US ECONOMY & POLITICS

Fed expected to ramp up inflation fight with big rate hike – Reuters, 6/15/2022

• Federal Reserve policymakers on Wednesday are expected to deliver the biggest U.S. interest rate hike in more than a quarter of a century, along with forecasts for heftier increases in borrowing costs this year, their best guesses for how quickly inflation could subside, and at what cost to the job market.
• Fed watchers expect the U.S. central bank to raise its short-term policy rate by 0.75 percentage point to a range of 1.50% to 1.75%, the first increase of that size since 1994.
• The Fed will also release updated projections for economic growth, inflation, unemployment and interest rates for the next several years from all 18 central bankers.
• A summary is expected to show a Fed policy rate rising past 3% by the end of this year but perhaps only a moderate cooling in price pressures.
• Traders of futures tied to the Fed’s policy rate are now betting on another 75-basis-point rate hike in July and at least a couple of 50-basis-point hikes after that move.
• Contracts reflect expectations for the Fed policy rate to end the year in the 3.75%-4.00% range.

US Retail Sales Post First Drop in Five Months as Auto Purchases Plunge – Bloomberg, 6/15/2022

• US retail sales fell in May for the first time in five months, restrained by a plunge in auto purchases and other big-ticket items, suggesting moderating demand for goods amid decades-high inflation.
• The value of overall retail purchases decreased 0.3%, after a downwardly revised 0.7% gain in April, Commerce Department figures showed Wednesday. Excluding vehicles, sales rose 0.5% last month. The figures aren’t adjusted for inflation.
• Auto sales dropped 3.5% in May, reinforcing data from Wards Automotive Group that showed sales fell the most since August in the month.
• Meantime, spending at gas stations climbed 4%, likely reflecting higher fuel prices in the month. Excluding those categories, retail sales rose 0.1%, the smallest gain in five months.
• Grocery store sales advanced 1.2%, which could reflect higher prices rather than increased buying activity since the figures aren’t adjusted for inflation.
• Restaurant sales, the report’s only services component, rose 0.7%.

US Homebuilder Sentiment Falls to Two-Year Low on Softer Demand – Bloomberg, 6/15/2022

• US homebuilder sentiment slid to a two-year low in June as rising inflation and higher mortgage rates weighed on housing demand.
• The National Association of Home Builders/Wells Fargo gauge decreased two points in June to 67, the lowest level since June 2020, figures showed Wednesday.
• The group’s gauge of prospective buyer traffic fell five points to 48, the lowest since June 2020.
• The measure of present sales also declined to a two-year low, and sales expectations for the next six months dropped to the lowest since May 2020.

U.S. Home Equity Hits Highest Level on Record—$27.8 Trillion – Wall Street Journal, 6/15/2022

• Total U.S. home equity increased almost 20% in the first quarter to $27.8 trillion, a record high, according to the Federal Reserve.
• About 60% of equity was withdrawn via cash-out refinances in 2021, according to mortgage-data firm Black Knight.
• The amount of tappable equity increased by a record $1.2 trillion in the first quarter of 2022, to more than $11 trillion, according to Black Knight.
• Close to 75% of it belongs to borrowers with mortgage rates below 4%, the Black Knight data show.
• Black Knight defines tappable equity as the amount homeowners can borrow while holding on to at least 20% of the home’s equity.
• Average tappable equity available to Americans with mortgages increased to a record $207,000 in the first three months of the year, according to Black Knight.

U.S. business inventories rise strongly; sales slow – Reuters, 6/15/2022

• U.S. business inventories increased strongly in April amid a moderation in sales, government data showed on Wednesday.
• Business inventories rose 1.2% after advancing 2.4% in March, the Commerce Department said. Inventories are a key component of gross domestic product. April’s increase was in line with economists’ expectations. Inventories advanced 16.6% on a year-on-year basis in April.
• Retail inventories increased 0.7% in April as estimated in an advance report published last month. That followed a 3.1% jump in March. Motor vehicle inventories dropped 2.2% as estimated last month. They increased 1.7% in March.
• Retail inventories excluding autos, which go into the calculation of GDP, advanced 1.7% as estimated last month.
• Wholesale inventories increased 2.2% in April. Stocks at manufacturers gained 0.6%.
• Business sales rose 0.4% in April after accelerating 1.6% in March. At April’s sales pace, it would take 1.29 months for businesses to clear shelves, up from 1.28 months in March.

U.S. import prices increase solidly in May – Reuters, 6/15/2022

• U.S. import prices increased solidly in May amid higher prices for petroleum products, but there were tentative signs of some moderation in underlying imported inflation pressures.
• Import prices rose 0.6% last month after gaining 0.4% in April, the Labor Department said on Wednesday. In the 12 months through May, import prices increased 11.7% after advancing 12.5% in April. Economists polled by Reuters had forecast import prices, which exclude tariffs, increasing 1.1%.
• Imported fuel prices shot up 7.5% last month after climbing 0.5% in April. Petroleum prices rebounded 6.7%, while the cost of imported food fell 0.2%.
• Prices for agricultural exports gained 2.1%. Nonagricultural export prices advanced 2.9%. Export prices jumped 18.9% year-on-year in May, the largest gain since September 1984. That followed a an 18.3% increase in April.

U.S. mortgage interest rates jump to highest level since 2008 – Reuters, 6/15/2022

• The average interest rate on the most popular U.S. home loan climbed to its highest level since the 2008 financial crisis and purchase applications were down more than 15% from last year, Mortgage Bankers Association (MBA) data showed on Wednesday.
• Still, more homebuyers sought properties compared to a week earlier, perhaps signalling a flurry of activity before aggressive tightening by the Federal Reserve further impacts the sector.
• The average contract rate on a 30-year fixed-rate mortgage rose by 25 basis points to 5.65% for the week ended June 10, the highest level since late 2008, towards the end of the financial crisis and Great Recession.
• The MBA said its Purchase Composite Index, a measure of all mortgage loan applications for purchase of a single family home, increased 8.1% from a week earlier and its Refinance Index rose 3.7%.
• But purchase applications were down more then 15% compared to last year as ongoing record-low housing stock and a lack of affordability alongside the run up in interest rates have impacted demand.

S.C. Rep. Tom Rice Loses GOP Primary After Voting to Impeach Donald Trump as Ballots Are Cast in 5 States – Wall Street Journal, 6/15/2022

• Voters in South Carolina, Maine, Nevada and North Dakota headed to the polls for Tuesday’s primaries with several races again testing the power of former President Donald Trump’s endorsement, while a special election in Texas signaled Hispanic voters there continued to move toward Republicans.
• State Rep. Russell Fry, who was endorsed by Mr. Trump, defeated Rep. Tom Rice (R., S.C.) in a closely watched GOP primary contest. Mr. Trump had endorsed Mr. Fry after Mr. Rice voted to impeach Mr. Trump for his role in the effort by his supporters to stop the certification of the 2020 election on Jan. 6, 2021, which led to a riot at the Capitol.
• Elsewhere in the state, South Carolina Rep. Nancy Mace won her primary challenge against former state lawmaker Katie Arrington, who had earned Mr. Trump’s endorsement. Ms. Mace criticized Mr. Trump’s actions on Jan. 6, 2021.

EUROPE & WORLD

China’s Economy Shows Signs of Recovery, but Covid Lockdown Threat Remains – Wall Street Journal, 6/15/2022

• China’s economy improved slightly in May, offering hints of a recovery that is likely to remain fragile under the continuing threat of pandemic-related lockdowns.
• Industrial production edged up 0.7% in May from a year earlier, reversing an almost 3% contraction in April, a sign that factories had resumed operations as Covid-19 curbs eased.
• Retail sales, a gauge of consumer spending on goods and dining out, declined 6.7% in May, NBS data showed, an improvement from April’s 11.1% slump.
• Growth in fixed-asset investments, which tracks spending in areas including infrastructure and real estate and a common policy tool used by Chinese officials to support growth in the past, moderated to 6.2% on-year during the first five months, according to NBS data on Wednesday. The reading was 6.8% in the first four months of this year.
• In a separate report on Wednesday, the American Chamber of Commerce in Shanghai released the results of a poll this month showing that more than 90% of the 133 respondents had cut annual revenue projections for the year, with a quarter of the respondents lowering their targets by more than 20%.

EU Signs Gas Deal With Israel, Egypt in Bid to Wean Itself Off Russian Supplies – Wall Street Journal, 6/15/2022

• The European Union signed an agreement with Israel and Egypt to boost gas shipments on Wednesday, tapping into the gas riches of the eastern Mediterranean as it races to secure alternatives to Russian energy.
• The EU, which for years has relied heavily on Russian gas to power factories and heat homes, is turning to the eastern Mediterranean to help replace Russian fossil fuels after Moscow’s invasion of Ukraine. But the Middle East’s fractious politics and capacity constraints pose challenges.
• Under the trilateral deal, Israel will send the natural gas from its vast offshore fields in the eastern Mediterranean via pipeline to Egypt, where it will be liquefied and shipped to Europe, according to European Commission President Ursula von der Leyen, who was in Cairo on Wednesday after visiting Israel earlier this week.
• Ms. von der Leyen didn’t say how much Israeli gas could flow to the 27-country bloc, which received about 40% of its supplies from Russia in recent years.
• The agreement is valid for three years and will automatically renew for another two years, according to a statement from the Israeli energy ministry.
• The EU already receives some gas from Egypt and, analysts say, in the short term, neither Israel nor Egypt have much spare capacity to send a lot more to Europe amid growing domestic demand.

Russia Steps Up Energy Wars With Further Gas Cuts to Europe – Bloomberg, 6/15/2022

• Russia stepped up the use of energy as a weapon by further cutting natural gas shipments via its biggest pipeline to Europe, a move Germany said was politically motivated.
• Gazprom PJSC is curbing gas supplies via its Nord Stream pipeline to Germany by 60%, increasing a cut announced on Tuesday.
• The curtailment adds to a 15% reduction in flows to Italy, putting more pressure on already tight European energy markets and sending gas prices surging as much as 24%.
• German Economy Minister Robert Habeck said Russia was trying to unsettle markets and move up gas prices.
• The curbs reignited tensions with Moscow, which had calmed down after several European countries found ways of paying for gas in rubles, meeting a demand from President Vladimir Putin.

El Salvador’s Big Bitcoin Gamble Backfires to Deepen Debt Woes – Bloomberg, 6/15/2022

• An epic rout that has wiped out about two-thirds of Bitcoin’s value is exacerbating the debt crisis in the world’s most crypto-friendly country.
• In the year since El Salvador approved Bitcoin as legal tender, the nation has lost almost $56 million by gambling on the digital asset, according to calculations by Bloomberg. That may not sound like much, but for a financially troubled country like El Salvador, every bit counts.
• The losses now represent more than half of what President Nayib Bukele’s government spent to buy the 2,301 Bitcoin disclosed through announcements on Twitter.

Factmonster – TODAY in HISTORY

• King John sealed the Magna Carta. (1215)
• George Washington was appointed head of the Continental Army by the Second Continental Congress. (1775)
• Charles Goodyear was granted a patent for rubber vulcanization. (1844)
• James Polk, the 11th president of the United States, died in Nashville, Tennessee. (1849)
• Ella Fitzgerald, the ”first lady of song,” died in Beverly Hills, California. (1996)
• Rolling Stone Mick Jagger was knighted by Queen Elizabeth. (2002)