Daily Briefing – 526
Fed Raises Rates By 0.75 Percentage Point, Largest Increase Since 1994
The Federal Reserve approved the largest interest rate increase since 1994 and signaled it would continue lifting rates this year at the most rapid pace in decades as it races to slow the economy and combat inflation. Officials agreed to a 0.75-percentage-point rate rise at their two-day policy meeting that concluded Wednesday, which will increase the Fed’s benchmark federal-funds rate to a range between 1.5% and 1.75%.
New projections showed all 18 officials who participated in the meeting expect the Fed to raise rates to at least 3% this year. Most officials now see growth of around 1.7% this year and next, compared to projections in March that showed growth rising by 2.8% this year and 2.2% in 2023. The projections revealed that all but one official expects the unemployment rate to rise over the next two years, an implicit acknowledgment of rising recession risks. The median projection showed the unemployment rate, which stood at 3.6% in May, ending at 3.7% this year before rising to 4.1% in 2024.
War in Ukraine Headlines
- Ukraine and Russia: the Latest News – Reuters
- The 19th-Century Technology Driving Russia’s Latest Gains in Ukraine: Railroads – WSJ
- Ukraine’s President Gives American CEOs Advice and Sobering Warnings About ‘Our Common War’ – Fortune
- Macron Says Ukraine and Russia Must Eventually Talk – WSJ
- Russians Control 80 Percent of Key Ukraine City, Cut Escape Routes – Politico
- IKEA Puts Russian Factories Up for Sale, Plans Job Cuts – Reuters
- Putin: Russia Will be Raking in Oil and Gas Profits for Years, 3 Key Data Points Show he Might be Right – Fortune
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
IEA: Oil-Supply Growth Expected to Lag Behind Demand Next Year
Global demand for oil will rise above pre-pandemic levels next year following three years of Covid-19 lockdowns and the economic shock of the Ukraine war, the International Energy Agency said. Much of the growth in demand next year will be driven by China, as it emerges from stop-start Covid-19 lockdowns, while developed economies are expected to contend with a worsening economic outlook and rampant inflation.
Meanwhile, the IEA expects supply growth to lag behind demand, pushing an already tight market witnessing soaring prices into a 500,000-barrel-a-day deficit. U.S. oil producers are expected to underpin supply increases next year, while members of the Organization of the Petroleum Exporting Countries are seen continuing to struggle to meet their output targets.
China’s Factories Perk Up
China’s economy showed signs of recovery in May after slumping in the prior month as industrial production rose unexpectedly. The data, however, provides a path to revitalise growth in the world’s second-biggest economy after businesses and consumers were hit hard due to full or partial lockdowns in dozens of cities in March and April, including a protracted shutdown in commercial centre Shanghai.
Industrial output grew 0.7% in May from a year earlier, after falling 2.9% in April, data from the National Bureau of Statistics (NBS) showed on Wednesday. The uptick in the industrial sector was underpinned by the easing of COVID curbs and strong global demand. China’s exports grew at a double-digit pace in May, shattering expectations, as factories restarted and logistics snags eased.
US COVID – Newest Omicron Covid-19 lineages gaining ground in United States
The United States appears to be in the midst of another biological baton pass between Covid-19 variants. The Omicron lineage BA.2 and its spinoff, BA.2.12.1, drove cases this spring, building into waves of infections in places like the Northeast and parts of California. Now, two other forms of Omicron, BA.4 and BA.5, are eating into the BA.2 group’s dominance.
More than 1 in 5 Covid-19 infections last week were caused by BA.4 and BA.5, according to updated estimates posted Tuesday by the Centers for Disease Control and Prevention. That’s up from 13% the week prior. The rest of the cases are from the BA.2 lineages.
NYS Vaccine and COVID Update –
Vaccine Stats as of June 10:
One Vaccine Dose
- 90.7% of all New Yorkers – 16,636,019
- In the Hudson Valley 1,730,396
Fully Vaccinated
- 77.5% of all New Yorkers – 14,928,944
- In the Hudson Valley – 1,525,547
Boosters Given
- All New Yorkers – 8,648,496
- In the Hudson Valley – 1,049,605
The Governor updated COVID data through June 10. There were 17 COVID related deaths for a total reported of 71,670
Hospitalizations:
- Patients Currently in Hospital statewide: 2,009
- Patients Currently in ICU Statewide: 210
7 Day Average Positivity Rate – Cases per 100K population
- Statewide 5.41% – 30.31 positive cases per 100,00 population
- Mid-Hudson: 5.44% – 28.17 positive cases per 100,00 population
Useful Websites:
June Empire State Manufacturing Survey – Steady On
After declining last month, manufacturing activity held steady in New York State. Optimism about future conditions was subdued for a third consecutive month. Delivery times are expected to decline over the next six months, as are unfilled orders, while increases in prices and employment are expected to continue in the months ahead. Capital spending and technology spending plans remained firm.
- The general business conditions index climbed ten points to -1.2. Twenty-eight percent of respondents reported that conditions had improved over the month, and twenty-nine percent reported that conditions had worsened.
- The new orders and shipments indexes climbed into positive territory, pointing to a small increase in both areas.
- The unfilled orders index fell to -4.3 indicating that unfilled orders shrank.
- The delivery times index fell six points to 14.5, suggesting that delivery times lengthened.
- The inventories index rose nine points to 17.1, indicating that inventories expanded.
- The index for number of employees increased five points to 19.0, pointing to a solid increase in employment,
- and the average workweek index came in at 6.4, indicating a small increase in hours worked.
- The prices paid index rose five points to 78.6, several points below its recent record high,
- The prices received index edged down to 43.6, signaling ongoing substantial increases in both input and selling prices.
- The index for future business conditions fell four points to 14.0.
CEO Confidence Falls To Decade Low, But Few Predict Recession
Nearly 300 U.S. CEOs participated in Chief Executive’s CEO Confidence Index poll, sharing their prospect of the U.S. economy and business landscape. While their ratings of current business conditions remained flat month-over-month, at 6.4 out of 10, their forecast for business 12 months from now dropped another 6 percent, down to 5.6/10 from 5.9/10 in May.
That reading is now 20 percent off where it was at the beginning of the year when CEOs told us they were increasingly hopeful that persistent issues in the supply chain and growing inflation—and even Covid-19—would wind down this year. It is the lowest level it’s been since January 2013, on the heels of the “Fiscal Cliff” drama in Washington and ahead of further debt ceiling negotiations.
Retail Sales Fall 0.3% in May From June as Surging Inflation Crimps Spending on Non-Essentials
Retail spending fell 0.3% in May, the Commerce Department said Wednesday, amid high inflation, rising interest rates and weakening consumer confidence. Interest rates look set to rise further, a potential damper on consumer spending in the months ahead as car loans and credit-card debt get more expensive.
So far this year, consumer spending has broadly held up, according to government data through April. Consumer spending accounts for about 70% of U.S. economic output. A strong labor market and rising wages are helping to support spending on services, for which there is pent-up demand from the pandemic. A number of factors are contributing to the expected moderation in retail spending. Consumers are continuing to shift spending to services from goods as many Americans resume more in-person activities such as travel and dining out.
China Consumption Weak in May
China’s consumers bought less in May. Consumption was weak and underlined the challenge for policymakers amid the persistent drag from strict COVID curbs. Retail sales slipped another 6.7% in May from a year earlier, on top of a 11.1% contraction the previous month. They were slightly better than the forecast of a 7.1% fall due to the increased spending on basic goods such as grains, edible oils and food and beverages.
“We should not be overly optimistic about consumption as the recovery has been quite slow. Affected by repeated COVID outbreaks, slower income growth, a cautious view of the future expectations, there will not be a revenge spending, as people have expected,” said Wang Jun, chief economist at Zhongyuan Bank.
Home Builder Sentiment Hits Two-Year Low in June – NAHB
Confidence among U.S. single-family homebuilders dropped to a two-year low in June as high inflation and rising mortgage rates reduced affordability for entry-level and first-time buyers, a survey showed on Wednesday. The survey’s measure of current sales conditions slipped one point to 77. Its gauge of sales expectations over the next six months dropped two points to 61.
The National Association of Home Builders/Wells Fargo Housing Market index fell two points to 67 this month, the lowest reading since June 2020. It was the sixth straight monthly decline in the index. A reading above 50 indicates that more builders view conditions as good rather than poor.
U.S. Home Equity Hits Highest Level on Record—$27.8 Trillion
Total U.S. home equity increased almost 20% in the first quarter to $27.8 trillion, a record high, according to the Federal Reserve. The increase is another consequence of a red-hot housing market. Double-digit price gains have driven some would-be homeowners out of the market. At the same time, rising home values are boosting the finances of the Americans who already own them.
Still, rising rates have made it more expensive for homeowners to use that equity, the difference between the market value of a property and the mortgage balance. About 60% of equity was withdrawn via cash-out refinances in 2021, according to mortgage-data firm Black Knight.
After Emergency Meeting ECB to Devise New Tool to Tackle Rising Borrowing Costs in Weaker Economies
The European Central Bank will skew reinvestments of maturing debt to help more indebted members and will devise a new instrument to stop fragmentation, it said on Wednesday, seeking to temper a market rout that has fanned fears a new debt crisis. Government bond yields have soared on the 19-country currency bloc’s periphery since the ECB unveiled plans last Thursday to raise interest rates in July and September to tame painfully high inflation that is at risk of becoming entrenched.
“The Governing Council decided that it will apply flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to preserving the functioning of the monetary policy transmission mechanism,” the ECB said after a rare unscheduled meeting.
NAM Pushes Back on Interest Deductibility
A congressional proposal to limit interest expensing would be damaging for manufacturers, according to a new study. A recent analysis prepared by EY’s Quantitative Economics and Statistics group found that the proposed interest expense limitations would cost about:
- 623,000 jobs,
- $31.6 billion in annual employee compensation, and
- $60.1 billion in annual GDP.
“Manufacturers are already facing incredible economic headwinds due to increased input costs, labor shortages and strong inflationary pressures,” said NAM VP of Tax and Domestic Economic Policy Chris Netram. “This analysis shows that limiting tax deductions for interest on business loans disproportionately harm manufacturers at a perilous time – costing hundreds of thousands of jobs and billions of dollars in economic growth at a time when our industry is trying to drive our nation’s recovery.”
Labor, Maritime Leaders Talk Earlier Port Hours
Negotiators with the International Longshore and Warehouse Union and the Pacific Maritime Association are discussing a plan to allow all West Coast marine terminals to open an hour earlier, at 6 a.m., under what’s called “a double flex.” This point is one of several under discussion now in San Francisco as ILWU and PMA are in the midst of negotiations for a new, multiyear contract covering some 22,000 workers at 29 locations in California, Washington and Oregon.
The current contract is set to expire July 1 and under that agreement, the existing work shifts are 8 a.m. to 5 p.m., 6 p.m. to 3 a.m., and the overnight “hoot” shift runs from 3 a.m. to 8 a.m. However, provisions in the pact allow terminal operators to “flex” the start times by one hour, to 7 a.m., but currently not by two hours.
Read more at Transportation Topics
European Natural-Gas Prices Jump as Russia Cuts Supplies Again
Europe’s options for filling its natural-gas stores and avoiding a winter energy crisis are narrowing as flows from Russia decrease and U.S. shipments are poised to stall, sending gas prices higher. Russia’s Gazprom PJSC said Wednesday that flows through the Nord Stream pipeline to Germany would fall further, a day after it cut exports on the route by 40%. Gazprom also cut the volume of gas sent to Italy by 15% compared with Tuesday. Italian gas and oil company Eni, the country’s biggest importer of Russian gas, said Gazprom gave no explanation for the cut.
Benchmark European gas prices jumped 18% Wednesday to 114.25 euros, or $118.87, a megawatt-hour as traders assessed the threat to supply. The market has rallied 44% over the past week, pushing prices to more than four times their level from a year ago. U.S. natural-gas futures rose 4.3% to $7.50 per million British thermal units.
