Raphael Stevens

Check out the companies making headlines before the bell:
AT&T (T) – AT&T fell 1.8% in the premarket, despite beating estimates on both the top and bottom lines for the second quarter, as it lowered its full-year free cash flow guidance. AT&T also reported a jump in quarterly wireless subscriber additions and raised its full-year forecast for wireless revenue growth.

DR Horton (DHI) – The home builder reported better-than-expected earnings for its latest quarter, but revenue fell short of analyst forecasts. The company cut its full-year sales guidance on moderating demand. Shares fell 1.4% in premarket trading.
Travelers (TRV) – Travelers rallied 4.3% in premarket action after reporting better-than-expected profit and revenue for the second quarter. The upbeat performance came despite higher catastrophe losses and a drop in investment income.
American Airlines (AAL) – American fell 1.4% in the premarket after quarterly earnings matched estimates and revenue was essentially in line with forecasts. The profit was the airline’s first since the start of the pandemic and the carrier expects the current quarter to be profitable as well.
Danaher (DHR) – The medical and industrial products and services company’s second-quarter profit and revenue were better than expected, with higher sales helping offset an increase in expenses. Danaher jumped 3.5% in premarket trading.
Tesla (TSLA) – Tesla gained 2.7% in premarket trading after reporting better-than-expected earnings for the second quarter. Tesla’s revenue came in below forecasts and it saw shrinking profit margins as it dealt with higher costs and supply chain disruptions.

Carnival (CCL) – Carnival took a 12.1% hit in the premarket after announcing a $1 billion common stock offering. The cruise line operator plans to use the proceeds for general corporate purposes.
United Airlines (UAL) – United Airlines missed top and bottom line estimates for the second quarter and the carrier warned of the impact of higher jet fuel prices and a possible economic slowdown. United slid 6.8% in premarket action.
Alcoa (AA) – Alcoa rallied 3.9% in premarket trading after posting a better-than-expected second-quarter profit as sales rose faster than costs. Alcoa also announced a $500 million share repurchase program.
CSX (CSX) – CSX rose 3% in premarket trading after beating top and bottom line estimates for the second quarter. The rail operator is seeing skyrocketing demand but it is having difficulties hiring because of a tight labor market.

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Starling swung to a pre-tax profit of £32.1 million in the year ending March 2022, having lost £31.5 million a year earlier.
Revenues at the start-up reach £188 million, up nearly 93% from 2021.
It marks a rare show of strength in fintech at a time when some firms in the space are seeing their valuations drop.

The Starling Bank banking app on a smartphone.
Adrian Dennis | AFP via Getty Images

British digital bank Starling on Thursday reported its debut annual profit as revenues at the firm almost doubled.
The lender swung to a pre-tax profit of £32.1 million ($38.3 million) in its fiscal year ending March 2022, having lost £31.5 million a year earlier.

Revenues at the start-up reached £188 million, up nearly 93% from 2021.
It marks a rare show of strength in the fintech sector at a time when some firms in the space are dealing with reduced valuations and racking up hefty losses.
Klarna, the Swedish buy now, pay later firm, recently saw its valuation nosedive 85%, while publicly-listed rival Affirm has fallen 69% year-to-date.
“What we’re seeing is that there is a correction in fintech stocks that are not profitable,” Starling CEO Anne Boden told reporters on a call Thursday.
“If you look at the listed markets and certain entities such as buy now pay later and such like, we see a huge correction going on there.”

Some fintechs are also pushing back their initial public offering plans as fears of a possible recession around the corner put the markets on edge.
In Starling’s case, the company likely won’t list its shares publicly until 2023 or 2024, Boden said.

Based in London, Starling is one of a multitude of digital-only banks that flooded the U.K. in the past decade. Start-ups in the space have gone on to attract millions of customers and lofty valuations, with Revolut now valued at $33 billion and Monzo worth $4.5 billion.
Starling itself was last privately valued at £2.5 billion in a funding round closed earlier this year. The firm’s shareholder base includes the likes of Goldman Sachs, Fidelity and the Qatar Investment Authority.
The firm benefited from a sharp increase in mortgage lending after the acquisition of specialist lender Fleet Mortgages. Its loan book increased 45% to £3.3 billion in its 2022 financial year.
As of June 2022, Starling’s total gross lending stood at £4 billion, £2 billion of which was made up of mortgages.
Starling had also been boosted by government-backed lending schemes introduced in the wake of the coronavirus pandemic, in particular the Bounce Back Loan Scheme.
Lord Agnew, the former U.K. anti-fraud minister, accused the bank of not doing enough to tackle exploitation of the scheme by fraudsters.
Boden said Starling had written to Agnew requesting a meeting, but said he had declined.
“He is just wrong,” she said Thursday. “Starling has done a fantastic [job] in making sure we did all the checks necessary and more.”
On Monday, Starling scrapped plans to get a banking license with the Irish central bank, four years after applying. The move would have allowed Starling to offer its services to customers across the European Union.
Boden said the U-turn was “tough” but that, strategically, launching in Ireland in the near term would have been the “wrong decision.”
Starling is still open to the idea of expanding by taking over a European lender, she added however “it would have to be in a bigger country.”

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When new zealand’s parliament decided in December 1989 on a 2% inflation target for the country’s central bank, none of the lawmakers dissented, perhaps because they were keen to head home for the Christmas break. Rather than being the outcome of intense economic debate, the figure—which was the first formal target to be adopted by a central bank—owes its origin to an offhand remark by a former finance minister, who suggested that the soon-to-be-independent central bank should aim for either zero or 1% inflation. The central-bank chief and incumbent finance minister used that as a starting-point, before plumping for 0-2%. Over time, 2% became the standard across the rich world.Should the somewhat arbitrary goal of 2% be changed? The question may seem a little churlish when central banks are so flagrantly missing their existing targets: annual inflation in America, Britain and the euro area, for instance, is running at around 9%. The Federal Reserve’s experiment with “flexible average-inflation targeting” has coincided with the central bank allowing inflation to get out of hand. Yet it is possible that raising the target might help prevent rich countries from returning to the low-inflation, low-growth malaise that was the rule for the decade after the global financial crisis. The idea therefore warrants consideration. High inflation is painful. Even if wages keep pace with price growth, thereby preserving workers’ incomes in real terms, it undermines the function of money both as a unit of account and as a store of value. Contracts agreed at one point in time lose their worth rapidly, redistributing income and wealth arbitrarily between buyers and sellers or between creditors and debtors. Long-term investment and saving decisions become more of a gamble, as the case of Turkey illustrates. Inflation there is in the region of 80%. Yet deflation carries its own costs, too. Worryingly for mortgage-holders and governments alike, it raises the value of debts in real terms, which can generate a self-sustaining depression as incomes keep falling relative to debt payments. That explains why central banks aim for a low but positive rate of inflation. Deciding which low but positive number is desirable is trickier. Is a target of 2% actually superior to one of 3% or 4%, for instance, or does it merely owe its exalted status to tradition? The relative damage done by extremely high or accelerating price growth may be easily visible, but economists have struggled to identify differences in the costs to an economy from different stable, low-single-digit inflation rates. The 20-year period of very low inflation that recently came to an end brought no positive leap forward in productivity nor any change in savings behaviour, except in reaction to the global financial crisis, points out Adam Posen of the Peterson Institute for International Economics, a think-tank in Washington. If the costs of a slightly higher inflation target are small, the benefits are potentially sizeable. Chiefly, it could help central bankers avoid the so-called zero lower bound on nominal interest rates. Interest rates cannot go too far into negative territory, because they risk destabilising the banking system: depositors could always choose to empty their bank accounts and hold cash, which in effect carries an interest rate of zero, instead. That also limits the efficacy of negative interest rates. After the financial crisis some central banks set slightly negative rates on commercial banks’ reserves, but lenders had little ability to pass them on to their retail clients. The impotence of negative interest rates encouraged central banks to adopt unconventional policies, such as quantitative easing. Higher inflation targets are a different solution to the problem of the lower bound. If the public expects the central bank to generate more inflation in future then the interest rate, in real terms, can still be sharply negative, stimulating the economy even without nominal interest rates needing to venture below zero. Allowing moderately higher inflation in normal times could therefore make it easier for the central bank to give a boost to the economy when trouble hits.The opportunity to escape the lower bound on interest rates is no small thing. The current spell of monetary-policy tightening notwithstanding, the risk remains that interest rates will stay relatively low. The long-term factors that were weighing on interest rates before the pandemic, such as an ageing population and low productivity growth, are still in place. There may be a benefit in the short term, too, to raising targets now. Reducing stubbornly high inflation requires cooling the economy, which generally involves raising the unemployment rate. The lower the inflation target, the more unemployment central banks need to generate to get there. If the costs of inflation at 3% really are not much different from inflation at 2%, central banks will be generating additional unemployment for little benefit. Seizing the inflationary momentSet against this, however, are the consequences of reneging on a 30-year promise. The experience of the past year has made clear that the public detests inflation; both finance ministries and central banks are being excoriated for losing control of price growth. To shift the goalposts now could give the impression of giving up the fight entirely. Inflation targeting was meant to anchor the public’s expectations of price growth. Changing the target could undermine that objective altogether, by creating expectations that it will be raised again the next time inflation roars. As long as inflation is so far off-target, such considerations seem likely to stay the hand of any would-be monetary reformers. Yet once it peaks, restoring a degree of central banks’ credibility, the pain of further disinflation, together with the promise of well and truly escaping the zero lower bound, could just start to make the idea of higher targets more alluring. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

When stocks boomed early in the pandemic, an internet meme captured the madness of the moment. On the left-hand side of the image, a worried man exclaims that simply creating money cannot save the economy; on the right, a man representing the Federal Reserve replies “Haha money printer go brrr” while cranking out dollars. Joseph Politano, author of Apricitas, an economics newsletter, recently tweaked the meme to better fit the present situation. On the left, the worried man laments that excessive monetary tightening is increasing the risk of a recession; to the right, the Fed representative retorts “Haha money vacuum go brrr”, while hoovering up dollars.In more analytical, if less humorous, terms, another way of framing this shift is to ask whether the Fed put has become a Fed call. The concept of a Fed put dates back to the era of Alan Greenspan, a former chairman of the central bank. Starting with the stockmarket crash in 1987 and continuing for more than three decades, the Fed earned a reputation for easing policy, notably by cutting interest rates, whenever share prices plunged. To traders this looks a bit like a put option, a basic hedging tool that sets a price floor for investments. A Fed call would imply just the opposite: namely, that the central bank is in effect capping the market (similar to traders who sell call options on their stock holdings). Steve Englander of Standard Chartered, a bank, laid out this provocative idea in a recent note to clients: “The Fed may push back against equity market gains until it is comfortable that disinflation is a lock—in other words, [there is] a Fed call.”This argument may, at first glance, seem rather crude. The Fed has long denied that it targets asset prices in setting monetary policy. Narrowly, its denials are credible. Central bankers look at oodles of data, from real-time growth figures to surveys of inflation expectations. They cannot afford to be swayed by swings in stocks. Moreover, share prices reflect many factors ranging from the overall economic outlook to corporate idiosyncrasies. Why would the Fed target something that is so volatile and only partially responsive to its actions?In a broader sense, however, the stockmarket clearly matters to the Fed. Jerome Powell, its current chairman, has repeatedly said that its policies are transmitted to the real economy through financial conditions—a term that refers to the availability and cost of funding for businesses and consumers. Stockmarkets play a crucial role in both shaping and gauging financial conditions. Admittedly, they play a small part in a formal sense: for instance, in one index of financial conditions created by the Fed’s Chicago branch, equity and other asset markets account for just ten of its 105 separate inputs, contrasting with the bigger weights assigned to credit markets. But stocks reflect these other metrics. This is especially true at times of stress. Share prices have fallen this year as indices of financial conditions have tightened, and they have risen when these indices have eased.Concerns about inflation only add to the market’s importance. When share prices rise, consumers, feeling flush, tend to spend more money and companies, feeling confident, tend to hire more workers. A paper in 2019 by Gabriel Chodorow-Reich of Harvard University and colleagues concluded that each dollar of increased stockmarket wealth lifted consumer spending by about three cents annually, while also boosting employment and wages. For a central bank fighting inflation, a large rise in share prices would therefore cut against its efforts.This makes for borderline hypocrisy in Fedspeak. Sober central bankers can explain that they want “appropriate firming of monetary policy and associated tighter financial conditions” to help rectify the supply-and-demand imbalances that are fuelling inflation (as the Fed did indeed say in the minutes of its rate-setting meeting in June). Yet it would be beyond the pale for them to declare that they want “appropriate firming of monetary policy and associated weakness in the stockmarket”—even if their meanings are closely aligned.In a market crash that impairs the financial system, the Fed put would come back into focus. For now, though, the sell-off has been mostly orderly. A sustained rebound in stocks would be unwelcome for the Fed, and might well tilt it towards more hawkishness. Investors accustomed to viewing the central bank as a friendly force must instead confront the harsh reality of a Fed call.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.Read more from Buttonwood, our columnist on financial markets:Why markets really are less certain than they used to be (Jul 14th)Crypto’s last man standing (Jul 9th)What past market crashes have looked like (Jun 30th) More

Mr peng is still paying the mortgage on the flat he bought in northern Shanghai last year—for now. The property’s developer, Kaisa Group, began construction on the site in July 2021 but halted work just three months later, presumably because it could no longer pay for labour and supplies. Mr Peng’s new home, which was scheduled for delivery in September next year, has become a lanweilou—one of thousands of housing projects sitting unfinished and abandoned.This has been a common phenomenon for years. But for the first time ever people across China are halting mortgage payments on such homes in protest. Buyers have stopped payments on at least 319 projects in 93 cities, according to documents that have been collected by volunteers and published online. The boycotts add more trouble to a property market that was already in turmoil. Regulators have put strict limits on the amount of debt developers can take on, leading many firms to miss interest payments. Evergrande, the most indebted of them all, defaulted last year. Many others have followed. While panic swept over offshore bond markets, the onshore financial system had, before the boycotts, been relatively shielded. Now the risks might be shifted onto China’s banks.Pre-payments are one of the most important sources of liquidity for homebuilders. About 90% of new properties in China were pre-sold in 2021, up from just 58% in 2005. The funds are virtually interest-free and are used to pay for construction. But they have also been poorly regulated and often misused. Many homebuyers fear the money they have put up for flats has been squandered and will be irrecoverable. Analysts at Deutsche Bank put the size of mortgages affected so far by the boycotts at 1.8trn-2trn yuan ($270bn-300bn), or 4-5% of the stock of mortgage lending. If that is the full extent of the crisis, then banks can absorb it. The government has reportedly considered giving grace periods on mortgage payments while also pressing banks to keep lending to developers.A bigger concern is that the boycotts deliver yet another blow to sentiment, and could further sap liquidity from the sector. Housing sales were already down by about 35%, year on year, in the first five months of 2022. News of the boycotts, though heavily censored, has spread via social media and may put potential buyers off, starving developers of new pre-sales funds.More buyers could also stop paying mortgages. Just 60% of homes that were pre-sold between 2013 and 2020 have been delivered, reckon analysts at Nomura, a bank. A fall in cement output suggests that building at up to 20% of sites may have slowed or stopped since the start of 2021. Should the boycotts spread, some banks, especially smaller ones, could experience distress. Mr Peng is part of a group of buyers that has sent a letter to Kaisa Group demanding a resumption of construction and asking how the developer has spent their money. He says he is prepared to pay his mortgage as he awaits the scheduled delivery date for his flat. The fate of the property market could hang on what he, and others in his situation, do next. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More