Member Briefing July 27, 2023

Posted By: Harold King Daily Briefing,

Federal Reserve Raises Interest Rate to 22-Year High

The Federal Reserve pushed interest rates to a 22-year high Wednesday, one month after a brief respite in hikes during the central bank’s race to bring down historic inflation. The Fed hiked its baseline interest rate range by 0.25 percent to a span of 5.25 to 5.5 percent. It is the Fed’s 11th interest rate hike since March 2022. The hike received unanimous approval from voting committee members. Along with the rate hike, the committee indicated it will continue to cut the bond holdings on its balance sheet, which peaked at $9 trillion before the Fed began its quantitative tightening efforts.

During a news conference, Chairman Jerome Powell said inflation has moderated somewhat since the middle of last year, but hitting the Fed’s 2% target “has a long way to go.” Still, he seemed to leave room to potentially hold rates steady at the Fed’s next meeting in September. Powell said the FOMC will be assessing “the totality of the incoming data” as well as the implications for economic activity and inflation. The post-meeting statement had offered only a vague reference to what will guide the FOMC’s future moves.

Read more at CNBC

War in Ukraine Headlines

Ukraine and Russia: The Latest News – The Guardian

US Announces $400 Million Aid Package for Ukraine – Yahoo

Russia Saw Record $239B Net Capital Outflows in 2022 - Insider

Wagner Gold Smuggling Critical to Keeping Russia’s Economy Afloat, MPs Say – The Independent

Russian Jet Fighter Damages U.S. Drone Over Syria - WSJ

Russia Extends Conscription for Compulsory Military Service Up to Age 30 - Reuters

US Military Aid for Ukraine for First Time Includes Black Hornet Spy Drone - Yahoo

West Scrambles to Hash Out Details of Ukraine F-16 Training - Politico

Ukraine's Top Diplomat in Liberia on Third Wartime Tour of Africa - Reuters

Interactive Map: Assessed Control of Terrain in Ukraine – Institute for the Study of War

Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map

Biden’s ‘Made in America’ Pledge Collides With His Climate Goals

The Inflation Reduction Act unleashed a gusher of tax breaks and credits for producing clean energy, purchasing electric vehicles and developing new low-carbon technology. Many of the incentives require companies to source materials for the projects from the U.S., setting off a lobbying campaign to shape how the Biden administration defines “made in America.” The debate pits some U.S. manufacturers and lawmakers, who want to strictly enforce the law’s requirements that many parts and materials come from the U.S., against automakers and foreign allies who warn that could make it more expensive to deploy technology lowering carbon emissions.

China is the dominant supplier of many clean-energy products, as well as the largest global producer of steel by far. The Biden administration is seeking to reduce U.S. dependence on China in key areas, but it has at times found its goals at odds as it irons out the details of tax incentives offered under the IRA. At the same time, lowering carbon emissions is another priority for the Biden administration. Imports from China are often cheaper for companies trying to stand up new clean-energy facilities in the U.S. The domestic-sourcing rules have also unnerved allies in Europe and Asia, who say the subsidies for U.S.-made components will hurt their products.

Read more at The WSJ

Home Prices Continue to Climb With ‘Striking’ Regional Differences, Says S&P Case-Shiller

Home prices in May rose for the fourth straight month on the S&P CoreLogic Case-Shiller home price index, but regional differences are widening. The gains come despite a sharp jump in mortgage interest rates during the month. Prices nationally rose 0.7% month to month, seasonally adjusted. The index’s 10-city composite gained 1.1%, and the 20-city composite gained 1%. Prices nationally were still down 0.5% compared with May 2022, but they are just 1% below their June 2022 peak. The 10-city composite fell 1%, year over year, slightly less than the 1.1% decrease in the previous month. The 20-city composite dropped 1.7%, the same as the annual decline in April.

Craig Lazzara, managing director at the S&P DJI said “The last four months’ price gains could be truncated by increases in mortgage rates or by general economic weakness. But the breadth and strength of May’s report are consistent with an optimistic view of future months.” Lazzara, however, noted that “regional differences continue to be striking,” with cities in the so-called Rust Belt outperforming the rest of the nation. Prices in Chicago gained 4.6%; in Cleveland, 3.9%; and New York, 3.5% — making for the top performers. The Midwest took over the South’s reign as the strongest region.

Read more at CNBC

COVID Update – USC Basketball: How A COVID-19 Infection Could Have Impacted Bronny James' Heart

A variety of problems could have caused impending USC freshman combo guard Bronny James to have a cardiac arrest during a Monday workout on campus, including chest pressure, oversized heart muscles, physical exhaustion, and coronary heart disease. The possibility exists that this could mark one of the many instances of heart damage following a coronavirus infection.

Strokes, heart problems, respiratory issues, blood clotting and cognitive trouble have all seen a massive uptick in young people following the acute phase of COVID-19 infections. As Laura Williamson of American Heart Association News details, mounting research indicates that many folks impacted by the novel coronavirus could suffer heart damage many months after symptoms of an acute infection have abated.

Read more at Sports Illustrated

New York Redistricting Case Could Help Sway Control of Congress

New York Republicans on Tuesday appealed the most recent ruling in a Democratic lawsuit that seeks to throw out district lines that were in place for last year’s elections and helped the GOP pick up a net three seats in the deep blue Empire State. Democrats said those maps, drawn under judicial supervision, were only meant to be in place for 2022. If the state’s high court—the New York State Court of Appeals—agrees, political analysts say it would make it harder for the GOP to keep its already narrow majority.

“The House nationally has become a game of inches,” said David Wasserman, U.S. House Editor for the nonpartisan Cook Political Report. “So, every seat that can be won through redistricting is a critical seat for the majority.” Court arguments in New York likely won’t be held before September, when the Court of Appeals is next scheduled to convene. Any new districts drawn by the state’s Independent Redistricting Commission or the legislature will also be subject to challenge, creating a level of uncertainty not seen since the 1960s, New York Law School professor Jeff Wice said. “This is all unprecedented,” he said.

Read more at The WSJ

German Industry Changes Tack as River Rhine Runs Drier

German industry is finding new ways to transport cargoes from coal to chemicals as increasingly frequent low water levels on the Rhine disrupt Europe's largest economy. The 1,230 km (764.29 miles) river, a world famous tourist destination and a part of the national psyche, is the commercial artery for 80% of the German economy's inland shipping of goods, including crude oil and natural gas. But following extended periods of low water in 2018 and 2022, Rhine levels are again too low in parts of the river for cargo vessels to sail fully loaded when they can hold the equivalent of up to 150 trucks.

The impact of low water levels is not limited to big business. Germany's gross domestic product shrank by 0.4% in 2018 as Rhine traffic slowed. As a rule of thumb, if water levels at Kaub fall below 78 centimetres for 30 straight days, as was the case in 2022 and 2018, industrial production falls by 1%, according to the Kiel Institute for the World Economy. Deutsche Bank, which already expects Germany's economy to decrease by 0.3% in 2023, reckons that a prolonged period of low water levels could delay the country's recovery from recession.

Read more at Reuters

Stellantis' First-Half Profits and Revenue Rise as Supply Issues Ease

Jeep and Ram parent company Stellantis said earnings and revenue gained momentum during the first half of the year as supply chain problems eased and higher shipments boosted results. The automaker said net income during the first six month surged 37 percent to 10.9 billion euros ($12 billion) while total revenue increased 12 percent to 98.4 billion euros ($109 billion). Stellantis does not report full quarterly financial results.

The automaker's first-half margin on adjusted EBIT slipped to 14.4 percent from 14.5 percent a year earlier, beating the 12.2 percent predicted by analysts. Adjusted earnings before interest and tax (EBIT) were 14.1 billion euros ($15.6 billion).

Read more Rochester First

Boeing Loses $149 Million in Q2 as the Plane Maker is Pushing Ahead With Production Increases

Boeing results topped analyst expectations Wednesday thanks to a pickup in commercial aircraft deliveries as the manufacturer increases production, but losses in its defense and space businesses drove the manufacturer into the red for the quarter. The company generated $2.6 billion of free cash in the quarter, ahead of analyst forecasts, and reiterated its full-year guidance of between $3 billion and $5 billion of free cash flow. Adjusted loss per share was $.82 and revenue was  $19.75 billion.

Boeing and main rival Airbus have both struggled to increase aircraft production in the wake of the pandemic as some airlines face longer waits for new jets, just as travel demand rebounds. The company delivered 136 planes in the second quarter, up from 121 aircraft during the same period last year. Boeing said Wednesday that it is transitioning to higher production of its best-selling Max aircraft, at a pace of 38 jets a month, up from 31 a month — a plan it outlined earlier this year. Boeing reiterated its 737 delivery forecast of between 400 and 450 planes this year.

Read more at CNBC

Microsoft Earnings: AI Lifts Redmond To Highest Quarterly Sales Ever

Microsoft reported its strongest financial quarter ever Tuesday by several metrics as artificial intelligence jolts the 48-year-old tech behemoth. The company posted $56.2 billion in sales and $2.69 earnings per share in the three-month period ending June 30, smashing consensus estimates of $55.5 billion of revenue and $2.55 earnings per share, according to FactSet. Microsoft shattered several of its financial records during the most recent quarter, as its gross sales and net income ($20.1 billion) were both all-time bests, while its EPS was the second-highest ever.

Overall, Microsoft’s top line swelled by 21% over the last 12 months while its bottom line spiked by 8%; profits and sales grew by 10% and 6% from last quarter, respectively. Largely driving the gains was a 21% year-over-year in operating income in its intelligent cloud segment including much of Microsoft’s current AI offerings.

Read more at Jackson Lewis

A $5.5 Trillion Savings Wipeout is Raising Risks for the US Economy

Americans' personal savings have collapsed by an eye-watering $5.5 trillion since April 2020 thanks to soaring inflation, according to – and that could spell trouble for the economy. Such reserves have now fallen to levels lower than before COVID-19, the financial data provider said in a tweet.

US household savings surged during the pandemic, spurred by government stimulus checks and a drop in in-person spending. That cash pile has boosted consumer spending ever since the COVID restrictions were relaxed, supporting the economy even as the Federal Reserve raised interest rates steeply since last spring. But historically high inflation in the US since mid-2021 has eaten into the savings, as prices of everything from energy to food surged. Inflation hit a 40-year high of 9.1% in mid-2022, but has since slowed to 3% as of last month – thanks to the Federal Reserve's aggressive rate hikes.

Read more at Yahoo

RTX Expects Even More Demand in the Next Year to Replenish Missiles Sent to Ukraine

RTX, maker of the Patriot, AMRAAM, Sidewinder, Javelin, Stinger, and other missiles featuring significantly in the war in Ukraine—and in the defense preparations of neighboring NATO countries—has logged about $2 billion in replenishment orders as a result of the conflict and expects to top that figure in the coming year, chief executive officer Greg Hayes said in a July 25 earnings call.

Hayes said the company—until recently known as Raytheon Technologies—is “so bullish” on defense systems sales “for the next couple of years” because it has logged large orders for AIM-120 AMRAAM and other missiles, and that all 18 countries using the Patriot air defense system are or will be ordering new Guidance Enhanced Missile-Tactical (GEM-T) rounds for their Patriot launchers.

Read more at Air and Space Forces

Unilever Says Inflation Has Peaked as Sales Growth Rises

Hellmann’s mayonnaise and Dove soap maker Unilever benefited from sharply higher prices again in the second quarter, but the consumer-goods giant’s finance chief said the company is past peak inflation. Unilever is a bellwether for the global economy and consumer sentiment, given its sprawling footprint encompassing both developed and emerging markets and its exposure to food, home care and beauty products.

On Tuesday Chief Financial Officer Graeme Pitkethly said that consumers in North America are “starting to show signs of caution,” even as inflation eases and that Unilever is fighting stronger competition from store brands in ice cream and salad dressings. “We still think there’s a possibility of a mild recession,” he said. Pitkethly attributed U.S. consumers’ recent caution to the drop in Covid-19 government support saying this had caused “a very rapid drop off in excess savings.”

Read more at The WSJ

New Rules Aim to Strengthen Mental Health and Addiction Coverage

The Departments of Labor and Treasury have proposed new rules aimed at better ensuring that people seeking coverage for mental health and substance use disorder care can access treatment as easily as people seeking coverage for medical treatments. The proposed rules seek to fully protect the rights of people seeking mental health and substance use disorder benefits and provide clear guidance to plans and issuers on how to comply with the law’s requirements.

Enacted in 2008, the Mental Health Parity and Addiction Equity Act aims to make sure people seeking mental health and substance use disorder care do not face greater barriers to treatment than those faced by people seeking treatment for medical and surgical conditions. Generally, the act prohibits private health insurance companies from imposing copayments, prior authorization and other requirements on mental health or substance use disorder benefits that are more restrictive than those imposed on medical and surgical benefits.

Read more at EHS Today

Interview: US Steel Bets on Mini-Mills, EV Motors for Near-Term Sustainability

Pittsburgh-based U.S. Steel Corp. has a goal of being emissions net zero by 2050. We talked with the company’s chief strategy and sustainability officer, Richard Fruehauf, about how the steelmaker plans to achieve those targets, and found that USS has a solid plan in progress to make a 20% reduction in those emissions by 2030. Admittedly,  the picture becomes hazier for the 80% after that, depending on groundbreaking energy discoveries that have yet to be made and technologies that today are exploratory.

Fruehauf has helmed USS's strategy for the past five years. In 2021, “sustainability” became part of his nameplate. IndustryWeek talked with Fruehauf about the steelmaker’s sustainable steel and electric mill projects—including a flex mill in Big River, Arkansas, that combines integrated and mini-mill steelmaking—and specialty steel for electric-vehicle motors. The conversation also touched on the innovation and partnerships that need to be happen to hit net zero in the next 27 years.

Read more at IndustryWeek