FT : Traders wary of renewed Wall Street volatility

Traders wary of renewed Wall Street volatility
Benchmark tracking investors’ fear of fear trades above long-term averages

US stock markets have rebounded quickly after a dramatic start to August but trading in derivatives markets suggests many investors are not convinced the calm will last.

By Thursday the S&P 500 had erased the last of its month-to-date losses and the Vix index — Wall Street’s main gauge of expected market volatility — had fallen well below its long-term average of 20.

That is a marked improvement from the start of the month, when a series of disappointing economic data helped spark a global market sell-off. The S&P fell 6 per cent in the first three trading days of August and the Vix peaked above 65 — a level only reached a handful of times this century.

However, moves beneath the surface of the headline indices point to continued caution.

“Investors and markets are very sensitive right now,” said Mandy Xu, head of derivatives market intelligence at Cboe Global Markets, which operates the Vix. “If next week we got more data that showed the economy slowing more than expected . . . that could shift the whole narrative, in which case volatility levels would be quite different.”

One sign of anxiety that is being closely watched by traders is the “Vvix” — the expected volatility of expected volatility.

The more well-known Vix index is known as Wall Street’s “fear gauge” because it uses options tied to the S&P 500 to quantify how much investors expect the stock index to swing over the next 30 days.

The Vvix uses a similar calculation on derivatives tied to the Vix itself, showing how much investors expect fear to rise and fall over the same period.


The Vvix closed on Friday at 103.4, compared with a long-term average of about 90, and an average of 83 for the first seven months of this year. 

“There’s been a risk-on attitude . . . [but] the Vvix is saying we’re not fully back to where we started — there’s a little bit of anxiety sitting in pockets of the market,” said Garrett DeSimone, head of quantitative research at OptionMetrics.

DeSimone also pointed to the put-call skew — a way of measuring the relative cost of insuring against a decline in the S&P 500 over the next month — which has remained higher than its recent averages. A higher skew points to increased demand for protection against a market pullback, compared with bullish bets.

Although the S&P 500 is now in positive territory for the month, the gains have not been evenly distributed. Maxwell Grinacoff, US equity derivatives strategist at UBS, said “there has been rotation into defensive sectors amid recession fears”.

The best performing subsectors in the S&P 500 so far in August were consumer staples and healthcare, classic “defensive” areas. In contrast, the worst-performing were cyclical areas such as consumer discretionary, energy and materials.


Most observers agree that the Vix’s recent peak was encouraged by technical factors and overstated the true amount of risk in the market. A lack of liquidity during early-morning trading in some of the options that influence the Vix calculation caused it to overstate the true amount of risk in the market.

Grinacoff said similar technical issues had encouraged an overreaction in the opposite direction, as traders rushed to monetise short-term hedges they had taken out during the initial volatility. 

“We do think that volatility should normalise, it is mean reverting. But the speed at which it came down was a bit too far too fast,” he said. “We’re still not out of the woods yet.”

WSJ : How Israel Killed a Ghost

How Israel Killed a Ghost
Hezbollah’s commander Fuad Shukr lived a life so secret few knew his name or face before an airstrike killed him and helped put the Middle East on the brink of war

BEIRUT—Fuad Shukr had eluded the U.S. for four decades, ever since a bombing killed 241 American servicemen in a Marine barracks in the Lebanese capital, which it says he helped plan. At the end of July, an Israeli airstrike found him on the seventh floor of a residential building not far away.

The militant was one of the U.S.-designated terrorist group Hezbollah’s founders and most senior operatives, a longtime trusted friend of the leader Hassan Nasrallah who played a key role in developing the missile arsenal that has made Hezbollah the world’s best-armed nonstate militia. For the past 10 months, he had commanded the group’s increasingly intense cross-border skirmishing with Israel.

Yet despite being one of the most important figures in Hezbollah’s history, he lived an almost invisible life, appearing only in small gatherings of the group’s trusted veterans. He emerged in public early this year to attend the funeral of a nephew killed fighting Israel—but only for a couple of minutes, an acquaintance said. Shukr was so secretive that Lebanese media outlets reporting on his death published photos of the wrong man.

The commander few people knew spent his last day, July 30, in his office on the second floor of a residential building in the southern Beirut neighborhood of Dahiyeh, a Hezbollah official said. He lived on the seventh floor of the same building, likely to limit the need to move around in the open. Nasrallah said during his eulogy for Shukr that he had been in touch with him until just hours before his death.

That evening, according to the Hezbollah official, Shukr received a call from someone telling him to go to his apartment five floors up. Around 7 p.m., Israeli munitions slammed into the apartment and the three floors underneath, killing Shukr, his wife, two other women and two children. More than 70 people were injured, according to the Lebanese Health Ministry.

The call to draw Shukr to the seventh floor, where he would be easier to target amid the surrounding buildings, likely came from someone who had breached Hezbollah’s internal communications network, the official said. Hezbollah and Iran continue to investigate the intelligence failure but believe that Israel beat the group’s countersurveillance with better technology and hacking, the official said.

The killing was a major blow to Hezbollah, taking out one of the group’s best strategists and exposing the degree to which its operations have been penetrated. Paired with the death hours later of Hamas political leader Ismail Haniyeh in a suspected Israeli attack in Tehran, it also pushed the Middle East to the brink of a regional war that the U.S. is scrambling to head off.

“These targeted killings have a cumulative effect on the operational capability of the organization,” said Carmit Valensi, a senior researcher at the Institute for National Security Studies in Tel Aviv and expert on Hezbollah, referring to the Lebanese group.

“He was a source of knowledge,” she said of Shukr. “He knew how to work and communicate with Nasrallah. They spoke the same language.”

Shukr lived nearly his entire adult life at the heart of Hezbollah’s operations and decision-making and was a key link between the group and its main benefactor, Iran. In 1982, still in his early 20s, he helped organize Shiite guerrilla fighters in Beirut to oppose Israel’s invasion of Lebanon during its civil war.

After Israel laid siege to Beirut that year, the resistance retreated to the Bekaa Valley in eastern Lebanon, where it made contact with about 1,500 members of Iran’s Islamic Revolutionary Guard Corps who had arrived through Syria. Shukr at the time worked for the General Directorate of General Security, Lebanon’s government intelligence agency.

He was asked to escort a group of Iranian diplomats from the Syrian border to the embassy in Beirut, according to Qassem Kassir, a political analyst familiar with Hezbollah who had known Shukr since the early 1980s. The diplomats were abducted along the way—allegedly by the Lebanese Forces, an armed Christian faction—and never seen again. Shukr, as a state security employee, was let go.

Known by his nom de guerre, Hajj Mohsin, Shukr became the point man between the Iranians and the camp they established in the Bekaa to train Hezbollah militants, said Kassir, who worked at the Iranian Embassy in Beirut at the time. Shukr later traveled to Iran to oversee the training of elite Hezbollah forces.

Early in the morning of Oct. 23, 1983, a truck bomb containing an estimated 12,000 pounds of TNT exploded outside a U.S. Marine barracks in Beirut. Hezbollah had yet to officially declare its existence, and a group called Islamic Jihad took responsibility. The U.S. later said Shukr played a key role in planning and executing the attack.

Hezbollah formally announced its formation in 1985, and Shukr became its first military commander. He continued to wage a guerrilla campaign in the south until Israeli forces fully withdrew from the country in 2000 and earned a reputation as a strategic thinker with knowledge of the entire region.

“We used to joke with him in our sessions and in our meetings, and say that the engine of his brain was working with terrible force,” Nasrallah said in his speech. “He had a wealth of ideas and suggestions, and we would say to him: ‘Sir, you have to be patient with us.’ ”

On June 14, 1985, a group of hijackers seized TWA Flight 847 after takeoff from Athens, and flew the plane back and forth between Beirut and Algiers for three days demanding the release of 700 prisoners held by Israel. Shukr helped plan the operation, according to Kassir, and shortly thereafter went underground as his notoriety spread throughout Beirut.

“He became invisible,” Shukr’s acquaintance said.

Shukr commanded the respect of Hezbollah’s rank and file and occasionally appeared from hiding. During protests in Beirut in 1993 against the Oslo peace accord between Israel and the Palestine Liberation Organization, he personally intervened to convince a group of Hezbollah members to pull back from a clash with security forces and prevent bloodshed, this acquaintance said.

Some outings were more brazen. In 1996, after Israeli forces firing artillery shells killed more than 100 civilians sheltering in a United Nations compound in southern Lebanon, Shukr went on a pilgrimage to Mecca. Walking around the Kaaba, he led a large group of pilgrims in chants of “Death to America” and “Death to Israel,” said the acquaintance who accompanied him on the trip.

The secretive life took its toll on Shukr, who compensated for the time he lost seeing friends and associates by treating those around him, when he saw them, with extra attention and care, Kassir said. He was fiercely loyal to a close circle of friends, many of whom had come of age with him, including Nasrallah, who became Hezbollah chief in 1992 after Israel assassinated his predecessor.

“These high-rank military guys,” said Hanin Ghaddar, senior fellow and Hezbollah expert with the Washington Institute for Near East Policy, “are expected to have a very secretive life and mission—no public appearances, no photos to the public, and definitely no interactions with others in the Shia community.”

When the next devastating war hit Lebanon, in 2006, Shukr again was instrumental. He helped command the fighters who infiltrated northern Israel, killing eight soldiers and abducting two others, triggering a monthlong invasion that devastated parts of Lebanon.

After the war, Shukr oversaw a military buildup that expanded Hezbollah’s arsenal from some 15,000 rockets and missiles to about 150,000, including antiship and cruise missiles, drones, and rockets. He became the point man for Iran’s deliveries, through Syria, of components that turned unguided rockets into precision-guided ones, according to the Israeli military.

In 2008, Shukr’s friend and Hezbollah commander in chief Imad Mughniyeh was killed by a car bomb in a joint CIA-Mossad operation in Damascus, Syria. Mughniyeh was leaving a reception marking the anniversary of the Islamic Republic in Iran when he got into his car alone and a bomb hidden in a spare tire exploded.

In 2016, another Hezbollah friend Mustafa Badreddine was killed by an explosion, also in the Syrian capital. Hezbollah blamed Sunni militants for the killing, while Israel said he had been killed by his own men due to internal rivalries on Nasrallah’s orders.

Yet, in recent years Shukr appeared to grow more relaxed, Kassir said. His friends had been killed in Damascus, not Beirut, where a targeted assassination seemed unlikely.

“The rules of engagement with Israel were established,” Kassir said. “There were red lines.”

The rules held even after Oct. 7, when Hamas—a Hezbollah ally—attacked Israel and killed 1,200 people, most of them civilians, according to Israeli authorities. Hezbollah began firing at Israel the following day, setting off a back and forth in which Israel targeted and killed around 400 of the group’s operatives, including key commanders, but not in Beirut.

Nasrallah, concerned about the intelligence breakdowns that enabled the killings of his operatives, in February ordered his fighters and their families not to use smartphones: “Abandon your phone, disable it, bury it, lock it in a metal box,” he said. To prevent Israeli eavesdropping, Hezbollah resorted to using coded language not only on open channels but on their internal communications network as well, the Hezbollah official said.

Shukr came into Israel’s crosshairs after a rocket landed in a soccer field in Majdal Shams in the Israeli-occupied Golan Heights in late July, killing a dozen young people. Hezbollah denied involvement, but Israel blamed the group, saying the rocket was one of Hezbollah’s and came from Lebanon.

Early on the day Shukr was targeted, Hezbollah sent out orders for high-ranking commanders to disperse amid concerns they were at risk, the Hezbollah official said. After the strike, it wasn’t immediately clear whether he had been killed. Some in Hezbollah thought he might have heeded the evacuation orders and fled, the official said. It took a while to find his body. It had been flung into a neighboring building.

Shukr’s death finally brought him out of the shadows. At his eulogy, his face was printed on billboards and footage of his life on the battlefield was projected onto a large screen as a voice-over extolled his virtues at earsplitting volume.

He was buried in a public cemetery in Beirut alongside a young man who had died fighting in Syria, according to the fighter’s mother.

“We’d heard his name, but we never saw him,” said a young neighbor who sat on the pavement near the building where Shukr was killed. “He was like a ghost.”

>>> Barron's Weekend Summary

Barron's Weekend Summary: This fall, the most significant event for most Americans will not be the election

Cover:
-This fall, the most significant event for most Americans will not be the election as much as the first reduction in US interest rates in over four years. An expected rate cut by the Federal Reserve in mid-September will signal the start of the next phase of the monetary-policy cycle, with important consequences for the economy, financial markets, and consumers. If the Fed eases insufficiently in this cycle, the economy could tip into a recession, and if it cuts rates too quickly, it could reignite inflation and cause a speculative frenzy in the markets. However, if Fed Chair Jerome Powell and his colleagues execute a fabled soft landing, the central bank could execute a fabled soft landing that would keep the economy growing at a just-right rate without the threat of recession or pronounced inflation.

Interview:
-Jeff Currie, a seasoned commodity analyst, has been predicting the future of oil, coal, copper, and gold prices for decades. He spent 27 years at Goldman Sachs, eventually becoming the head of global commodities research. Currie's predictions about China's rise in the early 2000s and the U.S. shale boom in the 2010s have significantly influenced the investment conversation around commodities. This year, he was appointed as the chief strategy officer for energy pathways at Carlyle, analyzing commodity markets and investment ideas for the private-equity firm's infrastructure and energy teams. Currie recently spoke with Barron's about the latest moves in the markets and his belief that commodities have entered a new "supercycle" that will lift copper, gold, and oil prices.

Tech Trader:
-Tech executives initially believed that a new generation of AI-powered phones and PCs could boost demand for struggling consumer categories. However, recent evidence shows that the AI consumer shift is slow. Google's Pixel smartphones, featuring AI features like text-to-image generation and photo tweaking, have not been compelling enough to persuade people to buy a new $1,000 device. Apple also revealed incremental features for its Apple Intelligence rollout, such as text summarization and emoji creation. The outlook for computers may be worse than for phones, as despite initial excitement over AI PCs, the near-term optimism for PC demand is fading.

The Trader:
-Weight-loss drugs like Novo Nordisk's Ozempic and Wegovy and Eli Lilly's Mounjaro and Zepbound are causing concern among big food stocks and healthcare companies like Medtronic. Shares of Medtronic, which makes stents, pacemakers, and insulin pumps, are down slightly this year, despite the Health Care Select Sector SPDR index being up over 10%. Investors are concerned that weight-loss drugs may reduce demand for Medtronic's diabetes and cardiovascular products, as well as equipment for bariatric weight loss surgical procedures for obese patients. However, Medtronic has stated that the GLP-1 drugs won't hurt it over the long haul, with Chairman and CEO Geoff Martha stating that there was "zero impact" from weight-loss drugs on its insulin delivery business. He also acknowledged a "modest impact" from declines in bariatric surgery but added that this may be temporary and more people will become eligible for surgery as patients seek more permanent weight loss treatment.
-The Wall Street panic of Aug. 5 has faded, with the S&P 500 index up 3.7% this week, the Nasdaq Composite rising 5.1%, and the Dow Jones Industrial Average advancing 2.7%. Investors are now aware that the Federal Reserve is set to cut interest rates on Sept. 18, addressing the slowing economy. Traders will receive more information about the central bank's intentions during Fed Chair Jerome Powell's speech at the Kansas City Fed's annual Economic Policy Symposium event on Aug. 23. However, the market's mood has turned on a dime, and a growing sense of complacency has washed over Wall Street. The Cboe Volatility Index (VIX) has returned to more normal levels in the mid-19s after spiking above 65 during the panic.

Features:
-Indian companies have seen record inflows this year, with Goldman Sachs increasing its forecast for India's GDP in 2024. However, the country's economic gains are overshadowed by the violent crimes Indian women continue to face, which have put the nation's systems under a harsh spotlight. On Saturday, all hospital services, except emergency care, will shut down across the country, except for emergency care, as thousands protest the brutal gang rape and killing of a 31-year-old doctor in Kolkata. The medical strike is expected to be the largest in over a decade, closing most hospital departments. India celebrated its 77th anniversary of independence from British rule on Thursday. The optimistic portrayal of India's growing economic might has overlooked the reality of sexual violence, with women regularly reporting assaults, acid attacks, and female feticide.
-Vice President, and 2024 Democratic party presidential candidate Kamala Harris, has been pushed closer to the political center since President Joe Biden dropped out of the presidential race. In a speech in North Carolina, Harris emphasized the importance of creating opportunities for the middle class to advance their economic stability, security, and dignity. She emphasized the need for an opportunity economy and a vision of interventionist government that would expand upon the base built by Biden. Harris also called for government intervention at a micro level on issues popular with her base, such as enforcing limits on unfair profit-making in grocery stores, rolling back medical debt, and eliminating federally backed student debt. She also proposed cutting taxes on lower-income families with children and focusing on the housing market. Harris shares a willingness to wield government power in support of key constituencies, even if it involves significant economic risks

Europe:
-The World Health Organization declared a global health emergency and reported the first case of a new, more dangerous Mpox strain outside of Africa in Sweden. The Centers for Disease Control and Prevention recommends two vaccines to prevent Mpox, one manufactured by Bavarian Nordic and one by U.S. pharmaceutical company Emergent Biosolutions. Mpox vaccine makers Bavarian Nordic and Emergent Biosolutions surged after the news, but not all vaccine makers had a good run. US-listed Siga Technologies released disappointing trial data for a drug to treat Mpox, TPOXX, which failed to meet the primary goal of its study. Siga stock fell almost 20% Thursday and jumped 15.28% early Friday. Meanwhile, Bavarian Nordic's shares jumped 18.5% to 285 Danish crowns ($42) in Europe, adding to Thursday's gains. Bavarian Nordic's vaccine is the only one approved for Mpox in the U.S. and Europe, giving it a significant advantage over competitors and a potential upside to investors in terms of increased vaccine sales.

Emerging Markets:
- Emerging markets have been lagging behind U.S. stocks for years, but the prospect of rate cuts from the Federal Reserve has raised hopes that could change. However, investors and strategists are reassessing their assumptions due to market turmoil. Signs of the U.S. economy slowing down have raised concerns that the Fed may be too slow to change policy, raising the risk of a hard landing before rate cuts take hold. The Bank of Japan has raised interest rates for the first time in over a decade, leading to the unwinding of the popular carry trade. The Fed is expected to deliver a rate cut in September, but questions about how quickly it will lower borrowing costs and whether the US economy will miss out on the soft landing for which policymakers are aiming have raised questions about the benefits for emerging markets.

Commodities:
-Oil prices rose over 3% on Monday due to Israel's anticipation of a potential Iranian attack following the assassination of Hamas leader Ismail Haniyeh in Tehran. The Middle East, which holds over half of the world's oil reserves, has been a source of concern for markets, leading to higher crude prices. Brent crude futures settled up 3.3% to $82.30 per barrel, while West Texas Intermediate futures rose 4.2% to $80.06. The rise in crude prices has been supported by stronger-than-expected U.S. jobs data, which eased fears of a recession and boosted hopes for an interest-rate cut. Oil markets are also concerned about potential disruptions to supply chains if hostilities escalate. The assassination of Haniyeh, which Iran blames on Israel, has already heightened tensions and prompted concerns of a regional conflagration.

Streetwise:
-Starbucks’s new CEO, Brian Niccol has been praised for his efforts in leading Chipotle through a pandemic shutdown and turning it into an app-centric eatery. This strategy uses predictive analytics to shift workers between counter service and online pickups, reducing customer complaints and worker stress. However, Starbucks faces abandonment issues, with a high percentage of app users quitting after seeing wait times. This could be due to drink complexity or staffing issues. Starbucks' nominal U.S. wages have declined year over year, suggesting understaffing and potentially impacting consumer satisfaction.
Activist investors, such as Elliott Investment Management and Starboard Value, have suggested that the company's problems have straightforward fixes. Starbucks responded to media reports of long wait times earlier this year by describing tools that can predict transaction volume for each 15-minute increment. Staffing for each store is driven by a sophisticated set of data, including historical trends, current trends, planned promotions, and types of available product offerings. In conclusion, Starbucks is already doing big, fancy things to fix its problems, but the question of how low the fruit is remains.

>>> Week-end Papers Summary

FINANCIAL TIMES
-Global stocks have seen their best week since November as volatility eased and investors shook off fears of the US recession. Equity markets worldwide have rebounded sharply from a rout earlier in the month, buoyed by a reassuring run of US data pointing to resilient consumers and falling inflation. Wall Street's S&P 500 index broke a four-week losing streak to close the week up 3.9%, adding 0.2% on Friday for its strongest showing since November. The gains left the blue-chip benchmark just 2% below its record high, reached a month ago. Japanese stocks surged 3.3% on Friday for a weekly gain of 7.9%, while the Stoxx Europe 600 index added 0.3% to stand 2.4% higher. The MSCI World index of global developed market stocks also had its best week since early November.
-Schlumberger (SLB), the world's largest oilfield services company, is expanding in Russia following the exit of its main western rivals since Moscow's invasion of Ukraine. The Houston-based company has signed new contracts and recruited hundreds of staff in the country, despite Baker Hughes and Halliburton selling their Russian businesses to local managers in 2022. Swiss-based ABB chair Peter Voser acknowledges that some competitors may have a competitive advantage, but believes it's a short-term viewpoint that will bite them at some stage. In December, SLB's Russian business signed a contract with Russian oil and gas institute Vnigni to help it build models of oil and gas deposits for project development. The company has posted over 1,000 job advertisements since December, seeking roles ranging from drivers to chemists and geologists.
-Kamala Harris has unveiled parts of her economic program, including new tax relief for families and homebuyers and a crackdown on price gouging, to persuade voters she can tackle the cost of living crisis that has plagued the Biden administration. The Democratic presidential candidate laid out the plans in a speech in North Carolina, where her Republican rival Donald Trump delivered his own speech on economic policy earlier this week. With just over 80 days to go before November's US presidential election, Harris and Trump are battling for votes with just over 80 days to go before November's election. If elected president, Harris would focus on creating opportunities for the middle class to advance their economic security, stability, and dignity.
-Top auction houses are aiming to counter China's economic slowdown by opening new headquarters and exhibition spaces in Hong Kong. Christie's, a 250-year-old auction house, plans to move its regional headquarters to a 50,000 sq ft site in the new Henderson skyscraper in September. Rival Sotheby's has also moved to new offices in Hong Kong's business district. Bonhams, another top auction house, will open its new Hong Kong headquarters in September. The moves come despite a global art market slowdown, weaker luxury spending in China, and dwindling growth prospects in the country. ArtTactic reports that Hong Kong evening sales fell 40% by value in the first six months of this year, the lowest level since 2017.
-The US, Qatar, and Egypt have presented a proposal to bridge the gap between Israel and Hamas, following months of deadlock in talks to end the Gaza war and release Israeli hostages. The US-led talks are critical to securing a ceasefire in Gaza and easing regional tensions amid fears of a broader conflagration. The mediators, who are mediating the talks, said there is no further time to waste and that it is time to release the hostages and detainees, begin the ceasefire, and implement the agreement. The mediators presented Israel and Hamas with a "bridging proposal that is consistent with the principles laid out" in a plan endorsed by US President Joe Biden in May.
-Ukrainian authorities have warned residents near the eastern frontline to evacuate before the arrival of Russian troops, as Moscow continues its own offensive. Ukrainian troops are attempting to gain more Russian territory in the Kursk region, while Russia has made steady gains in Ukraine's Donetsk region. Military administration head Sergey Dobriak in Pokrovsk warned people to leave while there was time as Russian forces had advanced within 10km of the city. Russian-appointed authorities in Donetsk claimed that a Ukrainian missile targeted a shopping mall, causing at least two deaths and 11 injuries. The Ukrainian armed forces declined to comment on the incident. The Institute for the Study of War reported that Russian forces are maintaining their high offensive tempo in the Donetsk region.
-The clade 1 version of the mpox virus, specifically clade 1b, has spread rapidly in the Democratic Republic of Congo (DRC), with the WHO stating that it is associated with more severe disease and higher death rates than clade 2. The WHO advises people to avoid proximity with infected individuals or items they have used, such as bedsheets. Preventive measures, such as isolation, are advised to prevent the virus from spreading. People are infectious until all lesions have crusted over, scabs have fallen off, and a layer of skin forms underneath. The clade 1 case in Sweden is the first sign of an inevitable international spread. Pakistan has also confirmed a case of mpox from a traveler arriving from the Middle East, but did not say if the case is related to clade 1. The WHO is working closely with the Africa CDC, affected countries, and non-governmental organizations to control the outbreak.
-Singapore's annual National Day celebration showcased its military assets, ranking fifth in 2021. The parade, the first under new Prime Minister Lawrence Wong, is driven by rising geopolitical tensions and emerging cyber threats. Wong warned that tensions between the US and China are rising, and while they don't want to collide, they are engaged in a strategic rivalry that could undermine peace and stability in the region. The city state is rethinking its traditional stance of preparation and deterrence.
-Fortnite, a popular video game, is returning to iPhones in Europe and Android devices worldwide, four years after being removed from Apple and Google's app stores in a high-profile antitrust fight. The return of Fortnite to the two dominant mobile platforms and the launch of Epic Games' own mobile app store demonstrates how EU regulation is affecting Big Tech giants. Epic Games has credited the EU's Digital Markets Act, which forces digital "gatekeepers" to open up their platforms to rivals. Fortnite and other Epic Games titles Fall Guys and Rocket League Sideswipe are available on iOS in Europe and Android worldwide, through the Epic Games Store and alternative app stores.
-Chicago officials are preparing to host the Democratic National Convention next week, with 5,000 delegates and 12,000 volunteers expected to attend. The event will feature Kamala Harris and her running mate Tim Walz, but plans for protests against Israel's war in Gaza have evoked memories of the 1968 convention, when Chicago police brutally beat protesters against the Vietnam War. Graphic images of the clashes were broadcast worldwide, and university campuses were engulfed by anti-war protests. Despite changes to the Chicago Police Department in the wake of the 1968 violence, concerns about policing in the city have persisted. In 2019, a federal court imposed a decree requiring the CPD to improve its training, policies, and practices regarding civil rights. However, in 2020, police officers were criticized for their response to the protests and civil unrest following George Floyd's murder.

THE NEW YORK TIMES
-In a roughly 30-minute speech in Raleigh, N.C., Kamala Harris painted a sharp contrast between herself and Mr. Trump, who has spent more time attacking President Biden's economic policies than laying out his own. Harris said that this election is about two very different visions for our nation. One — ours — focused on the future and the other focused on the past. We see that contrast clearly in many ways, including when it comes to how we think about the economy. Harris emphasized that she would create opportunities for the middle class that advance their economic security, stability, and dignity. Together, we will build an opportunity economy where everyone can compete and have a real chance to succeed. Everyone, regardless of who they are or where they start, has an opportunity to build wealth for themselves and their children.
-Russia is advancing towards the strategic eastern Ukrainian town of Pokrovsk, according to open-source battlefield maps. This move raises doubts on Ukraine's hopes that its cross-border offensive will prompt Moscow to scale back its attacks elsewhere. After capturing several villages and pushing along a railway line, Russian forces are now about eight miles from Pokrovsk, one of Ukraine's main defensive strongholds in the Donetsk region. The capture of the city would bring Russia closer to its long-held goal of seizing the entire Donetsk region, much of which it already controls. Pokrovsk, with a prewar population of about 60,000, sits on a key road linking several cities that form a defensive arc protecting the part of Donetsk that is still held by Ukraine.
-South Korea, once under American promise to defend its country with nuclear arms, is now considering relying on its own nuclear arsenal. President Biden reiterated this commitment last year, stating that any nuclear attack by North Korea would lead to the destruction of its government. However, decades of American assurances have failed to deter North Korea from building a nuclear arsenal and expanding it. Led by Kim Jong-un, North Korea has become more provocative, testing missiles powerful enough to reach the United States. Additionally, it has reviving a Cold War-era defense agreement with Russia, another nuclear-armed state. The South has long considered it a taboo to pursue atomic weapons in defiance of Washington's nonproliferation policy. The jitters about security in the South have been intensified by the possible re-election of former President Donald J. Trump, whose commitment to the alliance between Washington and Seoul appears to be shaky at best.
-The Supreme Court has temporarily blocked Education Department rules aimed at protecting transgender students from gender identity discrimination in several Republican states. The order allowed lower courts in Louisiana and Kentucky to maintain halts on federal rules prohibiting discrimination against transgender people in schools. The order came in response to a challenge by the Biden administration, which asked the Supreme Court to intervene after several Republican-led states sought to overturn the new rules. The order allowed rulings by lower courts in Louisiana and Kentucky to remain in effect in about 10 states as litigation moves forward. The decision provided a glimpse into how the current Supreme Court might address transgender rights.
-The United Nations Secretary General, António Guterres, has called for a weeklong cease-fire in Gaza to allow vaccinations to prevent an outbreak of polio, stating that many children are at risk. He spoke just hours before the first case of polio in the enclave in many years was confirmed in a statement from the Gaza health ministry. Guterres said that preventing and containing the spread of polio will take a massive, coordinated, and urgent effort, adding that it is impossible to conduct a polio vaccination campaign with war raging all over. He also warned that the disease could spread to neighboring countries if it were not quickly contained.
-Iran is expected to delay planned reprisals against Israel for the assassination of a top Hamas leader in Tehran to allow mediators time to make a high-stakes push for a cease-fire to end the war in Gaza. Top American, Israeli, Egyptian, and Qatari officials met in Doha, Qatar, for a second day of talks on Friday to resolve remaining gaps between Israel and Hamas. A joint statement from the United States, Egypt, and Qatar said a "bridging proposal" had been presented to both parties. Senior officials from those three governments are expected to reconvene in Cairo before the end of next week.
-Nemat Shafik, the first woman to lead Columbia University, was in a difficult position due to the Israeli-Hamas war and the university's disintegration into factions. She was seen as a peerless pick and a globally minded economist. However, her response to the war was uneven, leaving her with few allies and a campus where she was perceived as insular. By summer break, she had been vilified on campus and in Congress as an ally of antisemitism, a turncoat to academic freedom and free speech, and an enfeebled leader who allowed pro-Palestinian protests to escalate into lawlessness. University officials began weighing police powers for campus security officers. Dr. Shafik was deeply unhappy and believed there was little trust in her administration. She decided to resign from Columbia, accept the British Foreign Office's offer to chair an outside review on development policy, and return to her peerage in the House of Lords.
-Thailand's new Prime Minister, Paetongtarn Shinawatra, has been chosen by lawmakers after a court ousted the previous prime minister, Thaksin Shinawatra. Shinawatra, also known as Ung Ing, is the third and youngest child of the tycoon, who was prime minister from 2001 to 2006. The political parties he founded, including the Pheu Thai party his daughter now represents, consistently won elections. Thaksin was removed in a coup but has wielded influence even while living in exile to escape corruption charges. His uncle, Somchai Wongsawat, was also removed as prime minister in 2008 when the Constitutional Court ordered the dissolution of his party.

THE NEW YORK POST
-Donald Trump has enlisted the help of former Democratic Hawaii Rep. Tulsi Gabbard, who has experience debating Kamala Harris, for his first debate against her. Gabbard, who was on Trump's running mate shortlist, participated in a strategy session with the former president at his Mar-Lago estate. The Trump campaign confirmed that the former Democratic congresswoman was helping the former president get in shape for his face-off with Harris. Gabbard has experience debating Harris dating back to their time as Democratic presidential primary candidates in 2019, and she unleashed a blistering attack on Harris' record as top prosecutor in the Golden State in one of their showdowns.
-Grocery giant Kroger has pledged to cut prices at Albertsons stores by $1B following its proposed acquisition of the rival chain. However, Wall Street is skeptical the deal will win government approval due to food inflation. Kroger is raising the stakes of the $25B deal since previously promising to lower prices by $500M across Albertsons stores. The deal aims to better position Kroger against Walmart, whose grocery prices are 25% lower than traditional supermarkets and have been gaining market share. Food prices remain 21% higher than they were when President Biden took office three years ago.

FT : Who’s afraid of Elon Musk?

Who’s afraid of Elon Musk?
Is the combative entrepreneur fanning the flames of far-right politics or is he just ‘an angry man screaming into a hurricane’?

Shortly after Elon Musk announced his intention to buy Twitter in April 2022, the billionaire entrepreneur tweeted that for the social media platform “to deserve public trust, it must be politically neutral, which effectively means upsetting the far right and the far left equally”.

Up until that point, the right had repeatedly claimed that Twitter was a progressive mouthpiece, overrun with West Coast liberals who censored views or news they disliked.

Two years on, that notion has been turned on its head. X is now facing accusations that it has become a vehicle for the political views of its owner, who has veered sharply to the right and frequently grandstands on domestic and international affairs.

Over the past few weeks, Musk has enraged police and politicians in the UK by characterising far-right riots in Britain as a “civil war”, making incendiary attacks on prime minister Sir Keir Starmer for clamping down on them, and sharing falsehoods originally posted by the white supremacist group Britain First. In Europe, the EU commissioner Thierry Breton threatened on Monday the “full use” of sanctions under EU law if Musk fails to curb “illegal content”.

In the US, Musk has thrown his full weight behind Donald Trump’s 2024 presidential campaign, hosting a gushing, two-hour interview with the Republican candidate this week and pitching himself as an adviser in a potential Trump White House.

“No one’s themselves in an adversarial interview,” Musk said, setting the tone at the start of the conversation with Trump, just hours after posting a meme directed at Breton urging him to “fnck your own face”.

To his enthusiastic supporters, Musk is a truthteller willing to defend freedom of speech no matter how unpopular. To his critics, Musk’s commentary has exposed as never before the risks of having a political agitator at the helm of one of the world’s top social media platforms and sources of news.

“What’s ironic is that the worst fears of conservatives for years — that the owner would act in a politically biased way — have now happened, but they’ve happened in favour of the rightwing,” says Eli Pariser, co-director of New_ Public, a non-profit organisation focused on building safe digital public spaces. “This is why a ‘global town square’ should not be owned by a Silicon Valley company.”

Musk’s recent provocations also underscore his journey from celebrated innovator to divisive ideologue. For all his achievements in the fields of renewable energy, transportation and space, he is now seen just as much as a troll as a trailblazer.

But for all the noise, can Musk actually sway elections and present a threat to international stability? Or is he merely piggybacking on to events for clicks and showmanship? Musk, says investor and activist Roger McNamee, “may be an angry man screaming into a hurricane”.

As the owner of X, Musk says he is protecting a vision of absolute free speech and eradicating biases that were pervasive under previous liberal management.

Since acquiring the platform for $44bn, he has loosened its moderation policies, allowing previously suspended accounts to return, including that of Trump as well as far-right and white supremacist figures Alex Jones and Tommy Robinson. He has also implemented volunteer moderation features such as “community notes” to help with fact-checking, rather than take down inaccurate or offensive posts.

This year, Musk has increasingly inserted himself into political events at home and abroad. Shortly after the assassination attempt on Trump, Musk publicly endorsed the former president for the first time, and has since said he has contributed to a pro-Trump super Pac.

For years, Republicans complained that social media platforms more broadly were biased against conservative voices. Now, Democrats are the ones complaining.

Jerry Nadler, a congressman from New York, recently called for an inquiry into reports of X users being blocked from following Kamala Harris after she became the party’s presidential candidate. Last week, a popular X account in support of Kamala Harris called “White Dudes for Harris” complained that it had been labelled as spam after being falsely accused of manipulating the platform. Another group, Progressives for Harris, was also temporarily suspended earlier this month.

Experts warn that it is hard to decipher what are technical glitches or errors in moderation enforcement versus deliberate attempts to suppress speech, particularly in the wake of Musk firing many of the company’s communications and policy workers.

“One of the first things that Musk did was remove and lay off whatever infrastructure existed for some transparency into how Twitter was making decisions and what its community guidelines were and how it is being enforced,” says New_ Public’s Pariser. “This has allowed him not only to make more spur of the moment impulsive decisions, but to do [so] with total opacity. When you have a lot of power and no transparency, people have the right to wonder.”

Regardless of whether Musk tinkers with the platform under the hood to further a political agenda or not, there is still the question of the impact of his own X posts, as the most popular account on the platform with nearly 195mn followers.

Musk has previously ordered engineers to manipulate X’s algorithm to juice impressions of his own posts, per media reports (which he tacitly acknowledged in a post). In a sign of his clout, analysis by the Financial Times found that Musk’s recent interactions with far-right accounts and hashtags had significantly boosted their reach, including among users who would not normally be served this type of content.

In the US, ahead of the November vote, some experts warn that Musk’s tendency to share what they deem to be baseless election misinformation or conspiracy theories in particular could be harmful to the democratic process.

The Center for Countering Digital Hate last week found that election claims from Musk that it deemed to be “misleading” — including allegations of Democrats “importing voters” and an AI “deepfake” clip of Harris — had been viewed 1.2bn times on X, with no fact checks or ‘community notes’ appended.

This month, five secretaries of US states wrote an open letter to Musk complaining of election-related misinformation appearing in Grok, the AI chatbot on X.

Musk is unlikely to cause a voter to switch parties in the US, says Katie Harbath, global affairs officer at Duco Experts and previously chief digital strategist for the National Republican Senatorial Committee. But she argues he could have an impact on “voter turnout” if he amplifies misinformation about violence at the polls, for example.

“What I’m most worried about is Elon turning up the rhetoric and heat in a way that could lead to offline violence,” adds Harbath, also a former Meta public policy director.

Quantifying the extent to which online speech can spill over into the real world can be tricky. But already in some countries, Musk’s wading into debates appears to have energised certain local groups.

In Brazil for example, the entrepreneur has been adopted as a talismanic figure by conservatives for pushing back against requests to take down certain popular far-right accounts, calling on a supreme court justice to “resign or be impeached”.

Leonardo Meira Reis, analyst at Eurasia Group in Brasília, warns Musk’s statements on X “have practical repercussions in a deeply divided country like Brazil,” adding: “Musk is not responsible for the political polarisation in Brazil, but his actions make it more evident.”

Meanwhile, researchers at the Network Contagion Research Institute at Rutgers University have found that extremist groups have viewed Musk’s takeover as an opportunity to rejoin the platform en masse. In one report, the Institute found X hashtags in Ireland being used to mobilise anti-immigration demonstrations, just months before public unrest and rioting erupted in the capital.

In the UK, police and analysts say the recent riots were fuelled by X as well as other social platforms, with Musk perceived as fanning the flames. Many fear there is more to come. “The way social media is making headlines currently is not without precedent: a fragile narcissist posting relentlessly on a social network he’s made his own,” wrote Bruce Daisley, former head of Twitter’s operations in Europe, the Middle East and Africa, in an oped. “We know well how this has ended in the past; Donald Trump’s furious posts after his election defeat led to the assault on the Capitol on 6 January 2021.”


Nevertheless, some experts argue that there are limits to Musk’s influence. Under its new owner, X’s cultural significance has been declining and the platform remains far smaller in scale than dominant rival Meta. X’s global user numbers are 359mn, according to data from Emarketer, compared with more than 2bn at Meta’s Facebook.

Others note that many liberals say they are decamping to alternatives such as Meta’s clone Threads, leaving Musk preaching to the converted. “Luckily, X is still not where most people get their news,” says Anupam Chander, a law professor at Georgetown University. “So he can drive a conversation but that doesn’t mean he has the last word.”

Attempts to curb Musk and X have been scattergun. In the EU, leaders are invoking the Digital Services Act, which places responsibilities on social media platforms to police hate speech and disinformation. Under the new rules, if a platform refuses to stop activity that could “cause serious harm”, the EU commission could instruct telecom providers in the member state where the company is based to switch off access to the site.

In the US, there are fewer mechanisms to prevent Musk from using the platform he owns to promote a political agenda or spread misinformation. Traditional news organisations have long had clear rules about how to maintain editorial independence but tech platforms do not fall within that scope, and are protected not only by the First Amendment but also by Section 230 of the Communications Act, which shields them from liability for the content they host.

Emily Bell, a professor at Columbia University journalism school, argues that Musk’s freedom to play the role of strident media baron is a result of Silicon Valley’s long-running aversion to internet regulation creating a regulatory vacuum.

“With Elon Musk, you have the consequence of a world that has been carefully created by a legal argument that says that [social media platforms] are capable of self-regulation,” Bell says. “Elon has come along with a lot of money and he’s leaned on a rotten door and it’s given way. It is a deliberate systemic failure and the platforms are all complicit in that.”

FT : Auction houses aim to lure Asia’s ultra-rich with new openings

Auction houses aim to lure Asia’s ultra-rich with new openings
Bonhams, Christie’s, Phillips and Sotheby’s open Hong Kong headquarters and expand exhibition spaces and sales

The world’s top auction houses are looking to the ultra-rich to defy an economic slowdown in China and boost their Asian sales, as they open new headquarters and exhibition spaces in Hong Kong and unveil an amped-up sales schedule.

The 250-year-old auction house Christie’s will move its regional headquarters to a 50,000 sq ft site in Hong Kong’s new Henderson skyscraper in September. It hopes to increase the volume of items sold in Asia by hosting a year-round schedule of auctions there.

Rival Sotheby’s unveiled a new retail site in the heart of Hong Kong’s business district in July, and has moved to new offices in the city. Bonhams, another of the world’s top auction houses, will open its new Hong Kong headquarters in September, while Phillips occupied a new site last year.

The moves come despite a slowdown in the global art market, drastically weaker luxury spending in China and dented growth prospects in the country.

Sales of art at Hong Kong evening sales, which refer to the most prominent auctions, fell 40 per cent by value in the first six months of this year compared with a year earlier, hitting their lowest level since 2017, according to research group ArtTactic.

China’s economy eked out growth of 4.7 per cent in the second quarter of this year, below estimates, and has been struggling with persistently weak consumption, with some analysts cautioning this would affect the art and luxury industries.

Francis Belin, Christie’s president for Asia, disagrees. “[Overall] Luxury numbers are not great in China . . . but our aggregate numbers, I don’t think, reflect the macro,” he said, adding that clients in the region — 80 per cent of whom come from mainland China, Taiwan or Hong Kong — were concentrated at the ultra-high end, largely insulating them from any economic slowdown.

“To buy the objects that we sell, you don’t need just to have money, you need to have a lot of money . . . it’s a very small pool.”

Asians accounted for 41 per cent of buyers in the company’s luxury sales in the first half.

The rarer objects sold by the auction house were more likely to exhibit a “de-correlation” to negative macroeconomic events, he maintained.

“What happens in China, consumption is weak . . . [But] is a rare object a way for you to keep your money as opposed to real estate or bonds or stocks? . . . I think so.”

Nonetheless, Asian buyers’ contribution to Christie’s total auction sales fell from 39 per cent in mid-2021, when the company announced its plan to move to the new site, to 21 per cent in the first six months of this year.

The company’s recent sales for 21st century art in Hong Kong fell short of their low estimate, while sales of 20th century art were just in line.

But Belin said only about half of Asian clients’ spending at Christie’s typically occurred in Hong Kong, meaning that there was still untapped demand to bring more sales to the city.

“We have consistently seen Asian collectors be more active overseas . . . than they could be actually in Hong Kong,” he said.

Rival auction group Sotheby’s, which has also struggled with slowing global auction sales and job cuts in recent months, began a foray into Asian retail last month. The two-storey “maison” it opened in a mall in Hong Kong’s Central district will sell rare books, paintings and sculptures ranging from HK$5,000 (US$640) to HK$50mn.

“On the prospects of China ultra-high net worth, we see still at the very top end of the market . . . some very, very high ticket prices from Chinese collectors,” Nathan Drahi, managing director for Sotheby’s Asia, said at the opening, adding that more than a third of buyers at the company’s recent New York auctions came from Asia. “We believe in the long-term prospects . . . of that market.”

But Meg Maggio, a Hong Kong-based art adviser and global managing director of Pearl Lam Galleries, said that while she saw underlying strength in the arts and luxury sectors, the expansion came at a “skittish” time for the market given rising geopolitical uncertainty and “fierce” competition.

“The challenge is: are there going to be too many auctions and too many auction house activities in Hong Kong? Are they saturating the market?” she asked.

FT : The mysterious appeal of the superyacht summer

The mysterious appeal of the superyacht summer
What better way for the mega-rich to show off their powers than to corral famous people on board and hold them captive for sport?


I wonder if the Beckhams suffer from the pruney, shrivelled fingers that come from bathing in briny waters? How Kevin Costner keeps his white shorts so sparkly. And whether Beyoncé experiences that unique discomfort that develops while sitting in one’s soggy bikini bottoms for too long? 

These are just some of the questions I ask while admiring the 0.1 per cent aboard their boats each summer. For many, the season is initiated by the lengthening of hours in a day, or the beginning of the school recess. For me, the start of summer is marked by the first paparazzi images to emerge of the actor and climate activist Leonardo DiCaprio cruising in the sun.

No one enjoys, nor lives the superyacht summer so completely as DiCaprio: the usually reclusive 49-year-old seems to come alive the moment he sets foot aboard the deck. At a time when the news cycle is ordinarily sluggish, I am endlessly entertained by DiCaprio’s life of leisure, whose chief entertainments include gambolling through the waves astride a jet ski (no carbon footprint there eh, Leo?) and keeping in proximity to whichever supermodel’s derrière he has deigned to squire this year. 

His current squeeze appears to be the brunette Italian model Vittoria Ceretti (keep up, guys) who, at 26 years old, is thought to be the first girlfriend he has engaged beyond the quarter-century mark. I don’t begrudge DiCaprio his instincts. He represents the person — like a young Jack Nicholson — we all aspire to be. He sates every tiny appetite. And embodies the essential creed of not seeming to have a single care. Not for him the petty vanities of six-packs or full body tanning: he just wants to let it all hang out, unleash his inner five-year-old, and plunge gleefully into the sea. 


This summer has found DiCaprio holidaying aboard the yacht Koru, with Jeff Bezos and Lauren Sánchez, to whom Bezos became engaged last year. The world’s second-richest man has afforded DiCaprio some downtime as one of the cluster of celebrities sucked into Bezos’s orbit. Singer Katy Perry and her little Legolas Orlando Bloom have made up the odd sextuplet seen bobbing about Sardinia this past week. 

The Koru took four years to build at the cost of an estimated $500mn. It’s just one of the post-divorce assets Bezos has acquired — along with celebrity acquaintances and ferocious biceps — following his split from MacKenzie Scott in 2019. The 417-foot schooner is said to be an homage to his new beloved, with a busty figurehead at its bow that bears an uncanny likeness to Sánchez. As with his US Vogue shoot, and his too-tight cream trousers, Bezos’ mid-life era acquires another cliché every month.

But whatever. Every billionaire should have a big boat: it’s what being a billionaire is all about. Bernard Arnault’s Symphony boasts interiors by Zuretti, a cinema and grand piano, while the Octopus, built for Microsoft’s Paul Allen, has a large pool, a hangar for two copters and two helipads. Big yachts are, as pointed out by the FT’s unofficial boat correspondent Brendan Greeley, “a terrible asset”. And yet, they remain an almost irresistible indulgence for the super-rich. After all, what better way to boast your superpower credentials than to round up flocks of famous people, get them to take their clothes off, and hold them captive for your sport?

Sadly, the charms of superyachts evade me: I see them only as prisons on the sea. The thought of being moored for days with only bare acquaintances — while wearing a bikini, for God’s sake — strikes me as one of the more appalling ways to spend one’s down time. And that’s before the nagging nausea of all that floating, the persistent threat of drowning or being whacked across the head. All those bloody ropes, all that tack and jibing. And while, yes, I know that superyachts aren’t really boats as I might recognise them, there’s still no escaping that fact that, you know, it’s all quite wet. 

Add to that the bougie cocktail parties, the endless peacocking, plus the dilemma of how to pull off a cocktail dress while having to pad around in deck shoes, or worse, bare feet. I hope Bezos retains a podiatrist aboard the Koru: DiCaprio may be unkempt but he is by no means gnarly, and I need to know someone is attending to his toes.

I envy not these people on their superyacht adventure: examining Bezos’s onshore excursions I feel not one jot of jealousy. I’m just thrilled he’s ponied up for more DiCaprio content. “The king of the world”, forever: our prince of the vacation seas. 

Barrons : Fed’s Powell Will Set the Stage for the First Rate Cut in Years at Jac

Fed’s Powell Will Set the Stage for the First Rate Cut in Years at Jackson Hole
The chair will lay the groundwork for the central bank’s next phase of monetary policy. It will be the highest-stakes event for the economy and markets this fall.

The most consequential event this fall won’t be the U.S. election, a war in the Middle East, or even baseball’s World Series. For most Americans, it will be the first reduction in U.S. interest rates in more than four years. An expected rate cut by the Federal Reserve in mid-September won’t change the price of eggs or businesses’ hiring plans overnight, but it will signal the start of the next phase of the monetary-policy cycle, with important consequences for the economy, financial markets, and consumers.

The most consequential event this fall won’t be the U.S. election, a war in the Middle East, or even baseball’s World Series. For most Americans, it will be the first reduction in U.S. interest rates in more than four years. An expected rate cut by the Federal Reserve in mid-September won’t change the price of eggs or businesses’ hiring plans overnight, but it will signal the start of the next phase of the monetary-policy cycle, with important consequences for the economy, financial markets, and consumers.
If the Fed eases insufficiently in this cycle, the economy could tip into a recession. If it cuts rates too quickly, it could reignite inflation, not to mention a speculative frenzy in the markets. But if Fed Chair Jerome Powell and his colleagues thread the needle just right, the central bank could execute a fabled soft landing that would keep the economy growing at a just-right rate without the threat of recession or pronounced inflation.

There is a decent chance, this time, that the Fed will succeed.

Powell’s keynote address on Aug. 23 at the Fed’s annual Jackson Hole Monetary Policy Symposium will lay the groundwork for the coming shift in rates, spurred by the deceleration of inflation in the past two years toward the central bank’s 2% annual target and policymakers’ desire to get ahead of a softening labor market. Expect Powell to reiterate that the Fed’s decisions are data-dependent, while confirming Fed officials’ dovish stance.

July’s consumer- and producer-price-index readings, released this past week, set the stage for another benign inflation print on Aug. 30, when the government releases last month’s personal consumption expenditures price index, the Fed’s preferred inflation gauge. The year-over-year CPI inflation rate fell to 2.9% last month, the first reading below 3% since the spring of 2021. Recent monthly readings are at a pace that would total 2% or less if they continue for a year.

The jobs and inflation reports for August, to be released in early September, will be the last major economic releases ahead of the Federal Open Market Committee meeting on Sept. 17-18. Markets are betting that the Fed will cut the federal-funds rate by at least 25 basis points, or a quarter of a percentage point, at that meeting, bringing the target range down to 5.00%-5.25%.

The Fed last lowered rates in March 2020, at the start of the Covid-19 pandemic, to a range of 0%-0.25%, before embarking on a hiking cycle in March 2022 to cool inflation, which peaked several months later at 9% year over year. All told, Fed officials raised rates 11 times, to a target range of 5.25%-5.50%, which they have maintained since July 2023.

With a September rate cut all but assured, the debate on Wall Street increasingly is shifting to what the easing cycle will look like thereafter. The Fed’s latest Summary of Economic Projections, released at the conclusion of the FOMC meeting in June, implies a quarter-point cut per quarter through the end of 2026, culminating in a longer-term fed-funds rate of 2.8%. Officials’ next so-called dot plot of rate projections will be released after the September FOMC meeting.

Futures markets are betting on a more aggressive, front-loaded easing cycle. Current pricing implies the greatest odds of a full percentage point of cuts before the end of 2024, followed by another percentage point of cuts in 2025.

Importantly, the path of the rate-cut cycle will depend on why the Fed is cutting. Will it lower interest rates to rescue the economy from a recession, or merely normalize rates that have grown too restrictive? The U.S. economy’s so-called neutral rate of interest—a rate that neither stimulates nor restricts economic activity—would be the end point in the normalization scenario. Economists’ estimates of that unmeasurable rate tend to fall in the 3%-3.5% range today, well above where it is thought to have been in the years preceding Covid.

Interest-rate expectations have been on a roller-coaster ride this year, soaring or swooping with nearly every data release or Fed pronouncement. Expect another loop-the-loop or two before 2024 draws to a close.

In January, futures markets were pricing in more than 1.5 percentage points of rate cuts in ’24, based on the prior quarter’s deceleration in price growth. By the spring, after a series of hot inflation reports, many traders, investors, and even Barron’s saw no likelihood of a rate cut this year. But by August, after interest-rate expectations had taken a few more hairpin turns, tamer inflation readings and evidence of slowing job growth had markets betting on a series of cuts through the fall.

Soft-landing wagers are prevalent on Wall Street, and not without reason.

The economy isn’t in or on the precipice of a recession. Conditions have cooled off from overheated postpandemic levels, but jobs remain plentiful, consumers are spending, and economic output is growing. Real U.S. gross domestic product rose at a 2.8% annualized rate in the second quarter, and the Federal Reserve Bank of Atlanta’s GDPNow estimate puts growth at 2.0% in the third quarter.

As for the labor market, the unemployment rate climbed to 4.3% this July from 3.4% in April 2023. That is still lower than during 75% of months in the current century, and employers continue to add jobs even as the unemployment rate rises. In other words, the recent increase has been driven primarily by the growth of the labor pool, not layoffs.

“I don’t think the labor market in its current state is a likely source of significant inflationary pressures,” Powell said in his post-FOMC news conference on July 31. “So, I would not like to see material further cooling in the labor market.”

That said, the labor market recently gave economists and investors a scare. On Aug. 2, the Bureau of Labor Statistics reported a gain of 114,000 in July’s nonfarm payrolls, far below the past year’s average monthly addition of 215,000 jobs. The uptick in the unemployment rate, from 4.1% in June, triggered the Sahm Rule recession indicator, which posits that a recession has begun once the three-month moving average of the unemployment rate exceeds its low from the prior year by at least half a percentage point. But even Claudia Sahm, the former Fed economist who codified the rule, doesn’t think a downturn is imminent.

“The expansion remains intact, and the job market right now is in a fine place, but in order to keep it there, we think policy restriction needs to be dialed back somewhat,” says Wells Fargo senior economist Sarah House.

Monetary policy famously works with “long and variable lags,” as the economist Milton Friedman said in the 1950s. That is motivating the Fed to get ahead of further labor-market weakness by cutting rates before unemployment spikes further. The Powell Fed was widely panned for being late to hike rates at the front end of the cycle, declaring inflation “transitory.” Presumably, it is keenly aware of the reputational risk of being too late to cut them now.

“It makes sense to take a risk-management approach here,” says Evan Brown, head of multi-asset strategy at UBS Asset Management. “If it turns out they cut rates too soon and we get an inflation acceleration, they can deal with that down the road. But it’s much harder to interrupt the negative spiral of rising unemployment and falling consumer spending if they’re late on that.”

Based on futures market pricing as relayed by the CME FedWatch tool, the odds of a quarter-point rate cut at the September FOMC meeting stood at 73% Friday, although they have fluctuated widely in the past month. Tom Porcelli, chief U.S. economist at PGIM Fixed Income, favors a larger, half-percentage-point cut.

“Fed policy is calibrated for notably higher inflation than we have today,” says Porcelli. “The inflation half of the Fed’s mandate has essentially been met, while the employment side is showing some deterioration. It’s time for them to act.”

Porcelli also argues for a front-loaded cutting cycle. Wells Fargo economists expect half-point cuts at the Fed’s September and November meetings, then another quarter-point reduction in December.

But conditions in the economy and markets would need to deteriorate further for the Fed to deliver a jumbo cut in September. “There are two main paths to a [half point] cut in September,” says Goldman Sachs chief economist Jan Hatzius. “The first is another downside surprise in the next jobs report. The second is renewed sharp tightening in financial conditions and/or a rise in financial stress that creates greater economic risks.”

Hatzius expects the Fed to cut rates by a quarter of a percentage point at all three of its remaining meetings in 2024, as do Morgan Stanley’s chief U.S. economist, Ellen Zentner, and Rick Rieder, BlackRock’s chief investment officer of global fixed income.

A half-point cut in September could be counterproductive, says Antulio Bomfim, head of global macro for the global fixed income team at Northern Trust Asset Management. “It could send a message that policymakers are panicking about the economy, that they are seeing something that we are not, and then it becomes a self-fulfilling, perverse cycle,” he says.

For the real economy, the difference between a quarter-point and half-point reduction in the fed-funds rate in September isn’t make-or-break. But it is psychologically significant in the message it sends to markets and consumers.

Don’t expect a formal plan from the Fed, either at Jackson Hole or subsequently. Rather, rate cuts will be data-dependent, with decisions made on a meeting-by-meeting basis, at least initially. Promising to cut by too much too soon would risk a repeat of the 1970s experience of resurgent inflation after the Fed took its foot off the monetary brakes.

“The joke goes that ‘economists spend half of their time forecasting and the other half of their time explaining why their forecast didn’t work out,’ ” says Bomfim. “It would be really hard for policymakers to provide precise forward guidance in an environment like this, at an inflection point for the economy.”

Richard Bernstein, CEO and CIO of Richard Bernstein Advisors, advocates that the Fed take a wait-and-see approach and delay any rate cuts. He points to rising container shipping rates and still-elevated wage growth as indications that inflation might not be vanquished. “The liquidity junkies on Wall Street have forgotten the role of the central bank,” Bernstein says. “Where, exactly, is the tightening of credit in the financial system? Where is the stress on bank balance sheets? The answer is, it’s nowhere to be seen.”

To be sure, the market has already done some of the Fed’s work on easing. Bond yields, which move inversely to prices, have tumbled since the spring, particularly yields on bonds with shorter maturities. The yield on the two-year U.S. Treasury note has dropped by nearly a percentage point since late April to about 4%, as markets have priced in rate cuts this year and next.

“At the front end of the yield curve, there’s almost no juice left, with [futures] pricing in more than four cuts this year,” says BlackRock’s Rieder. “There isn’t a lot of money left to be made there unless you really think the economy is going to slow dramatically, which I don’t.”

The BlackRock Flexible Income exchange-traded fund (ticker: BINC), which Rieder manages, has a weighted average maturity of five years, in the so-called belly of the yield curve. The $3.7 billion ETF is heavily weighted in high-yield corporate bonds and securitized products such as collateralized loan obligations, where payouts are more attractive and credit risk is modest in a no-recession scenario, Rieder says. It has a 6.5% yield and an average rating of BBB+, in the middle of investment grade.

For equities, a still-expanding economy paired with declining interest rates is as close to a Goldilocks backdrop as investors can get. It would mean more earnings growth for more companies and a boost to valuations from lower yields.

“The equity market tends to cheer on the idea of Fed cutting, but it depends on why the Fed is cutting,” says PGIM’s Porcelli. “If the tone is that they’re cutting because recession risks are rising, that tends not to bode too well for equities.”

Fed officials, economists, and policymakers will descend on Jackson Hole, Wyo., in just a few days to discuss this year’s wonky but unusually relevant symposium theme, “Reassessing the Effectiveness and Transmission of Monetary Policy.”

The coming months could see much more policy evaluation.

Whether the U.S. economy enjoys a soft landing will depend largely on the Fed’s prowess and consumers’ and corporations’ response. As for investors, remember to fasten your safety harness and keep your arms and legs inside the ride at all times.

>>> US Close Dow +0.24% S&P +0.20% Nasdaq +0.21% Russell +0.30%

Closing Stock Market Summary
The stock market exhibited lackluster action today. The S&P 500 (+0.2%), Nasdaq Composite (+0.2%), Dow Jones Industrial Average (+0.2%), and Russell 2000 (+0.2%) ultimately settled with modest gains near their best levels of the day.

The limited action followed strong gains this week that brought the market back to levels seen in front of last week's sharp selloff. The market-cap weighted S&P 500 jumped 3.9% since last Friday and the equal-weighted S&P 500 logged a 2.5% gain this week.

A disappointing housing starts and building permits report for July and a negative response to earnings results from chip equipment maker Applied Materials (AMAT 207.90, -3.93, -1.9%) also acted as limiting factors for equities today.

Even at the individual level, movement was relatively muted in stocks. The best -- Dexcom (DXCM 74.65, +2.29, +3.2%) -- and worst -- Amcor (AMCR 10.45, -0.40, -3.7%) -- performing stocks in the S&P 500 moved less than 4.0% in either direction.

None of the S&P 500 sectors moved more than 0.6% in either direction. The financial sector showed relative strength, closing 0.6% higher, and the industrial sector (-0.2%) logged the "biggest" loss.
The 2-yr note yield settled four basis points lower at 4.06% and the 10-yr note yield settled four basis points lower to 3.89%.

  • Nasdaq Composite:+17.5% YTD
  • S&P 500: +16.5% YTD
  • S&P Midcap 400: +8.3% YTD
  • Dow Jones Industrial Average: +7.9% YTD
  • Russell 2000: +5.7% YTD

Reviewing today's economic data:
  • July Building Permits 1.396 mln (consensus 1.440 mln); Prior was revised to 1.454 mln from 1.446 mln, July Housing Starts 1.238 mln (consensus 1.350 mln); Prior was revised to 1.329 mln from 1.353 mln
    • There is some chatter that Hurricane Beryl had some influence over the disappointing data, yet that isn't a totally adequate excuse given the decline in single-unit starts and permits in the West where Hurricane Beryl had zero impact. The key takeaway, then, is that conditions in the residential construction market remain soft with higher rates acting as a constraint.
  • August Univ. of Michigan Consumer Sentiment - Prelim 67.8 (consensus 66.7); Prior 66.4
    • The key takeaway from the report is that sentiment in August was swayed by political developments, yet the take-home point is that inflation is still the top concern among consumers.

Looking ahead, Monday's economic data is limited to the July Leading Indicators Index at 10:00 ET. Influential data next week include the Existing Home Sales report (Thursday) and the New Home Sales report (Friday).