Member Briefing October 17, 2022
High Inflation Darkens Global Economic Outlook
Policy makers around the world see rising risks that the global economic slowdown could turn into a steeper slump due to strong inflation, high energy costs and climbing interest rates. Economies representing more than a third of global output will contract next year, while the world’s three largest economies—the U.S., the European Union and China—will essentially stall, the IMF forecasts. Overall, the fund projects 2.7% growth in 2023, down from 3.2% this year.
Another bad U.S. inflation report last week is likely to keep the Federal Reserve lifting interest rates at a rapid clip. That could help spur the U.S. dollar higher, further elevating the cost of imports and debt service for many countries. Key energy producers are crimping supply, feeding price pressures and slowing economic activity, particularly in Europe. New data from China showed consumer spending falling sharply, another sign of cooling economic growth.
War in Ukraine Headlines
- Ukraine and Russia: The Latest News – The Guardian
- How Ukrainian Strategy Is Running Circles Around Russia’s Lumbering Military - WSJ
- United Nations condemns Russia's move to annex parts of Ukraine - Reuters
- Russian Diplomat Says Moscow Prepared To Reject Renewal Of Grain Export Deal – Radio Free Europe
- Russia is Grabbing Men Off the Street to Fight in Ukraine – Washington Post
- Russia Military Range Shooting Leaves 11 Dead, 15 Wounded – The Hill
- U.S., Allies Negotiating Price Level for Russian Oil Cap - WSJ
- Europe is Still Quietly Importing Russian Nuclear Energy - CNBC
- Russia Urges Evacuation of Occupied Kherson, Steels for Ukrainian Advance - WSJ
- 'Their Losses Were Large': In Liberated Lyman, Ukrainian Soldiers Recall Russian Retreat – Radio Liberty
- France Starts Exporting Gas to Germany Amid Energy Crisis – Fox News
- Map – Tracking Russia’s Invasion of Ukraine – Live Universal Awareness Map
J.P.Morgan Global Manufacturing PMI: Global Manufacturing Downturn Continues
Global manufacturing production decreased for the second successive month in September, as intakes of new work deteriorated and international trade flows contracted. The J.P.Morgan Global Manufacturing PMI™ fell to 49.8 in September, down from 50.3 in August. This is the first time that the headline PMI has posted below the neutral 50.0 mark since June 2020. Output rose in only ten of the 30 economies for which data are available, including the US, Brazil, India, Russia and Australia. Production losses were seen in the China, Japan, the euro area and the UK (among others)
The rate of contraction in output accelerated to the fastest since April, when lockdowns in mainland China disrupted global production growth. Barring the pandemic lockdown months in the first half of 2020, the latest decline was the steepest since 2012. Production decreased in two of the three sub-sectors covered by the survey (intermediate and investment goods). The steeper contraction was at intermediate goods producers, where output fell at the quickest pace in over two years. The decline in investment goods production was only marginal, while the consumer goods category saw a mild uptick.
University of Michigan Consumer Sentiment and Inflation Expectations Rise
The University of Michigan consumer sentiment for the US rose to 59.8 in October of 2022, the highest in six months, up from 58.6 in the previous month and above market expectations of 59, a preliminary estimate showed. The current economic conditions index rose to 65.3 from 59.7 while the expectations gauge fell to 56.2 from 58. The Index of Consumer Expectations focuses on three areas: how consumers view prospects for their own financial situation, how they view prospects for the general economy over the near term, and their view of prospects for the economy over the long term.
The median expected year-ahead inflation rate rose to 5.1% from 4.7%, with increases reported across age, income, and education. Also, long-run inflation expectations increased to 2.9% from 2.7%. Sentiment is now 9.8 points above the all-time low reached in June, but this improvement remains tentative, as the expectations index declined by 3% from last month. Continued uncertainty over the future trajectory of prices, economies, and financial markets around the world indicate a bumpy road ahead for consumers.
US COVID – Cases Continue to Decrease
The US CDC is reporting 96.6 million cumulative cases of COVID-19 and 1.06 million deaths. Daily incidence continues to decline, down to 39,893 new cases per day, the lowest average since mid-April. Average daily mortality is down from a recent high of 505 deaths per day on August 12 to 338 on October 11, but the steadily decreasing trend appears to be leveling off. Both new hospital admissions and current hospitalizations continue to exhibit downward trends, with decreases of 2.8% and 5.2%, respectively, over the past week. Both trends peaked around the end of July, approximately 1 week after the peak in daily incidence.
The BA.5 sublineage continues to be the dominant strain in the US, accounting for 79.2% of sequenced specimens; however, its estimated prevalence has decreased for 7 consecutive weeks. Several other Omicron sublineages continue to exhibit increasing trends. Notably, the BA.4.6 sublineage is up to 13.6%, BF.7 is up to 4.6%, and BA.2.75 is up to 1.8%. The increasing trends suggest that these subvariants may have some growth advantage over BA.5.
NYS COVID Update
The Governor updated COVID data through September October 14.
- Daily: 19
- Total Reported to CDC: 74,548
- Patients Currently in Hospital statewide: 2,714
- Patients Currently in ICU Statewide: 286
7 Day Average Positivity Rate - Cases per 100K population
- Statewide 6.52% - 20.37 positive cases per 100,00 population
- Mid-Hudson: 6.97% - 19.71 positive cases per 100,00 population
After a Chaotic Redistricting Process, Here are the New York State Senate Races to Watch
The 2020 elections left Democrats with a historic supermajority in the state Senate and a strong progressive contingent. Forty-four freshman members joined the state Senate, and they made it the most diverse in state history. The GOP-dominated chamber of just six years ago now feels even more distant. The continued momentum for state Senate Democrats is visible in their fundraising: The Democratic Senate Campaign Committee has over $3 million on hand, while Republicans have a little under $1 million as of October.
During the chaotic redistricting process, the state Court of Appeals invalidated the state Senate and Congressional maps proposed by the Democrat-controlled Legislature because they were gerrymandered to benefit Democrats. Lawmakers are now running in newly drawn districts made by the court-appointed special master. The outcome was better for Republicans than the Democrats’ maps, but they’re still losing a gerrymandered advantage in many cases from the 2010 redistricting process, turning many of their safe seats competitive.
NY-17, Mike Lawler Leads Sean Patrick Maloney According to Internal Lawler Poll
Rep. Sean Patrick Maloney on the ropes in his re-election bid, a new poll released by his rival Friday claims. Republican candidate Assemblyman Michael Lawler’s campaign released an internal poll claiming he leads Maloney 52% to 46% in the district covering the lower Hudson Valley. But the independent Cook Political report gives Maloney the edge in the race, rating the contest as leaning Democrat. The contest is one of about a half dozen competitive races in New York that could determine whether Republicans regain control of the House of Representatives from the Democrats.
The Lawler-commissioned survey says headwinds favor the GOP in the district: 72% of likely voters say the U.S. is on the wrong track, 56% disapprove of President Biden’s job performance, while Republican Rep. Lee Zeldin leads Democratic incumbent Gov. Kathy Hochul in the governor’s race in the 17th CD 52% to 44%.
Pfizer and BioNTech Announce Positive Early Data From Bivalent Booster in Individuals 18 Years and Older
Pfizer Inc. and BioNTech SE last week announced early data from a Phase 2/3 clinical trial (NCT05472038) evaluating the safety, tolerability, and immunogenicity of the companies’ Omicron BA.4/BA.5-adapted bivalent COVID-19 vaccine (Pfizer-BioNTech COVID-19 Vaccine, Bivalent (Original and Omicron BA.4/BA.5)).
A 30-µg booster dose of the Omicron BA.4/BA.5-adapted bivalent vaccine demonstrated a substantial increase in the Omicron BA.4/BA.5 neutralizing antibody response above pre-booster levels based on sera taken 7 days after administration, with similar responses seen across individuals aged 18 to 55 years of age and those older than 55 years of age (40 participants in each age group). When comparing responses in individuals older than 55 years of age who received either the bivalent vaccine, or the original vaccine. These data suggest a 30-µg booster dose of the Omicron BA.4/BA.5-adapted bivalent vaccine is anticipated to provide better protection against the Omicron BA.4 and BA.5 variants than the original vaccine for younger and older adults.
Study – 15 Percent of Long COVID Patients Still Experience Symptoms One Year On
Increasing evidence shows that a significant proportion of people infected with SARS-CoV-2 do not fully recover from acute infection even months later, experiencing a host of post-acute sequelae of SARS-CoV-2 (PASC), more commonly known as long COVID. Research published online this week in JAMA and based on information from a database of more than 1.2 million COVID-19 patients in 22 countries, estimates that 6.2% of people had long COVID symptoms 3 months after symptomatic SARS-CoV-2 infection.
The model estimates the proportion of those who had at least 1 of 3 self-reported long COVID symptom clusters: persistent fatigue with bodily pain or mood swings (3.2%), cognitive problems (2.2%), or ongoing respiratory problems (3.7%). Estimated symptom duration for hospitalized COVID-19 patients was 9 months, and 4 months for those who were not hospitalized. Even after one year, 15.1% of those with long COVID continued to experience symptoms.
Retail Sales Flat in September Across Nation as Inflation Takes a Bite
Retail sales were flat last month, down from a revised. 0.4% growth in August, the Commerce Department reported this morning. Retail sales fell 0.4% in July. Excluding sales of automobiles and at gas stations, retail sales rose 0.3%. Excluding gas sales, spending was up 0.1%. While the report showed the resilience of the American consumer, the figures are not adjusted for inflation unlike many other government reports. In fact, sales at grocery stores rose 0.4%, helped by rising prices in food.
Evidence that the Fed’s fight to cool the economy may be taking hold can also be seen, particularly with big-ticket items. Sales at auto dealers fell 0.4% last month, and shoppers continued to pull back on appliances, electronics and furniture, all categories that did well during the early part of the pandemic. Business at consumer electronics and appliance stores fell 0.8%.
Ratification Votes Continue in Rail Labor Deal
One of the eight rail labor unions yet to ratify a tentative agreement with the National Carriers’ Conference Committee has tabled the contract, Railway Age magazine reports. Members of the Brotherhood of Maintenance of Way Employees Division of the Teamsters Union (BMWED) have voted to reject a tentative contract amending wages, benefits and work rules. Barely 43% of the almost 12,000 BMWED members casting ballots voted in favor of the agreement, said the union Oct. 10 in announcing the results.
BMWED President Tony D. Cardwell said the union would keep the status quo until at least Nov. 19, five days after Congress is expected to return to work following the midterm elections. The American freight rail network accounts for nearly 40% of total freight volume, and a strike or delay in finalizing a long-term contract would have devastating impacts across surface supply chain networks and economic output,” NAM Vice President of Infrastructure, Innovation and Human Resources Policy Robyn Boerstling told Congress last month.
China's 20th Communist Party Congress: What You Need to Know
China's 20th Communist Party Congress kicked off on Sunday, with Xi Jinping widely expected to clinch his third five-year stint in charge - a mandate that would secure his stature as the country's most powerful ruler since founding leader Mao Zedong. Leaders face a difficult time, with a slowing economy, questions over whether and how to exit its strict zero-COVID policy, rising tensions over Taiwan and high-profile protests over several issues this year. Markets are closely watching how Beijing manages these challenges.
Meanwhile, the capital is stepping up security and COVID curbs, and raising red political banners for the once-every-five-year event that brings together 2,300 party members at the vast Great Hall of the People on Tiananmen Square. Little is known about who will be promoted into which key roles on the Politburo and its seven-member Standing Committee. Here are some of the leading contenders and some scenarios to look out for.
6 New Climate Tax Credits that Benefit Manufacturers
The Inflation Reduction Act (IRA) opens $370 billion of investment into initiatives to fight climate change and boost domestic manufacturing. More broadly, this legislation constitutes a profound moment in industrial policy writ large, signaling a renewed commitment to American manufacturing competitiveness and technological innovation.
With billions of dollars of tax credits to incentivize domestic manufacturing, the entire US manufacturing ecosystem – the factories, workers and upstream and downstream partners – stand to benefit. Here are the top six IRA tax credits for manufacturers to explore and why they are beneficial.
JPMorgan Chase’s Third-Quarter Profit Drops 17% on Recession Planning - The nation’s biggest bank’s revenue rose 10% to $32.72 billion thanks to higher interest rates, strong Wall Street trading performance and continued consumer spending. But with Chief Executive Jamie Dimon warning a U.S. recession is likely in the next six to nine months, the bank set aside an additional $808 million for potential loan losses, part of $1.5 billion in total credit costs.
Morgan Stanley Reports Third-Quarter Profit Miss - A slowdown in market activity hit Morgan Stanley MS –4.14% ’s investment- banking business in the third quarter, contributing to a shortfall in third-quarter revenue for the group. At the same time, the financial services giant earned less from lending amid an environment of rising interest rates than Wall Street had hoped.
Citigroup Reports 25% Profit Decline in Third Quarter - Revenue rose 6% to $18.51 billion. Analysts expected $18.26 billion, Profit fell 25% to $3.48 billion, or $1.63 per share. Citigroup set aside $370 million for potential loan losses, part of $1.37 billion in credit costs that dragged down profit. A year ago, it was freeing up rainy-day funds.
Wells Fargo Says $2 Billion Charge Hit Earnings - Wells Fargo & Co’s earnings report is out. One head-turner: a $2 billion charge. The bank said the charge was tied to resolving its long-running legal and regulatory issues. The bank earned $3.53 billion, down 31% from $5.12 billion a year earlier.
Mortgage Rates Hit 20-Year High
The 30-year fixed-rate mortgage averaged 6.92% in the week ending October 13, up from 6.66% the week before, according to Freddie Mac. It is the highest average rate since April 2002. A year ago, the 30-year fixed rate stood at 3.05%.
Mortgage rates have more than doubled in the past year as the Federal Reserve pushed ahead with its unprecedented campaign of hiking interest rates in order to tame soaring inflation. The combination of the central bank’s rate hikes, investor’s concerns about a recession and mixed economic news has made mortgage rates volatile over the past several months.
Cargo Carrier Orders $5.6B Worth of Boeing Jets
Boeing reported an order for ten 777-9 Freighter aircraft from Cargolux, an all-cargo carrier based in Luxembourg. The contract – including options for six more 777-9Fs – would have an estimated value of $5.64 billion, based on list prices.
Boeing launched the 777-9 Freighter in January and already has booked orders for more than 50 of the new model, it said, noting it designed the aircraft maximize operating efficiency and environmental performance. The design will incorporate a new carbon-fiber composite wing and fuel-efficient engines, and it will be world's largest twin-engine cargo jet, according to Boeing, with the highest payload capacity and a 25% improvement in fuel efficiency, emissions, and operating costs over Boeing’s previous large freighter aircraft, the 747-400 Freighter.