Raphael Stevens

Andrew Ross Sorkin speaks with BlackRock CEO Larry Fink during the New York Times DealBook Summit in the Appel Room at the Jazz At Lincoln Center on November 30, 2022 in New York City.
Michael M. Santiago | Getty Images

Larry Fink, chairman and CEO of BlackRock, believes the U.S. could skirt a major economic downturn this year, but inflation is going to be around for a while.
“No I don’t see a big recession,” Fink said on CNBC’s “Squawk on the Street” Friday. “I’m not sure we’re going to have a recession in 2023, we may have it in early 24.”

The head of the world’s largest asset manager said the chance of a recession is dependent on the Federal Reserve’s battle against inflation. The central bank has raised its benchmark interest rate nine times for a total of 4.75 percentage points, the fastest pace of tightening since the early 1980s. BlackRock manages $9 trillion in assets.
“It all depends on what is the pathway of inflation of the short run and pathway to the Fed,” Fink said. “I believe inflation is going to be stickier for longer. In other words, I think we’re going to have a 4ish floor in inflation.”
Price pressures have shown signs of easing as of late after a series of aggressive rate hikes over the past year. The consumer price index, a widely followed measure of the costs for goods and services in the U.S. economy, rose 0.1% for the month and 5% from a year ago, cooler than expectations.
While the headline annual increase for the CPI was the smallest since June 2021, inflation is still well above where the Fed feels comfortable. Policymakers target inflation around 2% as a healthy and sustainable growth level.
In light of the challenging macro environment, Fink said there’s an increasing amount of BlackRock clients who are considering taking down risk in their portfolio.
“We’re seeing more and more clients who are looking at bringing down their risk, but keeping their portfolio much more wholistic and a little bit more resilient by having a better foundation of bonds and equities,” Fink said. “That’s what’s happening right now.” More

Austan Goolsbee
Kate Rooney | CNBC

The latest batch of economic data shows positive developments on the inflation front, but the Federal Reserve’s job is not over yet, Chicago Federal Reserve President Austan Goolsbee said.
Goolsbee, who succeeded Charles Evans in the president role earlier this year, is a member of the Federal Open Market Committee, which sets the federal funds rate.

“When you see the producer prices coming in as big negative numbers and you see these negatives on retail sales, you don’t want to overreact to short-run news, but it feels like that’s moving in the right direction,” he said on CNBC’s “Squawk Box” Friday to Steve Liesman.
Data on advanced retail sales released Friday morning showed consumer spending slowed in March amid concerns related to the bank crisis and potential for a recession. The data showed a 1% decline in March, which is a larger fall than the 0.5% expected by economists polled by Dow Jones. March marked the biggest month-over-month fall since November.
Excluding autos, retail sales fell 0.8% in the month,. That’s also a larger drop than the 0.4% analysts anticipated.
On Thursday, the March producer price index, a measure of prices paid by companies, declined 0.5% from the prior month, despite economists expecting prices to stay the same. Excluding food and energy, the index shed 0.1% from the prior month, while economists estimated a 0.2% month-to-month increase.
Investors saw that data as building on the March consumer price index report released Wednesday. The CPI showed consumer prices were up 5% from the same month a year ago, the smallest year-over-year increase seen in nearly two years.

Still, he noted there’s “clear stickiness” in some areas of pricing. And with current economic conditions, Goolsbee said the U.S. could experience a recession.
“There’s no way you can look at current conditions around the world and in the U.S. and not think that some mild recession is definitely on the table as a possibility,” Goolsbee said.
The data this week has bolstered hopes of those predicting the Fed could change course on its interest rate hike campaign. The central bank has raised interest rates in a bid to cool inflationary pressures, but Goolsbee warned against following “lagging” indicators like wages.
“The one thing that I think we’re spending too much time looking at is wage growth as an indicator of prices,” Goolsbee said. “There’s research out by two Chicago Fed researchers reflecting a longer tradition of research that shows wages do not serve as a leading indicator for price inflation. They’re a lagging indicator.”
“So when people are looking at what’s happening to wages now, that’s more reflective of what happened to prices six months ago,” he added. “I think we want to keep our eye on the price series, not on the wage series.”
Goolsbee said that the stress in the financial sector following the industry crisis prompted by the closure of Silicon Valley Bank last month can help do the work that monetary policy typically does. The potential for a credit crunch should also be watched, he said. More

Here’s how the bank did: Adjusted earnings of $4.32 per share vs. $3.41 estimate
Revenue of $39.34 billion vs. $36.19 billion estimate

JPMorgan Chase posted record first-quarter revenue on Friday that topped analysts’ expectations as net interest income surged almost 50% from a year ago on higher rates.
Here’s what the company reported:

Adjusted earnings: $4.32 per share vs. $3.41 per share Refinitiv estimate
Revenue: $39.34 billion, vs. $36.19 billion

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14 hours ago

19 hours ago

The bank said profit jumped 52% to $12.62 billion, or $4.10 per share, in the first three months of the year. That figure includes $868 million in losses on securities; excluding those losses lifts earnings by 22 cents per share, resulting in adjusted profit of $4.32 per share.
Companywide revenue rose 25% to $39.34 billion, driven by a 49% rise in net interest income to $20.8 billion, thanks to the Federal Reserve’s most aggressive rate-hiking campaign in decades.
Shares of the bank popped 5.8% in premarket trading.
“The U.S. economy continues to be on generally healthy footings — consumers are still spending and have strong balance sheets, and businesses are in good shape,” CEO Jamie Dimon said in a release.
“However, the storm clouds that we have been monitoring for the past year remain on the horizon, and the banking industry turmoil adds to these risks,” he said, adding that the industry could rein in lending as banks become more conservative ahead of a possible downturn.

Money in, money out

JPMorgan, the biggest U.S. bank by assets, is watched closely for clues on how the industry fared after the collapse of two regional lenders last month. Analysts had expected JPMorgan to benefit from an influx of deposits after Silicon Valley Bank and Signature Bank experienced fatal bank runs.
Indeed, JPMorgan saw “significant new account opening activity” and deposit inflows in its commercial bank, CFO Jeremy Barnum told reporters.
The money flows implied “an intra-quarter reversal of the recent outflow trend as a consequence of the March events,” Barnum said. “We estimate that we have retained approximately $50 billion of these deposit inflows at quarter-end.”
That helped cushion a larger trend of customers pulling money out of the regulated banking system as they realize they can earn higher yields in places like money market funds.
JPMorgan saw a 7% decrease in total deposits from a year ago to $2.38 trillion, slightly better than the $2.31 trillion estimate of analysts surveyed by StreetAccount. But, thanks to the recent inflows, deposits actually climbed 2% when compared with the previous quarter.

Slow to act

While commercial clients have been pulling deposits for the past year as rates rose, retail customers have been far slower to act. Now, it looks like Main Street customers have been seeking higher yields; deposits in the bank’s giant retail banking division dropped 4% in the first quarter.
Banks have also begun setting aside more loan loss provisions on expectations for a slowing economy later this year. JPMorgan posted credit costs of $2.3 billion, roughly in line with the StreetAccount estimate, as it built reserves by a net $1.1 billion and booked $1.1 billion in net loan charge-offs.
JPMorgan’s fixed income trading business also helped the bank beat expectations, posting $5.7 billion in revenue, or about $400 million more than expected. Equities trading revenue of $2.7 billion was below the $2.86 billion estimate.
Investment banking remained weak thanks to IPO markets that are still mostly closed, with a 24% decline in revenue to $1.6 billion, just below the $1.67 billion estimate. Barnum said in February that investment banking revenue was headed for a 20% decline from a year earlier.

Dimon’s thoughts

Finally, analysts will want to hear what Dimon has to say about the economy and his expectations for how the regional banking crisis will develop. JPMorgan has played a central role in propping up a client bank, First Republic, which teetered last month, in part by leading efforts to inject it with $30 billion in deposits.
Another key question will be whether JPMorgan and others are tightening lending standards ahead of an expected U.S. recession, which could constrict economic growth this year by making it harder for consumers and businesses to borrow money.
Shares of JPMorgan are down about 4% this year before Friday, outperforming the 31% decline of the KBW Bank Index.
Wells Fargo and Citigroup also topped analyst estimates for revenue Friday. Still ahead are Goldman Sachs and Bank of America results on Tuesday, while Morgan Stanley discloses earnings Wednesday.
This story is developing. Please check back for updates. More

Headline inflation in the euro zone dropped significantly in March, but core inflation — which excludes volatile energy, food, alcohol and tobacco prices — rose to an all-time high.
March’s banking crisis has caused some ECB policymakers — such as Austrian National Bank Governor Robert Holzmann — to rethink their next moves.
Visco called for patience in assessing the ECB’s rate hike trajectory, but he said policymakers will be examining the data for signs that core inflation is coming down and the bank’s medium-term inflation target of 2% is within sight.

A sign for the European Central Bank (ECB) outside the bank’s headquarters in Frankfurt, Germany, on Thursday, Feb. 2, 2023.
Alex Kraus | Bloomberg | Getty Images

European Central Bank policymakers are reconsidering the path of interest rate hikes in light of last month’s banking turmoil, but remain committed to reining in core inflation.
Contagion fears set in motion by the collapse of U.S.-based Silicon Valley Bank in early March led to the downfall of several other regional lenders stateside, and culminated in the emergency rescue of Credit Suisse by fellow Swiss giant UBS in Europe.

Though panic at the time led to a flight of investors and depositors from the global banking sector, the market has since calmed amid a consensus that the bank failures were the result of idiosyncratic frailties in business models, rather than a systemic issue.
The ECB hiked rates by 50 basis points in mid-March at the height of the banking turmoil, despite some calls for the central bank to pause.
However this week, several Governing Council members noted the risk of a knock-on economic impact as interest rates continue to rise in an effort to tackle inflation.
Headline inflation in the euro zone dropped significantly in March to an annual 6.9%, largely as a result of falling energy prices. However core inflation — which excludes volatile energy, food, alcohol and tobacco prices — rose to an all-time high of 5.7%.

The events of the past month have caused some ECB policymakers — such as Austrian National Bank Governor Robert Holzmann — to rethink.

He had previously suggested that the ECB’s Governing Council may need to consider as many as four further rate hikes, starting with a 50 basis point increase at its next meeting in May.
But he told CNBC on Thursday that “things have changed” since those comments two months ago, and that the central bank will need to assess the situation more closely beyond the next meeting.
“Quite definitely what we experienced with the bank crisis in the U.S. and with Switzerland, this led to changes in outlook and if the outlook changes, we have to change our views,” Holzmann told CNBC’s Joumanna Bercetche at the IMF Spring Meetings in Washington, D.C.
He added that the persistence of core inflation still needs to be taken into account, but it is “not the only part” that matters, with financial conditions tightening notably and access to credit diminishing for households and businesses.

“What matters also is the situation in the financial markets. If the situation in financial markets firms up, becomes more difficult for households and enterprises to take credit, this needs to be taken into account. By how much [rates must rise] depends very much what the environment at this time tells us.”
This cautious tone was echoed by fellow Governing Council member Ignazio Visco.
The Bank of Italy governor said financial turbulence — although yet to be felt in the euro zone, where banks are mostly well capitalized and have ample liquidity — was one of several factors adding downside risk to the economic outlook.
“The Italian banking sector is doing okay, the European banking sector is doing okay, in terms of the turbulence we have seen — it is mostly related to business models of the particular banks that have been affected,” Visco said.
“This is an idiosyncrasy, but there might be contagions for other reasons. Social media works in ways that are very difficult for us now to understand.”
Core inflation concerns
Visco called for patience in assessing the ECB’s rate hike trajectory, especially since credit conditions have “substantially tightened.” But he said policymakers will be examining the data for signs that core inflation is coming down and the bank’s medium-term inflation target of 2% is within sight.
“As a matter of fact, if you look at credit data, they show that the rate of growth has gone from over 10% in the late summer to zero, and negative in real terms now, so we are tightening. We have to wait for the lags that monetary policy takes,” he said, suggesting that it could take between a year and 18 months for recent policy moves to feed through to the euro zone economy.
Other ECB Governing Council members were unanimous in identifying core inflation as a key metric for the ECB in determining the pace of rate hikes, and the stage at which it can afford to come off the brakes.
Gediminas Šimkus, chair of the Bank of Lithuania, said the stickiness of core inflation was worrying, and suggested it may not have peaked yet. However, he emphasized the importance of assessing the lagging impact of existing policy tightening as it feeds through into the economy.

“Much of what we have done, it’s not visible yet. … I believe that we will see the core inflation getting down even this year. But having said all this, I would say that the tight labor market, active labor market, it adds its additional components into this overall picture … Headline inflation is decreasing, but service inflation, non-energy industrial goods inflation, they continue rising,” Šimkus said.
“A lot of people ask what is … the terminal rate? But our decisions are made on the basis of various data, macroeconomic projections, incoming financial and economic data, it’s not only about the inflation number … It’s about all this set of data, which forms the decision.”
Edward Scicluna, governor of the Central Bank of Malta, also said there is “still some way to go” for the ECB in its grapple with price increases.
“We can’t do anything about energy prices but we are very upset to see that inflation starts de-anchoring, that wage earners would say ‘oh we don’t believe that it’s coming down so we’ll ask for wage increases.’ The same for firms. So yes we are worried about the core inflation not yet peaking,” Scicluna said.

He added that the size of any future rate hikes will be difficult to predict given economic developments, including concerns around the banking system, but suggested that the fact that discussions about pausing or slowing are happening is an indication that policy rates are nearing their peak.
“It becomes more and more difficult each time. That’s a good sign that the end of the tunnel is not that far,” he said.

‘Not out of the woods yet’

Though the euro zone economy has thus far avoided a recession, concerns about the impact on growth of further monetary policy tightening have persisted.
Bank of Latvia Governor Mārtiņš Kazāks highlighted this on Thursday, noting that the 20-member bloc is “clearly not out of the woods yet” and that the risk of recession is “non-trivial.”

“Inflation still remains high. There are risks of some financial instability — so far, so good in Europe, and there is some reason to be confident about it, but we have to follow the situation,” he told CNBC.
“Yet we also see that the labor markets have been very strong, much stronger than expected, which leads to the situation that the rates will need to go up more to tame the inflation problem, and that may have some implications for the pockets of vulnerability that we’ve seen in certain market segments playing out as well.”
Asked about balancing the need to control inflation with the risk of overtightening and exerting further downward pressure on growth, Kazāks called for policymakers to remain focused on the inflation mandate, and said he did not see “any reason to slow down any time soon.”
“The risk of not doing enough in terms of raising rates, in my view, is significantly higher than doing too much,” he said.
Correction: This article has been updated with the latest comments from Gediminas Šimkus, chair of the Bank of Lithuania. An earlier version included outdated comments. More

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Check out the companies making headlines in premarket trading.
JPMorgan Chase – The banking behemoth popped more than 5% after posting record revenue that surpassed analyst expectations due to higher interest rates. JPMorgan Chase reported revenue of $39.34 billion, beating the $36.19 billion estimates for analyst polled by Refinitiv.

Wells Fargo — The bank added 3.1% after beating Wall Street expectations when reporting earnings. Earnings per share came in at $1.23, 10 cents higher than analysts polled by Refinitiv anticipated. The company reported revenue at $20.73 billion, which is higher than the $20.08 expected by Wall Street.
BlackRock — The investment management company added 1.6% after reporting first-quarter earnings. BlackRock reported $7.93 in adjusted earnings per share, higher than the estimate of $7.76 from analysts polled by Refinitiv. Revenue was in line with expectations at $4.24 billion.
PNC — Shares rose 1.3% after the bank reported first-quarter earnings. PNC reported $3.98 in earnings per share, beating the $3.67 expected by analysts. The bank said revenue came in at $5.60 billion, slightly below expectations of $5.61 billion. PNC also reported a slight increase in deposits, while noting its provision for credit losses was down from the previous quarter.
Citigroup — Shares rose 2.5% after the bank’s revenue for the first quarter topped expectations.
Express — Express jumped 18% on news that the apparel brand, along with WHP Global, would buy e-commerce apparel company Bonobos from Walmart.

Lucid — The luxury electric vehicle maker dropped 6.6% after reporting that it delivered fewer of its Air sedans to customers than it produced in the first quarter, which can be seen as a sign of weak demand. The company’s delivery figure also missed analyst expectations.
Rivian — Shares fell 2.5% following a downgrade to neutral from overweight by Piper Sandler. The firm said the company will need to address funding headwinds to compete with Tesla. Tesla shares were down 1% in the premarket.
UnitedHealth – UnitedHealth shares rose slightly after the health insurance provider beat Wall Street’s estimates on the top and bottom lines and lifted its profit outlook for 2023. The company reported adjusted earnings of $6.26 per share on revenue of $91.93 billion. Analysts had anticipated per-share earnings of $6.13 on revenue of $89.78 billion, according to Refinitiv.
Boeing — Shares fell 5.9% in the premarket after Boeing warned it will likely have to reduce deliveries of its 737 Max plane due to an issue with a part made by a supplier, Spirit AeroSystems. Shares of Spirit AeroSystems tumbled 14%.
Amazon — Shares fell slightly as investors continued parsing CEO Andy Jassy’s annual shareholder letter. Bank of America and UBS both said they would keep their buy ratings on the stock following the letter’s release.
Hello Group — The Chinese entertainment company jumped 5.2% after JPMorgan upgraded shares to overweight from neutral. JPMorgan said Hello Group was a preferred stock within the live streaming space.
Carisma Therapeutics — The clinical-stage, biopharmaceutical company advanced 3.2% after Baird initiated coverage of the stock with an outperform rating. The firm said it was optimistic ahead of new data expected to be released later this year.
LiveOne — Shares gained 2.1% after Roth MKM initiated coverage of the audio stock at a buy rating. The firm said the stock had upside ahead as a subsidiary was spun off.
VF Corp. — The parent company to apparel retailers like Vans and The North Face rose 5% after Goldman Sachs upgraded the shares citing the company’s latest strategic moves as potential boosts to the stock. Thanks to VF’s strong management strategy and new products, the stock can jump more than 20%, Goldman said.
— CNBC’s Jesse Pound, Samantha Subin, Michelle Fox and Tanaya Macheel contributed reporting More

Concerns are mounting around the health of Europe’s commercial real estate market, with some investors questioning whether it could be the next sector to implode.
Following March’s banking crises, fears have arisen of a so-called doom loop, in which a potential bank run could trigger a property sector downturn.
European funds invested directly in real estate recorded outflows of £172 million ($215.4 million) in February, according to Morningstar Direct data. Some analysts now see real estate stocks falling by 20%-40% by next year.

Investors are questioning the health of the commercial real estate sector following a string of recent banking crises.
Mike Kemp | In Pictures | Getty Images

Concerns are mounting around the health of Europe’s commercial real estate market, with some investors questioning whether it could be the next sector to implode following last month’s banking crisis.
Higher interest rates have increased the cost of borrowing and depressed valuations in the property sector, which in recent years reigned supreme amid low bond yields.

Meanwhile, the collapse in March of U.S.-based Silicon Valley Bank and the later emergency rescue of Credit Suisse prompted fears of a so-called doom loop, in which a potential bank run could trigger a property sector downturn.
The European Central Bank earlier this month warned of “clear signs of vulnerability” in the property sector, citing “declining market liquidity and price corrections” as reasons for the uncertainty, and calling for new curbs on commercial property funds to reduce the risks of an illiquidity crisis.
Already in February, European funds invested directly in real estate recorded outflows of £172 million ($215.4 million), according to Morningstar Direct data — a sharp contrast from the inflows of almost £300 million seen in January.
Analysts at Citi now see European real estate stocks falling by 20%-40% between 2023 and 2024 as the impact of higher interest rates plays out. In a worst-case scenario, the higher-risk commercial real estate sector could plummet 50% by next year, the bank said.
“Something I would not overlook is a crisis in real estate, both for private people and for commercial real estate, where we see a downward pressure both in the United States and in Europe,” Pierre Gramegna, managing director of the European Stability Mechanism, told CNBC’s Joumanna Bercetche in Washington, D.C. Friday.

A reckoning for office space

The office segment — a major component of the commercial real estate market — has emerged as central to potential downturn fears given wider shifts toward remote or hybrid working patterns following the Covid pandemic.
“People are concerned that the back-to-office hasn’t really materialized, such that there are too many vacancies and yet there is too much lending in that area, too,” Ben Emons, principal and senior portfolio strategist at U.S.-based investment manager NewEdge Wealth, told CNBC’s “Squawk Box Europe” last month.

People are trying to understand which banks have lent where, to what sector, and what’s really the ultimate risk.

principal and senior portfolio strategist at NewEdge Wealth

That has deepened worries about which banks may be exposed to such risks, and whether a wave of forced sales could lead to a downward spiral.
According to Goldman Sachs, commercial real estate accounts for around 25% of U.S. banks’ loan books — a figure that rises to as much as 65% among smaller banks, the focus of recent stressors. That compares with around 9% among European banks.
“I think people are trying to understand which banks have lent where, to what sector, and what’s really the ultimate risk here,” Emons added.
Amid that uncertainty, and what it called stretched valuations, Capital Economics last month increased its forecast for a peak-to-trough euro zone property sector correction from 12% to 20%, with offices expected to come off worst.
“We see this financial distress, or whatever you want to brand it, as a catalyst for a deeper adjustment in value than we previously expected,” Kiran Raichura, Capital Economics’ deputy chief property economist, said in a recent webinar.

Risks in Europe less acute than in the U.S.

Not everyone is convinced of a forthcoming downturn, however.
Pere Vinolas Serra, chief executive of Spanish real estate company Inmobiliaria Colonial and chairman of the European Public Real Estate Association, said the situation in Europe looks paradoxically strong.
Among the various factors at play, the return-to-office trend has been stronger in Europe than the U.S., he said, while office “take-up” — or occupancy — rates have been higher on the Continent.
“What is striking is that the data shows it’s better than ever,” Vinolas told CNBC via Zoom. “There’s something totally different going on in the U.S. versus Europe.”

European funds invested directly in real estate recorded outflows of £172 million compared to inflows of almost £300 million seen in January, according to data from Morningstar Direct.
Westend61 | Getty Images

As of late 2022, European office vacancy rates stood at around 7%, well below the 19% in the U.S., according to real estate adviser JLL. Within Inmobiliaria Colonial’s portfolio, Vinolas said current vacancy rates were even lower, at 0.2% in Paris and 5% in Madrid.
“I’ve never seen that in my life. The data on occupancy rates is at the very highest level,” Vinolas said.
JPMorgan mirrored that view late last month, saying in a research note that fears of a U.S. downturn spreading to Europe were overblown.
“Fundamentally, we believe that any contagion from either U.S. banks or U.S. CRE (commercial real estate) onto European peers is not justified, given different sector dynamics,” analysts at the bank said.

Uncertainties and opportunities ahead

Still, uncertainties remain in the sector, analysts warned.
Of particular concern is the concentration of funding from nonbank lenders — or so-called shadow banks — which have picked up the slack in the wake of tighter regulation on traditional banks, said Matthew Pointon, senior property economist at Capital Economics.
Before the global financial crisis, Europe’s traditional banks would offer loans of 80% of a building’s value. Today, they rarely go above 60%.

The challenge will be for those nonsophisticated players, those who have a building that they have to adapt.

Pere Vinolas Serra
chief executive of Inmobiliaria Colonial

“A lot less is known about these [shadow banks], and they may be more vulnerable to rising interest rates for example. So that’s an unknown that could throw a spanner in the works,” Pointon said.
Meantime, incoming EU and U.K. energy efficiency standards will require significant investment, particularly in older buildings, and could see some real estate owners come under further pressure over the coming years.
“I think the challenge will be for those nonsophisticated players, those who have a building that they have to adapt to new requirements,” Vinolas said.
“At that level — which is a large amount, by the way — there could be a huge impact but also huge opportunities,” he added. More