Evelyn Reynolds

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    Corporate debt defaults soared 80% in 2023 and could be high again this year, S&P says

    The number of companies that failed to make required payments on their debt totaled 153 for 2023, up from 85 the year before, an increase of 80%, according to S&P Global Ratings.
    “In 2024, we expect further credit deterioration globally, predominantly at the lower end of the rating scale” the firm said.

    Javier Ghersi | Moment | Getty Images

    Corporate debt defaults soared last year and could be a problem again in 2024 as cash-strapped companies deal with the burden of high interest rates, S&P Global Ratings reported Tuesday.
    The number of companies that failed to make required payments on their debt totaled 153 for 2023, up from 85 the year before, an increase of 80%. It was the highest default rate outside of the Covid-related spike in 2020 in seven years.

    Much of the total came from low-rated companies that had negative cash flows, high debt burdens and weak liquidity, S&P said. From a sector standpoint, consumer-facing companies — media and entertainment in particular — led the defaults.
    S&P said there could be hard times ahead for corporate America, which, according to the Federal Reserve, is carrying a $13.7 trillion debt load. Company debt has jumped 18.3% since 2020 as companies took advantage of the Fed slashing interest rates in the early days of the Covid-19 pandemic.
    “In 2024, we expect further credit deterioration globally, predominantly at the lower end of the rating scale (rated ‘B-‘ or below), where close to 40% of issuers are at risk of downgrades,” the firm wrote. “We expect financing costs to remain elevated despite the prospect of rate cuts. And while borrowers have reduced their 2024 maturities, a large share of speculative-grade debt is expected to mature in 2025 and 2026.”
    Some economists worry that a “corporate debt cliff” could become a more serious problem as a large share of maturing debt that initially was financed at very low rates comes due in the next few years.
    The burden, both in the U.S. and globally, could be exacerbated by “slower economic growth and higher financing costs” that could contribute to defaults, S&P said. Along with media and entertainment, the firm sees potential trouble spots in consumer products and retail because of a weaker economy “and the already elevated number of weakest links in those sectors.”

    But the damage won’t be isolated in those areas, as S&P sees higher rates causing more widespread pain to sectors such as health care, which is suffering from elevated debt and staffing problems that are constraining revenue.
    Fed rate cuts are expected to alleviate the burden somewhat, though rates are expected to remain elevated at least through 2024. While markets think the central bank could cut short-term rates as much as 1.5 percentage points this year, Fed officials have indicated a slower course of perhaps half that much, depending on how the inflation data unfolds.Don’t miss these stories from CNBC PRO: More

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    Fed’s Christopher Waller advocates moving ‘carefully’ with rate cuts

    Federal Reserve Governor Christopher Waller acknowledged Tuesday that interest rate cuts are likely this year, but said the central bank can take its time relaxing monetary policy.
    The comments, delivered during a speech in Washington, D.C., seemed to counter market anticipation for aggressive easing this year.

    “As long as inflation doesn’t rebound and stay elevated, I believe the [Federal Open Market Committee] will be able to lower the target range for the federal funds rate this year,” Waller said in prepared remarks for an audience at the Brookings Institution.
    “When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully,” he added. “In many previous cycles … the FOMC cut rates reactively and did so quickly and often by large amounts. This cycle, however, … I see no reason to move as quickly or cut as rapidly as in the past.”
    Market pricing Tuesday morning indicated about a 67% chance the FOMC will begin cutting in March, according to the CME Group’s FedWatch measure. In fact, traders had further ramped up expectations for 2024 to seven cuts, but brought it back to six following Waller’s remarks.
    Along with rate cuts, Waller said he anticipates the Fed this year can start slowing the pace of “quantitative tightening,” or the reduction of the central bank balance sheet by allowing proceeds from maturing bonds to roll off without reinvesting them. The Fed has been allowing up to $95 billion a month roll off and thus far has cut its holdings by about $1.2 trillion.
    “I would say sometime this year will be a reasonable thing to start thinking about it,” he said. However, Waller noted that “tapering” would apply only to Treasurys and not mortgage-backed securities holdings, which he prefers to allow to decrease at the current pace.

    Data ‘almost as good as it gets’

    At their December meeting, Fed officials indicated three cuts were likely this year. The benchmark fed funds rate is currently in a targeted range between 5.25%-5.5%.
    In making the pitch for rate cuts, Waller noted the progress made against inflation has not come at the cost of the labor market. As a governor, Waller is a permanent FOMC voter.
    Stocks held in sharply negative territory after the release of Waller’s remarks, while Treasury yields moved higher.
    While 12-month inflation is still running well above the Fed’s 2% goal, measures over shorter time frames such as six months are much closer to target. For instance, the core personal consumption expenditures price index, one of the Fed’s preferred measures, is showing annual inflation at 3.2%, the six-month measure is around 1.9%.
    At the same time, unemployment has held below 4% and gross domestic product has grown at a rate defying Wall Street expectations for a recession.
    “For a macroeconomist, this is almost as good as it gets. But will it last?” Waller said. “Time will tell whether inflation can be sustained on its recent path and allow us to conclude that we have achieved the FOMC’s price-stability goal. Time will tell if this can happen while the labor market still performs above expectations.”
    While the Fed has wrestled with the quandary of not tightening enough and allowing inflation to expand and tightening too much that it chokes off growth, Waller said those risks are becoming more balanced.
    In fact, he said that as the level of job openings compared with the size of the labor force declines, the Fed is now running more of a risk of doing too much.
    “So, from now on, the setting of policy needs to proceed with more caution to avoid over-tightening,” he said.
    Waller said he thinks the Fed is “within striking distance” of achieving its 2% inflation goal, “but I will need more information” before declaring victory. One data point he said he will be especially focused on is upcoming revisions to the Labor Department’s consumer price index inflation measure.
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    A Fed Governor Reiterates That Rate Cuts Are Coming

    Christopher Waller, one of seven Washington-based Fed governors, said officials should cut rates as inflation cools — though timing was uncertain.A prominent Federal Reserve official on Tuesday laid out a case for lowering interest rates methodically at some point this year as the economy comes into balance and inflation cools — although he acknowledged that the timing of those cuts remained uncertain.Christopher Waller, one of the Fed’s seven Washington-based officials and one of the 12 policymakers who get to vote at its meetings, said during a speech at the Brookings Institution on Tuesday that he saw a case for cutting interest rates in 2024.“The data we have received the last few months is allowing the committee to consider cutting the policy rate in 2024,” Mr. Waller said. While noting that risks of higher inflation remain, he said, “I am feeling more confident that the economy can continue along its current trajectory.”Mr. Waller suggested that the Fed should lower interest rates as inflation falls. Because interest rates do not incorporate price changes, otherwise so-called real rates that are adjusted for inflation would otherwise be climbing as inflation came down, thus weighing on the economy more and more heavily.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

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    Germany skirts recession at the end of 2023 but faces prolonged slump

    The manufacturing sector, excluding construction, fell by a sharp 2%, led by lower production in the energy supply sector.
    The fourth quarter recorded a similar 0.3% drop compared with the July-September period.
    The office said that the German economy stagnated in the third quarter, implying the country has narrowly avoided a technical recession that is defined by two successive quarters of consecutive GDP declines.

    German Chancellor, Olaf Scholz arrives for the weekly federal government cabinet meeting on Oct. 11, 2023 in Berlin, Germany.
    Michele Tantussi | Getty Images News | Getty Images

    Europe’s largest economy contracted by 0.3% year-on-year in 2023, as high inflation and firm interest rates bit into growth, the Federal Statistical Office of Germany said Monday.
    The estimate is in line with the expectations of analysts polled by Reuters. The decline in economic output eases to 0.1% when adjusted for calendar purposes.

    “The overall economic development in Germany stalled in 2023 in the still crisis-ridden environment,” said Ruth Brand, president of the federal statistics office, according to a Google translation. 
    “Despite the recent declines, prices remained high at all levels of the economy. Added to this were unfavorable financing conditions due to rising interest rates and lower demand from home and abroad,” Brand added.
    German inflation ticked up by 3.8% year-on-year in December on a harmonized basis, the statistics office said on Jan. 4. The European Central Bank in December opted to hold rates unchanged for the second consecutive time, shifting its inflation outlook from “expected to remain too high for too long” to expectations that it will “decline gradually over the course of next year.”
    Germany’s manufacturing sector, excluding construction, fell by a sharp 2%, led by lower production in the energy supply sector. Weak domestic demand last year and “subdued global economic dynamics” also stifled foreign trade, despite a drop in prices. Imports fell by 1.8%, declining more sharply than exports and leading to a positive trade balance.

    Household consumption contracted by 0.8% on the year, adjusted for prices, while government expenses slimmed by 1.7%.

    The fourth quarter recorded a similar 0.3% drop compared with the July-September period. The office said that the German economy stagnated in the third quarter, implying the country has narrowly avoided a technical recession that is defined by two successive quarters of consecutive GDP declines.
    Early indicators do not signal a quick German economic recovery is in the cards, a German economy ministry report out Monday warned, according to Reuters.
    Capital Economics also expects Germany’s troubles are not yet over and forecasts no growth for the country in 2024.
    “The recessionary conditions which have been dragging on since the end of 2022 look set to continue this year,” Chief Europe Economist Andrew Kenningham said in a note. “Admittedly, the recent fall in inflation should provide some relief for households, but residential and business investment are likely to contract, construction is heading for a steep downturn and the government is tightening fiscal policy sharply. We forecast zero GDP growth in 2024.”
    Germany was haunted by its moniker as the “sick man” of Europe for the better part of last year, despite weathering the shocks of losing access to some sanctioned Russian energy supplies in the wake of Moscow’s invasion of Ukraine. Analysts had predicted Germany would be the only major European economy to shrink last year.

    The German economy faced the throes of a deep budgetary crisis at the end of last year, after a constitutional court ruling over the national borrowing restrictions threatened a $17-billion-euro gap in the country’s 2024 spending plans.
    Enshrined in Germany’s constitution, the national debt brake restricts the federal deficit to 0.35% of GDP outside of emergencies and became a major bone of contention in national politics last year. The German government agreed to suspend the limit on borrowing, after the constitutional court blocked attempts to repurpose any leftover emergency funds initially assigned to address the Covid-19 pandemic.
    Weeks-long negotiations yielded a budget deal that retains debt restrictions into 2024, with the government expecting to save 17 billion euros ($18.6 billion) in its core budget by ending climate-damaging subsidies and implementing cost cutting, German Chancellor Olaf Scholz’s three-way coalition announced in mid December. More

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    Flush With Investment, New U.S. Factories Face a Familiar Challenge

    Worries are growing in Washington that a flood of Chinese products could put new American investments in clean energy and high-tech factories at risk.The Biden administration has begun pumping more than $2 trillion into U.S. factories and infrastructure, investing huge sums to try to strengthen American industry and fight climate change.But the effort is facing a familiar threat: a surge of low-priced products from China. That is drawing the attention of President Biden and his aides, who are considering new protectionist measures to make sure American industry can compete against Beijing.As U.S. factories spin up to produce electric vehicles, semiconductors and solar panels, China is flooding the market with similar goods, often at significantly lower prices than American competitors. A similar influx is also hitting the European market.American executives and officials argue that China’s actions violate global trade rules. The concerns are spurring new calls in America and Europe for higher tariffs on Chinese imports, potentially escalating what is already a contentious economic relationship between China and the West.The Chinese imports mirror a surge that undercut the Obama administration’s efforts to seed domestic solar manufacturing after the 2008 financial crisis and drove some American start-ups out of business. The administration retaliated with tariffs on solar equipment from China, sparking a dispute at the World Trade Organization.Some Biden officials are concerned that Chinese products could once again threaten the survival of U.S. factories at a moment when the government is spending huge sums to jump-start domestic manufacturing. Administration officials appear likely to raise tariffs on electric vehicles and other strategic goods from China, as part of a review of the levies former President Donald J. Trump imposed on China four years ago, according to people familiar with the matter. That review, which has been underway since Mr. Biden took office, could finally conclude in the next few months.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

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    Supreme Court to Hear Starbucks Bid to Overturn Labor Ruling

    The coffee chain has challenged a federal judge’s order to reinstate a group of union activists who were fired at a store in Memphis.The Supreme Court agreed on Friday to hear a case brought by Starbucks challenging a federal judge’s order to reinstate seven employees who were fired at a store in Memphis amid a union campaign there.Starbucks argued that the criteria for such intervention by judges in labor cases, which can also include measures like reopening shuttered stores, vary across regions of the country because federal appeals courts may adhere to different standards.A regional director for the National Labor Relations Board, the company’s opponent in the case, argued that the apparent differences in criteria among appeals courts were semantic rather than substantive, and that a single effective standard was already in place nationwide.The labor board had urged the Supreme Court to stay out of the case, whose outcome could affect union organizing across the country.The agency asks federal judges for temporary relief, like reinstatement of fired workers, because litigating charges of unfair labor practices can take years. The agency argues that retaliation against workers can have a chilling effect on organizing in the meantime, even if the workers ultimately win their case.In a statement on Friday, Starbucks said, “We are pleased the Supreme Court has decided to consider our request to level the playing field for all U.S. employers by ensuring that a single standard is applied as federal district courts.”The labor board declined to comment.The union organizing campaign at Starbucks began in the Buffalo area in 2021 and quickly spread to other states. The union, Workers United, represents workers at more than 370 Starbucks stores, out of roughly 9,600 company-owned stores in the United States.The labor board has issued dozens of complaints against the company based on hundreds of accusations of labor law violations, including threats and retaliation against workers who are seeking to unionize and a failure to bargain in good faith. This week, the agency issued a complaint accusing the company of unilaterally changing work hours and schedules in unionized stores around the country.The company has denied violating labor law and said in a statement that it contested the latest complaint and planned “to defend our lawful business decisions” before a judge.The case that led to the dispute before the Supreme Court involves seven workers who were fired in February 2022 after they let local journalists into a closed store to conduct interviews. Starbucks said the incident violated company rules; the workers and the union said the company did not enforce such rules against workers who were not involved in union organizing.The labor board found merit in the workers’ accusations and issued a complaint two months later. A federal judge granted the labor board’s request for an order reinstating the workers that August, and a federal appeals court upheld the order.“Starbucks is seeking a bailout for its illegal union-busting from Trump’s Supreme Court,” Workers United said in a statement on Friday. “There’s no doubt that Starbucks broke federal law by firing workers in Memphis for joining together in a union.”Starbucks said it was critical for the Supreme Court to wade into the case because the labor board was becoming more ambitious in asking judges to order remedies like reinstatement of fired workers.The labor board noted in its filing with the Supreme Court that it was bringing fewer injunctions overall than in some recent years — only 21 were authorized in 2022, down from more than 35 in 2014 and 2015.A Supreme Court decision could in principle raise the bar for judges to issue orders reinstating workers, effectively limiting the labor board’s ability to win temporary relief for workers during a union campaign.The case is not the only recent challenge to the labor board’s authority. After the board issued a complaint accusing the rocket company SpaceX of illegally firing eight employees for criticizing its chief executive, Elon Musk, the company filed a lawsuit this month arguing that the agency’s setup for adjudicating complaints is unconstitutional.The company said in its lawsuit that the agency’s structure violated its right to a trial by jury. More

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    Microsoft Tops Apple to Become Most Valuable Public Company

    The shift is indicative of the importance of new artificial intelligence technology to Silicon Valley and Wall Street investors.For more than a decade, Apple was the stock market’s undisputed king. It first overtook Exxon Mobil as the world’s most valuable public company in 2011 and held the title almost without interruption.But a transfer of power has begun.On Friday, Microsoft surpassed Apple, claiming the crown after its market value surged by more than $1 trillion over the past year. Microsoft finished the day at $2.89 trillion, higher than Apple’s $2.87 trillion, according to Bloomberg.The change is part of a reordering of the stock market that was set in motion by the advent of generative artificial intelligence. The technology, which can answer questions, create images and write code, has been heralded for its potential to disrupt businesses and create trillions of dollars in economic value.When Apple replaced Exxon, it ushered in an era of tech supremacy. The values of Apple, Amazon, Facebook, Microsoft and Google dwarfed former market leaders like Walmart, JPMorgan Chase and General Motors.The tech industry still dominates the top of the list, but the companies with the most momentum have put generative A.I. at the forefront of their future business plans. The combined value of Microsoft, Nvidia and Alphabet, Google’s parent company, increased by $2.5 trillion last year. Their performances outshined Apple, which posted a smaller share price increase in 2023.“It simply comes down to gen A.I.,” said Brad Reback, an analyst at the investment bank Stifel. Generative A.I. will have an impact on all of Microsoft’s businesses, including its largest, he said, while “Apple doesn’t have much of an A.I. story yet.”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

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    Trump’s Dominance and Snowy Weather Put Iowa’s Caucus Economy on Ice

    Even before a snowstorm brought Des Moines to a near standstill on Friday, the city felt decidedly more subdued than it usually does around the Iowa caucuses: quiet restaurants, empty streets, bartenders with little to do.The numbers confirm it: The 2024 caucuses are expected to bring less than 40 percent of the direct economic impact to the capital that the 2020 contest provided — an estimated $4.2 million, down from $11.3 million four years ago. Direct economic impact measures what visitors do, like sleeping, driving, eating and drinking.It is a striking decline that reflects, among other things, diminished media engagement in a presidential race that is less competitive than in past years, when the state has been inundated by presidential hopefuls, their campaigns and teams of journalists in hot pursuit.“Media is way down,” said Greg Edwards, the chief executive of the Greater Des Moines Convention and Visitors Bureau, which provided the numbers. “The major networks aren’t sending their major anchors like they have in the past.”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More