Aurelia Butler

Dear reader,My penchant for plain, white, unisex sneakers is paying off in unexpected ways. My son is now at an age where we wear the same-sized shoes. He came to me recently with his tattered kicks, asking if he could have a new pair. I dug out and handed him my old — but still perfectly wearable — running shoes.Hand-me-downs are just one of several money-saving manoeuvres adopted by American families as inflation soars. Bulk-buying and trading down to economy brands are others. It is all very painful for retailers such as Walmart, which had a profits warning this week.For me, the sneaker gambit is a no-brainer. The progeny is growing and his rough-and-tumble lifestyle means he goes through footwear like Homer Simpson goes through doughnuts. Why spend money on new shoes when he can wear mine? I can wait until he outgrows his current size before stumping up for new ones.My son didn’t protest. I would like to think it’s because my shoes are cool and I am down with the kids. More likely, I have drilled into him that resistance is futile. Since the start of the year, I have been giving him and his sister my “need vs want” speech on a regular basis. It goes something like this: “Inflation is at a 40-year high. The cost of everything from groceries to gas is rising. So if you don’t need it, leave it. I thank you for your co-operation!”To be sure, we (and plenty of other American families) are still spending. For all the talk of an impending recession, the US labour market remains on a solid footing. An unemployment rate of 3.6 per cent hovers near historic lows. Personal income and consumer spending have continued to march higher. Credit card spending soared during the second quarter at the likes of American Express, Citigroup, Wells Fargo and JPMorgan Chase. In particular, consumers — after more than two years of living with the pandemic — are splashing out on travel and entertainment. But the sticker shock is real. While we may not have slammed shut our wallets, our spending habits have changed. We will still go away for our summer holiday. However, inflation means we are spending more on basic necessities such as food and fuel and cutting back on things such as clothing and home furnishings. This abrupt shift has caught many retailers off guard, even the undisputed king of bricks-and-mortar retail: Walmart. The company this week issued its second profit warning in 10 weeks. It’s a big one. Operating profit is now expected to fall 13 to 14 per cent for the second quarter and 11 to 13 per cent over the full year. In May, Walmart said operating income would be “flat to up slightly” in the second quarter and down only 1 per cent for the full year. Walmart’s problem is not a lack of customers. Inflation is actually prompting people to trade down and shop at its 5,335 stores in the US. In fact, like-for-like sales, excluding fuel, are expected to increase by 6 per cent in the second quarter, ahead of its previous forecast of a 4 to 5 per cent rise. Instead, the issue is inventory. Walmart has too many items that customers no longer want. Casual apparel, kitchen appliances and outdoor furniture flew off the shelves during the pandemic. That prompted retailers to order even more, in hopes of getting ahead of supply chain disruption. The stockpiling strategy backfired when consumers such as me started to divert spending to essentials such as groceries. Walmart held $61bn of inventory at the end of April, compared with $46bn at the same point the year before. Pre-pandemic, the figure was about $44bn at the start of 2020.To clear the surge in surplus stock, Walmart will need to ratchet up markdowns. But that is not all. The stuff that people are buying more of these days — groceries — is far less profitable. All this will take a toll on margins and explains the sharp downward revision to Walmart’s earnings forecast.More profit warnings could be on the way. Target issued one in June. Bed Bath & Beyond and Gap have recently replaced their chief executives after a collapse in quarterly sales. Second-quarter earnings for US retailers will be ugly. That said, inventory distortion will not last forever. For the likes of Walmart, one could argue it is better to rip off the Band-Aid and clear out excess merchandise now. That would put it on a better footing to grab market share during the all-important holiday shopping season. For parents on a budget, now is a good time to get ahead on your children’s growth spurts. I have already ordered three pairs of sneakers for my son at 50 per cent off. May your own bargain-hunting be equally fruitful. Pan Kwan YukLex writer More

Equity markets rallied after tech groups Microsoft and Google owner Alphabet released results and a confident outlook despite gathering gloom around the prospects for the global economy.Satya Nadella, Microsoft chief executive, said on a call with analysts that his company had taken market share across its businesses and demand for its cloud services was expected to remain robust as many IT users look for more cost-effective ways of handling their computing. Ruth Porat, Alphabet chief financial officer, called her company’s results “solid”. She said Google’s cloud business and search advertising were areas of strength.Alphabet shares added 5 per cent in after-hours trading and Microsoft rose 4 per cent. The positive reaction to the results lifted shares around the world and US futures contracts. Contracts tracking the technology-heavy Nasdaq 100 gained 1.4 per cent while futures in the broader S&P 500 were up 0.9 per cent.The upbeat comments from the tech sector contrasted sharply with results yesterday from consumer companies, which warned of rising prices and falling demand. Results from Unilever, Coca-Cola and McDonald’s laid bare the impact of global inflation. They came a day after retailer Walmart warned that profits would be lower than expected as inflation weighed on US consumers.Analysts had been predicting weak results from the tech groups following warnings from smaller rivals Snap and Twitter. They had also warned in advance of the very tough comparisons the companies faced from results a year ago which were boosted by Covid-19 lockdowns and the switch to working from home.Five more stories in the newsBiden and Xi to hold call as tensions grow over Pelosi visit to Taiwan Joe Biden and Xi Jinping will hold a telephone call tomorrow, according to a US official, as tensions escalate over the planned visit to Taiwan by Nancy Pelosi. The Democratic Speaker of the House of Representatives and second in succession to the presidency plans to visit the island next month. Do you think Pelosi should visit Taiwan? Have your say in our poll.

2. European gas price rise accelerates European gas prices have jumped today after Russia followed through on its threat to make deepening cuts in gas supplies to the region. The European benchmark TTF contract rose 12 per cent, taking its gains for the week to more than a third, after gas flows through the Nord Stream 1 pipeline, which carries energy from Russia to Germany, roughly halved to 20 per cent of capacity.3. Credit Suisse names new chief Troubled Swiss lender Credit Suisse installed Ulrich Körner as chief executive and announced it plans to scale back investment banking activity as it launched its second strategic review in less than a year. The group also reported a SFr1.2bn loss for the second quarter, far worse than the SFr206mn expected by analysts.4. BlackRock pulls back support for climate and social resolutions BlackRock’s support for US shareholder proposals on environmental and social issues fell by nearly half in this year’s annual meeting season. The world’s largest money manager said Russia’s invasion of Ukraine had changed the investment calculus and that shareholder proposals were becoming too prescriptive. For more ESG news sign up to the Moral Money newsletter.5. El Salvador seeks to allay default fears with sovereign bond buyback The Central American country that last year adopted bitcoin as legal tender said yesterday it planned to buy back $1.6bn of its sovereign bonds in an attempt to allay fears of a default.In other crypto news The body charged with overseeing Europe’s bid to regulate cryptocurrencies said its ability to hire specialised staff was a “major concern”. Sign up to the new Cryptofinance newsletter for weekly updates. The day aheadFed interest rate decision The Federal Reserve is expected to further tighten US monetary policy with a second 75 basis-point rate increase, while at least one senior governor backs the Federal Open Market Committee to go even further. In other Fed news: A top Republican lawmaker has accused China of infiltrating the US central bank to access US data.Opinion: Former Federal Reserve and White House economist Claudia Sahm argues that a Fed-induced recession is a medicine worse than the disease.Corporate earnings Meta, owner of Facebook, is the latest Big Tech company to report earnings. It has made changes to its app to compete more aggressively with Chinese-owned TikTok and is reportedly planning to slow hiring. Industrial groups Ford and Boeing also report second-quarter earnings and are expected to share their views on the impact of inflation and supply chain disruptions on their businesses.What else we’re readingMike Pence squares up to Donald Trump Back-to-back speeches in the US capital were the latest evidence of the simmering feud between the former running mates turned political foes as both eye a bid for the White House in 2024.Top US regulator fires warning shot Rohit Chopra, director of the Consumer Financial Protection Bureau, has warned that Big Tech’s entry into the buy now, pay later lending business risks undermining competition in the nascent sector and raises questions about the use of customer data.Memo to Wall Street: don’t touch that delete button! On Wall Street and in Washington no one seems to have thought about the risks of using personal devices for work purposes. Wall Street banks said this month that they expected to pay $200mn apiece for failing to preserve text and WhatsApp conversations on bankers’ personal phones. Separately, the US Department of Homeland Security has opened a criminal probe into the disappearance of texts from Donald Trump’s security detail. This is absurd, writes Brooke Masters.Can Eutelsat compete in a space race? French satellite operator Eutelsat and money-losing UK start-up OneWeb are going for the moonshot: a merger that stakes their future on challenging Elon Musk’s SpaceX and Jeff Bezos’s Kuiper project. Do they have a chance at disrupting the once-staid space industry?Josep Borrell: Now is the time to save the Iran nuclear deal The EU high representative for foreign affairs and security policy has put forth a text laying out the best possible deal that, as facilitator of the negotiations, he sees as feasible. In the Financial Times, he explains why it is the best path forward.BooksFormer Fed chair Ben Bernanke and historian Edward Chancellor offer conflicting perspectives on the crisis in central banking in two new books reviewed by Martin Wolf. “Chancellor has written an overheated and unbalanced polemic,” Martin writes. “Yet this does not altogether vindicate Bernanke’s managerialist perspective.” More

LONDON (Reuters) – Three quarters of the world’s sovereign wealth funds now have a formal policy on environmental, social and governance investing, yet just 30% have set a target to reduce carbon emissions across their investments, a study on Wednesday showed.The policy move comes as institutions increasingly look to position for the shift to a low-carbon economy in the fight against climate change, and is up from 46% five years ago, the latest Invesco Global Sovereign Asset Management Study https://www.invesco.com/content/dam/invesco/igsams/en/docs/Invesco-global-sovereign-asset-management-study-2022.pdf showed.The study surveyed 81 sovereign wealth funds and 58 central banks with combined assets of around $23 trillion. Despite growing concerns around climate change, less than a third of sovereign funds said they had implemented a target to reduce their carbon emissions, though that was up from 23% the prior year.Strategies to meet those targets included selling heavy emitting assets, pushing companies to lower their emissions, tilting portfolios to favour greener companies and increasing investment in climate-friendly tech like renewable energy.Those with a formal ESG policy cited a range of challenges in implementating it properly. Chief among them was a lack of clear regulatory standards around ESG investing, which 37% of those surveyed called a “significant challenge”. Other concerns included the quality of data and ESG ratings and concerns about ‘greenwashing’, where the environmental benefits of an investment might be misleading.”There is a lack of transparency, which presents reputational risks,” the report said, citing a development-focused sovereign wealth fund in the Middle East.In an effort to avoid such situations, more sovereign funds were looking to invest in so-called ‘Impact’ projects, where results are determined by measurable outcomes that can be verified and tracked over time. More

Investing.com — The Federal Reserve is widely expected to increase interest rates once more, while better than expected earnings from both Microsoft and Alphabet should give Wall Street an opening boost. EIA crude stocks data are due later while the U.K. economic outlook deteriorates. Here’s what you need to know in financial markets on Wednesday, July 27.1. It’s Fed decision dayThe Federal Reserve concludes its two-day policy-setting meeting later Wednesday, and is widely predicted to hike its key interest rate by three-quarters of a percentage point as it battles inflation at 40-year highs.Earlier expectations of an increase of a full percentage point have been largely doused by Fed policymakers, and this could mean they are discussing just how much tighter monetary policy needs to be to slow price increases against the risk that going too far could trigger a recession.With this in mind, the focus will likely shift away from the decision itself to the statement and accompanying press conference by Fed head Jerome Powell for clues over how deeply signs of an economic slowdown have registered with the central bank’s policymakers.The latest release of second quarter gross domestic product is due on Thursday, and is expected to show that the U.S. economy grew just 0.5% on the quarter. 2. Microsoft, Alphabet earnings soothe nervesSolid earnings from a couple of the mega-cap tech stocks that tend to dominate investors’ thinking have helped to ease nerves in stock markets ahead of the Fed meeting.Microsoft (NASDAQ:MSFT) forecast after the close Tuesday that revenue this fiscal year would grow by double digits, driven by demand for cloud computing services. This strong outlook shows that despite signs that U.S. economic growth – and global growth for that matter – is slowing, Microsoft continues to benefit from companies continuing to move more business and work online even as the COVID-19 pandemic eases.Additionally, Google-parent Alphabet (NASDAQ:GOOGL) posted solid search engine ad sales, suggesting the world’s biggest seller of online advertising is withstanding the slowdown relatively well.While YouTube ad sales grew at their slowest pace since disclosures began in 2018, second-quarter sales from the company’s biggest moneymaker – Google search – actually topped expectations.This prompted a sign of relief among investors after social media rival Snap (NYSE:SNAP) last week missed sales expectations and warned of an ad market slowdown.3. Stocks set to open higher; Tech sector to the foreU.S. stock markets are set to open higher Wednesday ahead of the conclusion of the latest Fed meeting, with the tech sector leading the way after the solid results from Microsoft and Alphabet [see above].By 06:15 AM ET (1015 GMT), Dow Jones futures were up 140 points, or 0.4%, S&P 500 futures were up 0.9%, and Nasdaq 100 futures were up 1.5%. The Federal Reserve concludes its latest policy-setting meeting at 02:00 PM ET (1800 GMT), with a hike of 75 basis points widely expected. Aside from this, there are more major earnings reports to come, with the likes of Boeing (NYSE:BA) and Shopify (NYSE:SHOP) expected to release their quarterly results before the bell, and Qualcomm (NASDAQ:QCOM), Ford (NYSE:F), and Meta Platforms (NASDAQ:META) reporting at the end of the day.The economic data slate includes durable goods orders and pending home sales, both for June.4. U.K. economic problems mountThe race to become the new leader of the ruling Conservative Party, and thus the next U.K. Prime Minister, has boiled down to two, Foreign Secretary Liz Truss and former chancellor Rishi Sunak. Both have been trying to woo party members with promises of tax cuts, but whoever is handed the keys to power is going to be landed with very difficult economic circumstances to guide the country through.The International Monetary Fund cut its global growth forecasts on Tuesday, and warned that Britain will have the slowest growth among major industrialized nations next year as double-digit inflation and rising interest rates squeeze household spending.The fund predicted that Britain will have just 0.5% growth next year, adding soaring prices and sub-inflation pay rises “are eroding household purchasing power”, and causing slower growth.Unrest is also growing. A national rail strike started early Wednesday, with acrimonious negotiations over wage increases seemingly getting nowhere. This marks the fourth day of action by the National Union of Rail, Maritime and Transport workers this summer, and other unions are set to follow suit in the coming days.5. Oil gains; API shows healthy drawCrude oil prices climbed Wednesday, as concerns over weakened U.S. demand were offset by industry data showing a healthy drawdown of stocks by the largest consumer in the world.Data from the American Petroleum Institute showed U.S. crude stocks fell by about 4 million barrels last week, four times bigger than the decline expected, while gasoline inventories fell by 1.1 million barrels, compared with expectations for a build of 3.5 million barrels.Traders will be looking for confirmation from the official data, released by the Energy Information Administration later in the session.Elsewhere, gas flows from Russia through Nord Stream 1 fell to a fifth of the pipeline’s capacity on Wednesday, prompting Germany’s network regulator to issue another plea to households and industry to save gas and avoid rationing.EU member states agreed on Tuesday to cut their demand for gas by 15% over the next eight months.By 06:15 AM ET, U.S. crude futures were up 0.3% at $95.30 a barrel, while Brent crude was up 0.3% at $99.71 a barrel. More

FRANKFURT/ROME (Reuters) – The European Central Bank seems almost certain to face a test of its resolve to rein in excessive bond yields in coming weeks as the euro zone’s biggest debtor, Italy, heads for elections that a rightist bloc with a eurosceptic past is expected to win.The ECB, in an attempt to cushion the impact of rising borrowing costs on Italy and other parts of the euro zone’s south, said last week that it would intervene in support of countries whose debt comes under market pressure through no fault of their own.With the interest premium that creditors demand from Italy rising again and the country nursing a debt outlook downgrade from S&P, expectations of ECB action seem set to grow as the election campaign heats up and investors put a price on radical parties’ economic promises.But the bank has also said it will only buy a country’s debt “to counter unwarranted, disorderly market dynamics” and if that country is in compliance with the EU’s economic protocols – including one to keep public debt in check.That sets out the wiggle room that ECB President Christine Lagarde and her governing council colleagues have deliberately left themselves – and suggests that any bets on an early intervention by the bank may misfire. GRAPHIC: Italy is too big to fail and hasn’t grown for 20 years (https://fingfx.thomsonreuters.com/gfx/mkt/zjvqkzwnqvx/Italy%20is%20too%20big%20to%20fail%20and%20has%20been%20stuck%20for%2020%20years.png) SAFE HANDS NO MORE?The collapse last week of the government of Mario Draghi – widely viewed at home and abroad as a safe pair of hands – has dampened hopes of an economic turnaround in a country where low growth and high debt have been entrenched for years.Market nerves have been jangled further by polls that forecast it will be succeeded on Sept. 25 by a conservative bloc that includes one far-right party and two that have promised steep tax cuts and that were openly eurosceptic a few years ago.Ratings agency S&P Global (NYSE:SPGI) downgraded its outlook on Monday on worries about the country’s ability to meet European Union conditions for securing almost 200 billion euros of pandemic recovery funds, which could prove vital amid a likely recession this winter.The closely-watched spread between Italian and German 10-year bond yields rose to 248 on Wednesday, just a just a shade below the high hit in June when the ECB accelerated work on the new bond-buying scheme, known as the Transmission Protection Instrument (TPI).Bank of Italy Ignazio Visco has said the current risk premium is much higher than justified and blamed policy uncertainty for that.But he will need to convince Governing Council colleagues who include Bundesbank President Joachim Nagel, who said TPI should only be used “in exceptional situations” – and any rout on the Italian market driven by electoral pledges could arguably be viewed as self-inflicted damage.”We suspect the ECB’s willingness to intervene in bond markets will be tested sooner rather than later,” Jonas Goltermann, an economist at Capital Economics, said.That test has in a sense already begun, but many analysts don’t expect the ECB to step in until the Italian/German spread hits 300 basis points or more.”I would be very surprised if the ECB intervened below 300,” said Jens Eisenschmidt, an economist at Morgan Stanley (NYSE:MS). “They will want to err on the side of caution in terms of what can be considered justified.” GRAPHIC: Italian politics keep investors on edge (https://fingfx.thomsonreuters.com/gfx/mkt/dwpkrbbaxvm/Italy’s%20bond%20spread.png) FISCAL GAP The rightist coalition leading in the polls has yet to unveil its manifesto.Its two largest parties, Giorgia Meloni’s far-right Brothers of Italy and Matteo Salvini’s League may have dropped the anti-euro rhetoric of the last decade.But they have pledged tax cuts that might run into tens of billion euros, without spelling out how these would be offset other than by curtailing access to a basic income scheme, which is likely to cover only a small portion of the fiscal gap.All parties in the coalition, which also includes Silvio Berlusconi’s Forza Italia, have also been lukewarm about updating property values in Italy’s land register, a reform that recommended by the European Commission but that would likely result in higher taxes for millions of people.That might set Italy on a collision course with the EU – and therefore investors – even before the election. “Investors would rationally demand higher risk premia, and the ECB should let it be,” said Lorenzo Codogno, head of LC Macro Advisers and a former Italian Treasury official.It did just that when a radical government backed by the League and the Five Star Movement took office in 2018, spooking investors with talk of large deficits and confrontations with Brussels.Back then Rome backed down. This time the prospect of losing EU funding worth 7.6% of GDP may give its successor government reason enough to do likewise.In the meantime, the ECB has made clear it retains the final word on any TPI market intervention – a substantial difference from the ECB’s previous emergency scheme, known as Outright Monetary Transactions.Unveiled by Draghi in 2012 when he headed the ECB after his famous pledge to do “whatever it takes” to save the euro, OMT could only be activated if a country requested an official bailout, which meant it was never used after all.”(TPI) could work as conditions are lighter than with previous programmes and the size is unlimited,” said Carsten Brzeski, an economist an ING. “It might not be a whatever-it-takes but rather a whatever-we-want tool.” (editing by John Stonestreet) More

While the revitalised tourism sector is a good boost to the economy, Bank of Thailand (BOT) Senior director Chayawadee Chai-Anant said officials are monitoring inflation, COVID-19 outbreaks and global economic issues.Southeast Asia’s second-largest economy improved in the second quarter from the previous quarter, with annual growth expected at 3% or slightly higher, she said. Official second-quarter gross domestic product will be released by the state planning agency on Aug. 15. In the first quarter, annual GDP growth was 2.2%.The Thai baht and regional currencies are still on a weakening trend due to dollar strength, she said.But the baht depreciated more than its peers in July on concerns that China’s economy might recover slower than expected and that would affect Thailand, she said.”Fund flows continue to move in line with investors’ views on the economy and the financial sector… but I haven’t seen anything to worry about yet,” Chayawadee said.In June, the economy improved from the previous month. Exports rose 11.1% from a year while imports jumped 24.3%, resulting in a trade surplus in dollar terms of $2.1 billion in the month.Meanwhile, the country recorded a current account deficit of $1.9 billion in June, down from a deficit of $3.7 billion in the previous month. More