Economy

Good morning. By recent market standards, yesterday was a snoozer. But we did notice that existing home sales fell for the third month in a row in April. Higher rates are hitting the economy, fast. Today, we dive into this week’s retail earnings massacre and ask how sticky inflation really is. Email us: [email protected] and [email protected]. Retailer earnings, reconsideredFirst-quarter earnings from two big American retailers scared the daylights out of markets this week. Walmart and Target are down 20 per cent and 29 per cent, respectively, since they reported earnings.These two companies are very important for investors because — as nation-spanning sellers of food, clothes, home goods and much else — they provide a window into the health of the American consumer, who drives the American economy and the world’s. So it is not totally illogical that in the wake of the box stores’ poor results, all sorts of consumer staples companies, usually a safe haven in a storm, took a whipping.But one consistent feature of bear markets is that during them, the news that sparks a brutal sell-off on a given day often turns out, on close examination, not to be particularly significant. A bear market is one that looks for an excuse to go down. Was that the case with this week’s news? What did we really learn from the results?The headline, in both cases, was that while revenue was fine, margins collapsed. In an inflationary environment, one might have expected this. Walmart and Target have to pay more for what they sell. Perhaps they can’t pass on the costs entirely. If so, margins must tighten. And if that is true of these huge, powerful retailers, just imagine what is coming for smaller companies.As it turns out, though, this is not what happened. Or not exactly what happened. The striking number on both balance sheets was inventory levels. At Walmart, sales were up 2 per cent from last year’s first quarter. Inventories were up 32 per cent. That is to say: there was $15bn in extra inventory sitting around at Walmart at the end of the quarter. At Target, it was 4 per cent and 43 per cent — $5bn in extra inventory. And what happens when you’ve ordered several billions worth more stuff than your customers want? You mark prices down to get rid of it all. And down go margins. Here is how one Target exec laid it out: As we developed our plans for the quarter, our task was to anticipate how spending would change under circumstances no one had ever seen before . . . we relied on numerous forecasts and estimates, both internal and external, to help determine our view for the quarter. Despite this careful approach, the mix of actual demand materialized differently than we had anticipated . . . as supply grew and demand shifted away from bigger, bulkier products like furniture, TVs and more, we needed to make difficult trade-off decisions. We could keep this product knowing it would sell over time, or we can make room for fast-growing categories like Food & Beverage, Beauty, and personal care and Household Essentials . . . we chose the latter, leading to incremental markdowns that reduced our gross marginHow did these well-run companies miscalculate their ordering so badly? I put this question to Rahul Sharma of Neev Capital, Unhedged’s retail guru. He noted that during the pandemic both Walmart and Target had used their global muscle to secure products lesser companies simply couldn’t get. They used the coronavirus pandemic as a chance to use their immense scale to take still more share from smaller players. And it worked. But Sharma thinks that both companies got too enthusiastic about this approach, just as the extraordinary demand for goods that characterised the pandemic (especially “bigger, bulkier products like furniture and TVs”) started to fall away.This mistake was compounded by consumers, who are seeing their real incomes eroded by inflation, spending a bit less. Walmart, for example, noted that more customers are shifting to store brands over name brand foods. There was not, however, a sharp drop-off in demand — just a bit of a downshift. The big problem was the inventory mistake. It will be very expensive, but is a one-time event. It does not signal a deep threat to the two companies’ business models. Walmart and Target, who did so well at the beginning of the pandemic, got caught flat-footed by its end. Does this justify a violent sell-off? It does not. Unless, of course, the companies’ stock prices were driven beyond their long-term value by the speculative vapours of a long bull market, and needed an excuse to revert to reality. That’s what happens in bear markets.Maybe inflation is less sticky than we thoughtHere is some conventional wisdom. Inflation started as a one-off shock to pandemic-specific items, particularly durable goods, but has since crept into stickier areas such as shelter and services. And since much of services and shelter inflation depends on wages, it’ll be hard for the Federal Reserve to restore sub-2 per cent inflation without hitting labour markets hard. If they don’t, a wage-price spiral looms. The economist Jason Furman summed it up in a chart we showed you last week:

The standard story is, sadly, pretty accurate. But others are available. I spoke recently with Omair Sharif at Inflation Insights, who thinks core services (that is, excluding food and energy) inflation is less sticky than most expect. He starts by noting how concentrated the recent acceleration in services inflation is. “Acceleration” is important here: inflation rates only increase if price levels are getting hotter, faster. So what caused the core consumer price index to go from 4 per cent late last year to over 6 per cent now? The post-Omicron rebound in transport costs is almost solely to blame. Sharif offers this chart comparing the acceleration in core services this year to the final four months of 2021:

This is likely a one-off price bump that should quickly fade from inflation indices over the next few prints, putting core inflation closer to 4 per cent on an annual basis — hot, but more manageable than what we have now.Getting from 4 to the Fed’s target — 2 per cent — will still require the central bank to deal with shelter inflation, which, mercifully, has barely accelerated (just 1.5 basis points in the chart above). Slowing labour income growth is the main channel to do this. As Rob discussed last week, this is because shelter inflation indices are measures of rents, which in turn are paid with wages. Luckily for the Fed, wage growth is already coming down:None of this means that a soft landing is likely, or that the Fed can easily get inflation back to target. But it does suggest 7-plus per cent CPI is not here to stay. (Ethan Wu)One good readThink China is uninvestable? “My answer to these people is: ‘You guys have to do better research.’” More

The history of humanity is the story of supply chains. Ever since 3,000BC, when Bronze Age cities of the Indus valley traded carnelian beads to Sumer, Omani vases and lapis lazuli from Afghanistan, the growth and development of our world has been carried on the backs, packed on the beasts, hauled on the carts, sailed on the ships and driven in the lorries of traders and travellers who made and make their living transporting goods.Hitch a long-distance lift with a truck, as I did, and you see the world from a startling new angle. Countless freight lorries trundling through every day and night and country are the red blood cells of our planet’s circulation. Yet that circulation has rarely been so erratic. Plunges and surges in demand and oil prices, palpitations in the global pulse caused by Covid-19, war, sanctions, Brexit, extreme weather and container jams have imperilled the system. The disarray is written in gaps on supermarket shelves.Janet Yellen, US Treasury secretary, said recently, “Our supply chains are not secure, and they’re not resilient . . . that’s a threat that needs to be addressed.”In Dorchester in southern England last month, I joined a crucial supply chain, travelling with two lorries carrying aid to refugee children from Ukraine. Our destination was Suceava in Romania, 1,600 miles away, and my preconceptions began collapsing in the first 10 minutes, when it became clear that we would not be using satnavs. Forget the predictability of smoothly plotted routes and timelines. Container ships follow these, as I discovered when I travelled with them. Road haulage is an altogether more idiosyncratic and exciting business.“We’re not going to make it,” said Ian, six days later, on hands-free mobile from his truck. We had followed the blue back of his huge 40-tonne 460hp DAF lorry across Europe to Suceava, guided by memory maps in Ian’s head. I rode in the second lorry with Charlie Bailey, 23, owner of General Haulage of Great Britain, driver of one of his company’s three trucks and employer and student of the 23-year haulage veteran ahead of us, Ian Payne. They were running out of driving time, which is monitored, along with rests, by tachographs in their cabs. Night was falling, we had crossed all of Austria and Hungary the previous day and a fat slice of Romania today. Now we needed parking, food, sleep and, ideally, showers. Ian’s first choice out of reach, we bore on towards his second.

Our mission saw more than 200 volunteers fill boxes with over 10,000 children’s backpacks, stuffed with supplies. But it is all very well for caring people to put together an aid mission to Ukraine. Without two men with Class 1 HGV licences and the kind of travel knowhow that can only be earned, all you get is tonnes of good intentions sitting in a Dorset warehouse.Without the drivers’ knowledge, experience and chutzpah, we would never have made the delivery deadline in Romania. As we snaked thunderously into that first night, dodging checkpoints and weigh bridges, gathering intelligence about queues at Dover and the chaotic ferries (P&O was out of action, due to ships failing inspections), watching for police, tight turns and bad drivers, monitored constantly by tachographs, tracked by hundreds of automated number-plate recognition cameras, I began to understand how resilient and resourceful drivers such as Charlie and Ian are, and how complex and vexing their world. No satnav shows the truth of road haulage.And no computer would design this trading world the way politicians have, with chaotic obstructions caused by Brexit, for example, requiring trucks going into the Republic of Ireland from the UK to present 700 pages of documents that take eight hours to prepare. Ian Payne, a long-distance truck driver for 23 years: ‘We followed his 40-tonne lorry across Europe, guided by memory maps in his head’ © Mary Turner for The Financial TimesArchie Norman, chair of Marks and Spencer, said this week: “Some of the descriptors, particularly of animal products, have to be written in Latin and in a certain typeface.” Every sandwich containing butter, he said, requires an EU vet certificate, which means employing 13 vets and budgeting for 30 per cent more driver time.Six-mile queues at Dover and 18-mile lines at Calais this year were caused by post-Brexit checks, worsened by small numbers of lorries with the wrong paperwork. We can expect more delays in September, when a new security system may require drivers to leave their vehicles for facial or body scans, and more again next year when trucks will be inspected at the new inland border at Sevington, near Ashford, Kent.The metaphor of supply “chains” makes the process sound orderly and smooth, but from the first this journey along them was more like an adventure through a wild ecosystem in which we were a prey, dashing between safe habitats such as lorry parks and filling stations, hunted by authorities, legislation and customs rules that sought to charge, delay or stop us. It was not that the trucks had any deficiency to bother the police or the Driver and Vehicle Standards Agency, which regulates haulage in Britain. It was that many drivers loathe and avoid the DVSA, and checkpoints of all kinds in all countries. “They’re not on your side. They’re out to get you. It’s like they want to punish you for doing your job,” Ian said. “They want to fine you and take your money.”HGV trucks wait to board ferries at the Port of Dover last month © Mary TurnerThe DVSA has a checkpoint on the A243. And so we went via Calais, Bastogne, Luxembourg, Karlsruhe, Munich, Vienna, Budapest and a little place in Romania called Jurca (a single track of crumbling tarmac over a hill, with power lines groping for the wing mirrors) but we will never take the A243 to Leatherhead.By the time we reached Dover, having dodged the lorry stack the police were compiling on the M20 by slipping down the A20, I saw my companions as merchant adventurers, dazzlingly resourceful, swift to improvise, canny and funny as hell. “Don’t start Ian on Covid,” Charlie warned me. “He won’t stop.”Ian and I disagree on Covid, immigration, Brexit, Nigel Farage, history, the shape of Earth and the BBC. On everything that really matters, we agree. I recorded our journey for a Radio 4 documentary, Writing the Road to War. They approved, up to a point. I practised caffeine diplomacy on them at every service station.“Cappuccino with sugar, latte lots of sugar!” I cried. “On the BBC. You’ll be massive fans by the time we get there.”“Never!” Ian retorted, and started on the government-controlled, lying media. He trucked the continent throughout the pandemic without ever filling in passenger locator forms, out-arguing border guards. Charlie, Ian and people like them (there are female HGV drivers — I saw two in 10 days) feel they have no political clout. The transport unions, the Road Haulage Association and their MPs, they say, do not defend or advance their interests. Britain, their favourite country among dozens they travel, offers them dangerously bad food, extortionate and grotty stopping places, avaricious and bullying oversight, low status and zero agency.Ian in his cab. His advice for anyone thinking of becoming a driver: ‘Don’t do it. It’s not worth it’ © Mary TurnerI asked Ian’s advice for anyone thinking of becoming a driver, mindful of post-Brexit shortages of hauliers in 2021, when some supermarkets were offering wages of £56,000.“Don’t do it. It’s not worth it,” he said.The way your money is ripped away from you is part of the problem. A driver actually makes around £700 net, Ian says, in return for 70 hours plus. Amazed at the ways we were taxed and charged during the journey, I pictured camel caravans harried by hyenas. Rest areas, frontiers, motorways and entire nations’ road networks all want paying, constantly. Factor in licences, maintenance, diesel, subscriptions to broker websites where shippers offer loads and rates, plus constant travel expenses, and you have thin margins. Then you get pulled over by the French police. Charlie loves his business and trucking life. He hopes to expand to five lorries. But you should hear him on France and the Gendarmerie. Henry V would blush. If your truck is capable of more than 56 miles an hour, regardless of what speed you are doing, they can fine you.They love to check your tacho. It is almost impossible not to infringe the tacho. You must stop at intervals for minimum times — but suppose there is nowhere to stop, you are on a deadline, under vicious pressure from an employer, cannot afford the fees for that rest area, have run out of driving time and, held up by traffic or roadworks, you are late. You go over your set driving time, the police or an inspector checks your tacho, and you are fined.In Britain you see trucks from eastern Europe on small roads and parked in odd places because many of their drivers are paid less than €100 a day. Do you spend half of that on a rest area? No — you carry and cook your own food, defecate in the undergrowth, go without showers for weeks. Supporting your family, you are away for months, taking loads from wherever you are to wherever they are wanted, against the clock. You become tough and wily.Decades ago Ian was interviewed for a job.“How long can you stay awake?”“Three days?” he said.“You’re no good to me. I don’t need shunters,” came the reply. This was a legendary haulier who sent trucks from England to Kazakhstan, to the Chinese border, to Africa. A nonstop run to Italy or Spain would be nothing then, and barely cause for comment among drivers now, if you could get away with it.“Some drivers took speed [amphetamine],” Ian said. “Not me. There was another trick — down a spoonful of instant coffee and a can of beer. That worked. Apparently.”“Can the tacho be fooled?” I asked Charlie.“Oh there’s endless tricks,” he said. “Magnets by the gearbox: it pulls the pin with the sensor, so the speedometer says you’re doing zero and the tacho thinks you’re stationary. You’d get jail for that.”

From left: Horatio Clare with Ian Payne and Charlie Bailey at the Romanian-Ukrainian border: ‘I came to understand how complex and vexing their world is’

ANPR cameras can be defeated with gaffer tape on the number plates, altering letters and numbers. Although Ian and Charlie are committed to professionalism and probity, we were taking aid to child refugees from Putin’s war, on a deadline, and we knew Austria was closed to freight on Sunday. I had not realised that whole countries regularly ban all lorry movements, but they do. Obstacles were thus overcome with guile and dash. At Dover we ignored a stationary queue of trucks for Irish Ferries, Charlie’s chosen operator. “The DFDS lane is free, look!” he said (we talked cab-to-cab on hands-free mobiles). We zipped down it, Ian close behind, cutting into a space at the kiosk where an immigration officer stamped us out of the UK.Now we took turns nipping into an inching line of lorries (it was the small hours now, but the tacho has a “ferry” setting that allows you to make little shuffles), Charlie holding them back, Ian leapfrogging ahead. It was glorious. They saved half a day. On board, before dawn, exhausted truckers faced a vile insult to fry-ups. The bacon was grey. In a heap of fat and cholesterol, nothing had any taste. Charlie said French ships do a worse version. We slept nine mandatory hours in a lay-by in “the corridor”, the Calais-Dunkirk road, muttering about being held legally responsible for refugees hiding in trucks. (This seems absurd: if customs and police cannot find or stop stowaways, how are drivers supposed to?) Ian and Charlie spoke of drivers’ fears and experiences of violence and intimidation from migrants desperate to cross from Calais to Britain. We were glad to be on the continent, though. “They respect drivers here — the food, the facilities, the way you’re treated, everything is miles better in Europe,” Ian said. An evening meal at La Bonne Table truck stop in Flers-en-Escrebieux, France. Food and facilities in Europe are ‘miles better’ than in Britain, says Ian © GettyBrexit, both men report, has been excellent for UK hauliers, limiting European competition. Charlie has more work than he can cover. As for the paperwork, Charlie said, “If you can’t fill in a few forms, that’s your problem.” He is a paperwork Jedi. CMR forms (international waybills), customs declarations, commodity codes, road tax: Charlie had no language teaching but he rips through customs declarations in Romanian. Communication throughout the journey was a delight. Ian cracked me up apologising, in a German restaurant, for not speaking Dutch.On the Austrian border we bought pre-paid digital boxes that beep when you go under motorway gantries, deducting fees. But there came double beeps — another box on the windscreen was also paying out. “Hide it under your duvet!” Ian urged. Charlie did. The second beeps stopped. We travelled by day. “I do the job because I love it, I want to see countries,” Charlie said. Ian, a gourmet, plans routes to restaurants with parking, ideally with showers, which can be reached by supper time. His cab is spotless, displaying ironed shirts on hangers. Charlie regards restaurants as an indulgence. He carries nuts, grapes and bits of chicken in his fridge, and vodka for sundowners. The DAF cabs are well designed, with microwaves, good mattresses — I slept on the bunk above Charlie’s — excellent seats and wonderful views, including rearward and down, through five mirrors. The men handle their massive vehicles with beautiful skill. You do not do U-turns, you “spin round”. Blind reversing is the hardest move, backing while turning in the direction opposite the driving position, when the mirrors show only the flank of your trailer. They conquered all of Austria and most of Hungary in one shot, with mandatory pauses. I was at two sleeps a day by now, morning and afternoon. They worked through Romania’s network of small roads, concentrating ferociously and crying out with delight at the beauty of villages, blowing their horns at the gestured requests of children by the roadside. We marvelled over the snowy Carpathians, using the retarders and exhaust braking systems rather than the brake pedal; these slow the pistons and the truck without taxing the brake pads. I have rarely laughed so hard or learnt so much as I did on the road to Ukraine. The Romanian horse and cart displaying no lights provoked a comical eruption from Ian. If you should overtake a lorry and then slow down in front of it, being branded “special” is the least of the reactions you should expect. We had vigorously to give one idiot, who cut out of a slip road without looking, heading for Charlie’s drive wheels (the third set from the front), the wristy international sign for offended disapproval. Only Charlie’s explosive reflexes saved idiot, and idiot’s father and son, from horrendous deaths.On the last night we found Ian’s second-choice stop, where a horrid old man tried to rip us off, charging for parking that turned out to be free, and a lovely waitress laughed at our sign language for beef soup. We slept very well. We “tipped” — offloaded — our cargo bang on time. The distribution point was the basement of a psychiatric hospital. Enthusiastic patients formed human chains to unload our boxes, to the delight of Gracie Cooper, publisher at Little Toller Books, Dorset, who organised this Packed with Hope campaign, raising £1.5mn in aid for Ukrainian children.Charlie and Ian were as unfazed by this as by any other unexpected twist in their journeys. Ian took on a load for Syria during the war. Charlie researched loads out of Ukraine — it would be worth the lorries being shot up, they said, for the insurance. They were not entirely joking.After we parted, Charlie took Romanian plywood to Prague, Ian the same to Poland. They would meet in Germany, tip, collect horse bedding, and head home. And now they are out there somewhere, everywhere, always, shouldering the supply chains from which dangle all our lives. They move the world. That the world remains largely unmoved by them does not seem just or right. Without lorry drivers and their predecessors in the story of haulage, our cities, our countries, our horizons and our lives would all be smaller, and much poorer.Horatio Clare is the author of ‘Down to the Sea in Ships: Of Ageless Oceans and Modern Men’Cartography by Chris CampbellFind out about our latest stories first — follow @ftweekend on Twitter More

I’m not often glad I am no longer the young person in the room. This month I am. If you have only been knocking around in markets for, say, 15 years, you are seeing the collapse of everything that you have been told is true and have also observed to be true about markets. It turns out that quality growth stocks do not always outperform; that the Federal Reserve will not always step in to protect your wealth; that ESG investing is not an automatic road to win-win riches; and that the prices of the growth stocks in your portfolio have long been more a function of loose monetary policy than the priceless nature of innovative thinking. Finally, it turns out that the idea of sticking with a long-term portfolio consisting of 60 per cent equities and 40 per cent bonds does not mean everything will always be fine. This year so far you would have lost much the same on money in the iShares 20+ Treasury bond ETF as in the S&P 500 — about 18 per cent in both. Shorter dated bonds would have lost you less, but look down a list of bond funds in the UK and you will be hard pushed to find one down less than 7 per cent. Global funds don’t look too good either. The Vanguard Global Corporate Bond Index is down over 12 per cent year to date, making its performance not so different from that of the MSCI World Index, down 13 per cent. So much for the genius of asset class diversification. The problem here is obvious. The protection you are supposed to get from bonds involves their yields falling (and hence prices rising) in the bad times. That makes sense. Mostly when things look tricky in equity markets there is a reason (or central banks at least manage to find one) to cut interest rates to sort things out. The only time this can’t happen is when inflation is already obviously out of control — and no amount of fretting about market crashes and looming recessions can allow central banks to even begin to look like they aren’t fully focused on having a go (however fruitless it may be) at bringing it back under control. So here we are — in what Andrew Lapthorne, Société Générale’s head of quantitative equity research, calls the “unusual” position of seeing equity and bond markets imploding at the same time: between them they have lost some $23tn of value since their peak last year.That’s a lot of losses. So what next? The answer is all about inflation. Some think it isn’t far off peaking in the UK and the US. They might be right. In the UK, for example, there were a good few one-offs in the numbers — the 54 per cent rise in the energy price cap, hospitality VAT going back up to 20 per cent and a sharp rise in the price of fuel. But even if CPI numbers jump to 10 per cent (from last month’s 9 per cent) and then start to fall back, it is highly unlikely they will return to central bank target levels (mostly 2 per cent for reasons that are lost in the sands of time) or, for that matter, anywhere near them. After 30 years of the annual rate of UK inflation mostly hanging around 2 per cent, this is something very few people yet concede as a possibility, let alone a likelihood. But it is — and the reasons for that are not exactly secret. Globalisation is deflationary — the lowest cost producers supply everyone. Deglobalisation is not — and with China and Russia disengaging from the global economy, this is what we have. The energy transition is also expensive, both in its requirements for materials and metals and in the way enthusiasm for it has slashed the enthusiasm for supporting fossil fuels. The 11 biggest oil companies in the west invested a mere $100bn last year, notes Argonaut’s Barry Norris (he has made a great little YouTube video on all this). That might sound like lots of money but it is not. Less than a decade ago they were investing $250bn a year. That failure to invest brings with it supply constraints that are not going away in a hurry. Last year, western oil companies found new oil and gas reserves equivalent to just 4 per cent of global demand — a new low. And of course it means higher prices.

There is an argument that these inflationary impulses — and the huge economic turning points causing them are nothing in the face of another giant global dynamic — our ageing population. As people age, we are told, they shift from being accumulators to being replacers and their consumption falls accordingly. This is so deeply deflationary that it is not possible for inflation to settle into western economies (see Japan). I’ve never quite bought this. It doesn’t fit with the behaviour of the retired people I see around me — and it turns out it doesn’t fit with the behaviour of the average retired person either. A new report from the Institute for Fiscal Studies suggests that on average retirees’ total household spending does not fall. It remains pretty constant, actually rising slightly at all ages up to 80 and only falling slightly after that. It is also worth noting that our ageing population doesn’t exactly help with our labour shortage. The deflationary impulse from ageing populations many assume is inevitable? It may not exist. And if it does not, there is really nothing left to prevent inflation staying much higher than we are all used to for many years to come.

All this is leaving investors a little paralysed. You can’t trust bonds (this will be the case as long as rates are rising not falling). You can’t trust cash (anything on deposit is losing you 7 per cent or more in real terms at the moment). And you can’t trust the kinds of equities that you relied on for the last decade: the stocks Yardeni Research refers to as the MegaCap-8 (Amazon, Alphabet, Apple, Meta, Microsoft, Netflix, Nvidia and Tesla) are down an average of 28 per cent since January. The only good news is that while all this feels new (and is new to most market participants) it is not actually new. Much of it mirrors the conditions of the 1970s — another time in which everything seemed to change at once. Everything is not completely the same — but there is enough that is, to be worth checking on the few things that then made people richer not poorer. With that in mind, hold gold. Hold things that are seeing their prices rise from supply crunches, such as fossil fuels and commodities. And absolutely crucially, expect volatility — and regular recession scares. There was a lot of that about in the 1970s — and there is going to be a lot of it about in the rest of the 2020s.Merryn Somerset Webb is editor-in-chief of MoneyWeek. The views expressed are personal. She has holdings in gold and shares in Shell More

Eleven auction records for artists — six by women — were smashed on Thursday night in two sales at Sotheby’s.Two blockbuster weeks of marquee evening sales ended in Manhattan on Thursday night with doubleheader Sotheby’s auctions of rising stars and established contemporary names that raised a combined $283.4 million — and smashed 11 records for artists, including six by women. This pushed the running total for various spring sales at Sotheby’s, Christie’s and Phillips to more than $2.5 billion.“The market is stronger than ever,” said the New York dealer David Benrimon, adding, “The Macklowe sale made nearly a billion dollars.” He was referring to Sotheby’s record-breaking $922 million auction of the Macklowe Collection, which concluded on Monday as the S&P Index continued to slide.“When stock markets take a nosedive,” Benrimon added, “people look to invest in art. It’s more tangible. The art market is bulletproof.”Indeed, with Sotheby’s auction of the Macklowe collection and Phillips setting its company record for a public sale on Wednesday night, the top end of the art market still seems to be booming despite the recent slide in stocks, prompted by growing concerns over inflation’s impact and the war in Ukraine.The results seemed to endorse the upbeat assessment of the latest annual Art Basel and UBS Global Art Market Report, which said international art sales had “recovered strongly” from the coronavirus pandemic, with sales reaching an estimated $65.1 billion in 2021, up 29 percent from the previous year.But some experts, mindful of the recent sudden collapse of the market for NFTs, or nonfungible tokens, noted that sooner or later, the art world would once again be affected by events in the wider world.Christina Quarles’s “Night Fell Upon Us Up On Us,” estimated at $600,000 to $800,000, sold for $4.5 million, a record for the artist at auction. via Sotheby’s“Art tends to be a lagging market,” said Doug Woodham, managing partner of Art Fiduciary Advisors, a New York-based firm that provides art-related financial advice. “Speculative capital flooded into the market in the late 1980s, then stocks crashed in 1990,” added Woodham, a former Christie’s executive, recalling the effect of Iraq’s invasion of Kuwait. “The art market didn’t crash until 1991.”Woodham, along with many market observers, has noted the large amounts of international capital that has been invested in works by young up-and-coming painters, some of which have yielded massive short-term returns for speculators.Last year, global auction sales of paintings by artists under 40 soared to $259.5 million, a 177 percent increase on 2020, according to data provided by Artprice, a French-based auction analytics company.Eager to jump on this fast-moving bandwagon, Sotheby’s has come up with a new format called “The Now” sales, focusing on works by the most coveted names of the moment. On paper, this 23-lot offering was meant to be the warm-up act for the main sale of works by established contemporary artists, but with so much attention — and money — being focused on younger names, for many, this was the evening’s main event.Like hungry chicks in a nest, banks of Sotheby’s staff members screamed telephone bids as Lot 1, the 2020 painting “Falling Woman,” by the New York-based artist Anna Weyant, set the tone. Estimated at $150,00 to $200,000, it sold to an online bidder for $1.6 million, beating the record $1.5 million set for the artist at Christie’s last week.Female artists and artists of color continued to be the dominant forces in the market for works by younger contemporaries. Sotheby’s proudly announced before “The Now” sale that, for the first time, female artists outnumbered men at one of its auctions.Capitalizing on Simone Leigh’s representation of the United States at the Venice Biennale (where one of her sculptures also won a Golden Lion award), Sotheby’s included the life-size mixed media female head “Birmingham,” from 2012. This triggered another feeding frenzy of phone competition, the hammer finally falling at a record $2.2 million, 10 times the presale upper estimate.Complex, multilayered paintings of the Los Angeles-based Christina Quarles have impressed critics and visitors at the Biennale’s central exhibition. This acclaim appeared to supercharge her market, with the 2019 canvas “Night Fell Upon Us Up On Us” soaring to a record $4.5 million. The previous auction high for her works had been $685,500.Over all, “The Now” sale raised $72.9 million, with all the works sold and nine artists reaching new highs. The admired American painters Avery Singer ($4.9 million) and Jennifer Packer ($2.3 million), both of whom are under 40, were also among the record breakers.“Over the last five years, so much money has gone into young and midcareer artists,” said Woodham. “The sort of art that speculative capital has chased tends to plummet the most.”Estimates on the sale of works by more famous contemporary names that followed were routinely higher, but with the financial stakes raised, Sotheby’s, like Christie’s and Phillips, tried to protect its high-profile lots from failure with guaranteed minimum prices pledged by third parties. Of the 27 lots on offer, eight were certain to sell courtesy of this mechanism.The big-ticket lot of the night was Francis Bacon’s imposing, gold-framed painting “Study of Red Pope 1962, 2nd Version 1971.” Though guaranteed by Sotheby’s, no third party pledged a guarantee, perhaps aware that it had previously failed at auction in 2017. Nonetheless, it sold for $46.3 million to one bidder.Just two artist records were set in this second session. The Irish-born abstract painter Sean Scully achieved a new high. Scully’s 1985 painting “Song,” a harmony of blue, yellow and orange stripes, ended the sale on a high with a price of $2 million.Sotheby’s contemporary sale, the last of a marathon series of evening auctions, raised $210.5 million from 27 lots. Bidding was noticeably more subdued after all the excitement of “The Now” sale.William O’Reilly, the New York-based president of Dickinson, the private advisers and fine art dealers, said that competition in the second sale was more muted because Sotheby’s had to offer high estimates to secure works. And tastes were changing.“This is the new traditional,” said O’Reilly, characterizing the works produced by the world’s most famous contemporary artists who have either died or are over age 40. “It’s for connoisseurs.”Sean Scully’s 1985 “Song” sold at auction on Thursday for $2 million with fees, a record for the artist.via SothbysThough this spring series of auctions couldn’t be characterized as anything other than a success, art trade professionals expressed concern about the market over the coming few months, particularly if rising inflation and interest rates close the tap on what has been routinely termed “free money,” or cheap debt, that has bought so much big-ticket art at auction.Todd Levin, a New York-based art adviser, said that when art markets dip, the problem is supply, rather than demand.“It’s not so much that prices for art drop,” he said. “You just don’t see great works on the market. They disappear. They stay on collectors’ walls.” More

BENGALURU (Reuters) – The U.S. Federal Reserve will lift interest rates higher by the end of this year than anticipated just a month ago, keeping alive already-significant risks of a recession, a Reuters poll of economists found. While U.S. inflation, running at a four-decade high, may have peaked in March, the Fed’s 2% target is still far out of reach as disruptions to global supply chains continue to keep price rises elevated.The May 12-18 Reuters poll showed a near-unanimous set of forecasts for a 50-basis-point hike in the fed funds rate, currently set at 0.75%-1.00%, at the June policy meeting following a similar move earlier this month. One forecaster anticipated a hike of 75 basis points.The Fed is expected to hike by another 50 basis points in July, according to 54 of 89 economists, before slowing to 25- basis-point hikes for the remaining meetings this year. But 18 respondents predicted another half-percentage-point rise in September too. A majority of poll respondents now expect the fed funds rate to be at 2.50%-2.75% or higher by the end of 2022, six months earlier than predicted in the previous poll, and roughly in line with market expectations for a year-end rate of 2.75%-3.00%.That would bring it above the “neutral” level that neither stimulates nor restricts activity, estimated at around 2.4%.”The pressing goal is to bring policy rates to neutral, before stepping back to judge the impact,” Sal Guatieri, senior economist at BMO, wrote in a note.”The Fed can only hope that inflation pressure stemming from high commodity prices and the pandemic’s impact on labor and material supplies will reverse soon.” Graphic – Reuters Poll-US monetary policy outlook: https://fingfx.thomsonreuters.com/gfx/polling/egvbkwmydpq/Reuters%20Poll-US%20monetary%20policy%20outlook.png Fed Chair Jerome Powell on Tuesday reiterated that the U.S. central bank would ratchet up interest rates as high as needed, possibly above the neutral level. Nearly 75% of respondents to an additional question in the poll – 29 of 40 – said the Fed’s rate hike path was more likely to be faster over the coming months than slower. Inflation, as measured by the Consumer Price Index (CPI), was forecast to average 7.1% this year, and remain above the central bank’s target until 2024 at least.The New York Fed’s latest global supply chain pressure gauge rose in April after four months of declines, suggesting those price pressures remain very much alive, as did a recent Reuters analysis.Meanwhile the poll showed a median 40% probability of a U.S. recession over the next two years, with a one-in-four chance of that happening in the coming year. Those probabilities were steady compared with the last survey.What hasn’t remained steady is sentiment in financial markets. The Standard & Poor’s 500 equities index appears to be on the cusp of a bear market, down close to 20% from its peak near the start of the year.The U.S. economy, which contracted for the first time since 2020 in the January-March period, was expected to rebound to an annualized growth rate of 2.9% in the second quarter. But forecasts were in a significantly wide range of 1.0%-6.9%.GDP growth was predicted to average 2.8% this year before moderating to only 2.1% and 1.9% in 2023 and 2024, respectively, down from the 3.3%, 2.2% and 2.0% predicted last month. Graphic: Reuters Poll – U.S. economy and Federal Reserve rate outlook – https://fingfx.thomsonreuters.com/gfx/polling/akvezraoxpr/Reuters%20Poll%20-%20U.S.%20economy%20and%20Federal%20Reserve%20rate%20outlook.PNG Forecasts for the unemployment rate remained optimistic, averaging 3.5% this year and next, before picking up to 3.7% in 2024.But more than 80% of respondents to an additional question – 28 of 34 – said that over the coming two years it was more likely that unemployment would be higher than they currently expected than lower.”The only realistic way to break the wage-price spiral is to push up the unemployment rate. If the Fed does not do this by accident, they will have to do it by design,” said Philip Marey, senior U.S. strategist at Rabobank. “A recession is the inevitable outcome.”(For other stories from the Reuters global economic poll:) More

This risk applied particularly to the most vulnerable economies, said Okamura, without naming them.Asian economies faced a choice between supporting growth with more stimulus and withdrawing it to stabilise debt and inflation, he said.While Bank of Japan policy runs counter to a global shift towards monetary tightening, central banks in the United States, Britain and Australia raised interest rates recently.Okamura, a former Japanese vice finance minister for international affairs, also said the COVID-19 pandemic, the war in Ukraine and tighter global financial conditions would make this year “challenging” for Asia.The war was affecting Asia through higher commodity prices and slower growth in Europe, he said.Speaking at his first media event since becoming one of four deputy managing directors at the global lender last year, Okamura warned on the prospect of even more forceful tightening if inflation expectations kept on “drifting”.”There is a risk that drifting inflation expectations could require an even more forceful tightening,” he said.Okamura called for calibrated policies and clear communication. More

TOKYO (Reuters) – Japan’s core consumer inflation in April rose above the central bank’s 2% target, hitting a more than seven-year high as increases in energy and commodity costs are causing broader price hikes that are pressuring households.The rise in consumer prices is making it harder for the Bank of Japan (BOJ) to convince markets it will keep monetary policy ultra-loose and as the gains fuel public concerns about pushing up living costs.The nationwide core consumer price index (CPI), which excludes volatile fresh food costs but includes those of energy, surged 2.1% in April from a year earlier, government data showed on Friday.That marked the fastest rise in a single month since March 2015 and matched the median forecast in a Reuters poll.The gain was much stronger than a 0.8% year-on-year rise in March, as the impact of mobile phone fee cuts from April last year that have pulled down overall CPI since then starts to fade from yearly comparisons.The overall rate of price increases in Japan has remained modest compared with much sharper rises in the United States and other advanced economies, as sluggish wage growth in the world’s third-largest economy makes it harder for firms to raise prices.The BOJ has retained its massive monetary stimulus as it seeks to have inflation stably reach 2% on the back of strong wage growth, even as a weaker yen pushes up food and energy prices and other major central banks are tightening policy. More

UK consumer confidence has dropped to its lowest level for nearly 50 years amid the cost of living crisis, according to a survey, fuelling concerns that the economy will slide into recession in 2022. The UK consumer confidence index fell 2 percentage points to minus 40 in May, its lowest since records began in 1974, said research company GfK in a report published on Friday. The survey measures how people view the state of their personal finances and wider economic prospects. Joe Staton, client strategy director at GfK, said: “Consumer confidence is now weaker than in the darkest days of the global banking crisis, the impact of Brexit on the economy, or the Covid shutdown.”The fall in confidence reflected soaring inflation, which reached a 40-year high of 9 per cent in April driven by rising energy prices following Russia’s invasion of Ukraine. Linda Ellett, UK head of consumer markets at KPMG, said that “as prices and rates rise, the ability of consumers to spend is falling”. Throughout last year, consumer spending supported the UK’s pandemic recovery but record-low consumer confidence has raised the risk of recession, defined as two consecutive quarters of falling output. Samuel Tombs, economist at Pantheon Macroeconomics, noted that when the GfK consumer confidence index had in the past fallen below minus 30, “households’ spending dropped” and “recession ensued”. The UK’s economic recovery had already stalled in February and March and the Bank of England expects the economy to alternate between near-stagnation and contraction over the next two years with economic output unlikely to change significantly before the first quarter of 2024.The fall in consumer confidence is the first sign that the UK economy is experiencing a protracted period of economic stagnation coupled with historically high inflation, a combination usually referred to as stagflation. The UK has not experienced a combination of such diverging trends in prices and activity since the 1970s.Sandra Horsfield, economist at Investec, said that despite household savings building up over the pandemic, a squeeze on discretionary spending looked “inevitable”. She added this was especially true for poorer households, which have fewer savings and tend to allocate a larger share of income to food and energy.The GfK data, based on interviews conducted in the first half of May, showed that the proportion of people choosing not to make big purchase decisions rose, as confidence levels fell more than the minus 39 forecast by economists polled by Reuters. Perceptions of personal finances and the wider economy also deteriorated.Waning consumer confidence was reflected across several sectors. Shopping and recreational outings were down 11 per cent compared with pre-pandemic levels, according to Google Mobility data.

In the second week of May, credit and debit card spending on discretionary items, such as clothing and furniture, was down 14 per cent from pre-pandemic levels, according to BoE data. A survey by the Office for National Statistics showed that in the first half of May more than half of the respondents had cut their non-essential spending and energy use as a result of rising living costs. Early in the week, official data showed that UK unemployment fell to the lowest rate in nearly 50 years and more job vacancies were available than job seekers for the first time on record. The tight labour market adds to the risk of higher and more persistent inflation as rising prices become embedded in wage negotiations and in the wider economy. As a result, markets are pricing the Bank of England to raise rates to 2 per cent by the end of the year from its current 1 per cent. This would mean higher borrowing costs for businesses and households on top of soaring prices. “The outlook for consumer confidence is gloomy and nothing on the economic horizon shows a reason for optimism any time soon,” said Staton of GfK. More