apple has lagged the broader market rally with a gain of “only” about 10% this year, compared to a 16% pop for the S&P 500. The stock also hasn’t done as well as rivals such as Microsoft (MSFT), Amazon (AMZN) and Google owner Alphabet (GOOGL).
Source: http://rss.cnn.com/~r/rss/cnn_topstories/~3/VfEzDoqdJts/index.html
