Economy

Net income, excluding one-time expenses, rose to $184.3 million, or $1.73 per share, in the three months ended March from $164.8 million, or $1.53 per share, a year ago. Analysts on average expected the company to earn $1.68 a share, according to Refinitiv data.CBOE, however, posted a 3.6% drop in total revenue to $974.5 million as revenue from North American equities trading fell 3%.Options trading revenue rose 21% and futures revenue was up 2% from a year earlier, when the exchange operator saw record volumes at the peak of the pandemic.CBOE provides trading platforms and products in equities, derivatives and foreign exchange across North America, Europe and Asia Pacific. More

About four in 10 British households are finding it difficult to pay for gas and electricity and a similar proportion are buying less food, according to the first official statistics covering the period after the 54 per cent increase in the cap on most consumers’ energy bills.The results of a survey run by the Office for National Statistics in Great Britain in the two weeks to April 24 showed that 40 per cent of people who pay energy bills said they found it very or somewhat difficult to afford the payments.About the same proportion reported that in the past two weeks they were buying less food when shopping, with 44 per cent of adults reporting they had to spend more than usual to get what they normally buy.All the figures are markedly up from the previous months and they are the first comprehensive indication of the impact of the change in the energy bill cap set by the regulator and of the increase in national insurance contributions.The figures fuelled economists’ concerns about the effect of the cost of living crisis on people’s wellbeing and on the UK economic recovery after growth slowed to a crawl in February. Household consumption has been the driver of the economic rebound in the last year but with inflation running at a 30-year high of 7 per cent consumers are feeling the hit.Paul Dales, chief economist at Capital Economics, said he expected a further surge in consumer price inflation to a 40-year high of 10 per cent in October, which “will take the economy to the brink of recession”. Financial markets expect the Bank of England’s Monetary Policy Committee to raise rates by 25 basis points to 1 per cent at its meeting next week. However, Fabrice Montagné, economist at Barclays, said he did not think the vote would be unanimous, “reflecting uncertainty around the policy outlook”. The ONS data showed that more than nine in 10 households reported that their costs of living had risen, up from 60 per cent in November, as the vast majority reported increased prices of food shopping, fuel and energy bills.People in the core working-age group — those aged 30 to 49 — are tightening their belts the most, with a higher share reporting that they had to borrow money, were cutting spending and were unable to afford unexpected large expenses. The ONS data also showed that the proportion of adults who think they would not be able to save any money in the next 12 months had increased to 42 per cent in April from 34 per cent in November.More than a quarter of the population also reported their household could not afford to pay an unexpected, but necessary, expense of £850 and about one in five also reported being unable to buy non-essential food. More

HONG KONG/SINGAPORE (Reuters) – Wealth managers at the big global banks are tempering their expectations for Asia, their fastest growing market, after China’s regulatory crackdown and COVID-driven slowdown helped to push clients to the sidelines, bankers and analysts said.Some wealth managers have cut the credit they extend to rich clients, they said, while many clients have moved their money elsewhere or put it in cash as they assess the changes in China, as well as the Ukraine conflict and other global uncertainties.The slowdown in wealth business was evident this past week in earnings results from Credit Suisse (SIX:CSGN), HSBC, Standard Chartered (OTC:SCBFF) and UBS, which have relied on Asia to drive up revenues.”We just have to bear this for a few quarters, there’s no shying away from it,” said a Singapore-based banker with an Asia-focused private bank.”We’re helping clients adjust portfolios, cutting margin ratios, especially on tech holdings,” he said.The banker and his peers declined to be named as they were not authorised by their organisations to speak to the media. Bankers stressed, however, that while the mood has changed in Asia at least for the next few quarters, the global wealth managers still saw Asia as their best growth opportunity.”What we see is actually a similar sentiment with clients (in Asia) from last quarter. So muted appetite to invest, a bit of a wait-and-see pattern in terms of active investments,” UBS CEO Ralph Hamers said on a first-quarter earnings call.A key shift in the investment calculus for China came from last year’s regulatory crackdown targeting industries such as internet platforms, property development and private education that have created many of China’s billionaires. Authorities aim to address the widening gap between rich and poor through what President Xi Jinping has branded a “common prosperity” policy.CHINA SHIFTThat cast deep doubts over the growth prospects for heavyweight players in those industries, including Tencent and Alibaba (NYSE:BABA), and triggered a massive sell-off in their stocks. That, in turn, clouded wealth management prospects in the region, bankers said, although on Friday Beijing signalled a potential easing of the clampdown with plans for top leaders to meet tech executives early next month.”Our clients started to realise since the second half that they would need to diversify their portfolio to protect their wealth against the fallout of the policy,” said a Hong Kong-based wealth manager at a U.S. firm.”But no one knows now which sector is going to generate the new rich, or see a regulatory crackdown, and whether the total wealth pool maintains its growth as before. So in that sense, we do see enlarged long-term uncertainties.”The crackdown also likely means fewer new billionaires for wealth managers to serve, he said.”The era during which China’s internet industry kept pumping high net worth clients has come to its end.”UBS said in a report in February that the revenue pool for private banking service providers in China is foreseen within a wide range between 224 billion yuan and 1.03 trillion yuan yuan ($34-156 billion) in 2030, as the common prosperity drive could bring more uncertainties to entrepreneurship.The rising uncertainty and sharp market downturns in recent months have also triggered margin calls on money that wealth managers loaned to clients to buy stocks and other assets.This has reduced lending by private banks, which is key to increasing their assets and locking in clients. The worsening economic outlook due to prolonged COVID-19 outbreaks in China’s big cities and a looming rise in interest rates globally have also spurred some wealth managers and their clients to deleverage, as they lose their appetite for trading.”We hear from the banks clients tend to be very conservative with trades and less likely to commit anything more structured, and are really keeping themselves pretty light,” Jasper Yip, Hong Kong-based Partner at consultancy Oliver Wyman, said.Two wealth managers with large European private banks said their clients’ cash holdings, as a percentage of their total portfolio, had risen to 20%-25% in Asia compared with 5%-10% at the same time last year.Their banks may be forced to look at a way to cut costs if the revenue slide continues in the coming quarters, they added.($1 = 6.5883 Chinese yuan renminbi) More

How well did you keep up with the news this week? Take our quiz.Apple and Amazon caused a sharp intake of breath on Wall Street last night as they warned that supply chain challenges and rising costs were having an impact on their businesses.Executives at the iPhone maker said the company could sustain a hit of up to $8bn in the current quarter from the headwinds associated with supply chain shortages and factory shutdowns in China, a reminder for western companies that the coronavirus pandemic is far from over.Apple’s shares reversed gains made in the aftermath of the release of the company’s latest quarterly results once executives began detailing some of the challenges that lie ahead.“Covid is difficult to predict,” said Tim Cook, Apple chief executive, on a call with analysts last night. The comments followed what was a near-record quarter for Apple. Revenues rose 9 per cent to $97.3bn in the first three months of the year compared with the same period a year ago. That was well above the $94.1bn analysts had predicted. Net profits jumped 6 per cent to $25bn, making it Apple’s third most profitable quarter on record despite it not being a holiday period. But is was the comments from Cook and Luca Maestri, Apple’s finance chief, that weighed on the stock, which is down nearly 2.5 per cent in pre-market trading.Amazon shares are also lower ahead of the final trading session of the week. The online retailer recorded a first-quarter net loss of $3.8bn which included a $7.6bn loss related to the value of its stake in electric vehicle maker Rivian.It blamed overexpansion and a slowdown in sales for the plunge into the red and said it expected growth to slow this year as the company faced ongoing supply chain challenges and higher costs. “The pandemic and subsequent war in Ukraine have brought unusual growth and challenges,” said Andy Jassy, Amazon’s chief executive.Amazon, which launched an unprecedented recruitment drive during the pandemic to help it cope with surging demand, said it was now overstaffed and had begun to cut positions. Thanks for reading FirstFT Americas. Here’s the rest of today’s news — Gordon.Five more stories in the news1. Elon Musk sells $4bn of Tesla stock The billionaire revealed after the market closed yesterday that he had sold almost 4.5mn Tesla shares at prices ranging from $872 to $999. The sale will boost the Tesla chief executive’s cash position ahead of his planned Twitter purchase. Go deeper: In the past week Tesla shares have fallen more than 13 per cent as investors have worried about future share sales by Elon Musk and the distraction the Twitter takeover could have on the car company’s chief executive. Peter Cambell and Harriet Agnew spoke to Tesla shareholders to get their views. 2. Joe Biden asks Congress for more Ukraine aid The US president has asked Congress to provide $33bn in military, economic and humanitarian aid for Ukraine, in a sign Washington is preparing for a long and intensifying conflict. The request, likely to be approved by US lawmakers, is more than double the $13.6bn Biden requested last month and includes $5bn for weapons from American stockpiles. For the latest news on the conflict in Ukraine go to our live blog.3. British Virgin Islands premier arrested on drug trafficking charges Andrew Fahie was arrested by US agents on drug trafficking and money laundering charges at a Miami airport yesterday, sending shockwaves across the UK-administered Caribbean tax haven.4. Renminbi on course for steepest monthly fall China’s currency is set to close out its steepest monthly fall on record as the country’s economy reels from severe Covid-19 lockdowns and the prospect of higher US interest rates which are driving global investors to ditch Chinese assets. But a promise on Friday by China’s politburo to support the Covid-stricken country’s economy is helping support shares around the world today.5. Erdogan’s embrace of Saudi crown prince signals end of dispute Turkish president Recep Tayyip Erdogan embraced the Saudi crown prince Mohammed bin Salman on a visit to Saudi Arabia, signalling the end of a years-long dispute between the two men over the murder of the journalist Jamal Khashoggi.

Turkish president Recep Tayyip Erdogan hugs Saudi Arabia’s Crown Prince Mohammed bin Salman before last night’s meeting in Jeddah

The days aheadCorporate earnings It is the turn of oil majors ExxonMobil and Chevron to report first-quarter earnings today. Both companies are expected to have benefited from the rise in oil prices that followed Russia’s invasion of Ukraine. Other companies reporting include Honeywell, Bristol-Myers Squibb and Colgate-Palmolive. Economic data The Federal Reserve’s preferred inflation gauge — the core personal consumption expenditures price index — probably rose 0.3 per cent in March, according to economists polled by Refinitiv, down from 0.4 per cent in February. Economists also estimate that the annual increase edged down to 5.3 per cent from 5.4 per cent in February. The closely watched University of Michigan’s consumer sentiment index also out.Partial eclipse A partial solar eclipse will occur tomorrow over South America, Antarctica and the Pacific and Atlantic Oceans.What else we’re reading Bill Hwang case puts prosecutors’ market manipulation claim to the test The high-profile implosion of Archegos Capital Management caused billions of dollars of losses for investment banks and wiped more than $100bn from the valuations of nearly a dozen companies. But legal experts say prosecutors may still struggle to prove the manipulation charge. Stefania Palma spoke to some white collar crime lawyers about the case.The return of the 20th century’s nuclear shadow Without most people being aware of it, the world is entering its most dangerous period since the 1962 Cuban missile crisis, writes Edward Luce. Putin has broken a post-Cuba taboo on threatening to go nuclear. The genie is out of the bottle and US military officials are planning for the worst, he says.Hong Kong, my vanishing city Hong Kong’s population of 7.4mn is shrinking, fast. Draconian Covid regulations and a political crackdown by the authorities have led residents to flee the city. Author Louisa Lim, who now lives and works in Melbourne, pens a love letter to her former home.The trap of the billable hour By defining each moment of their working lives as either “billable” or, regrettably, “non-billable”, lawyers are being tugged towards an unhappy attitude to the way they spent their time. Such thinking about all time as fungible is corrosive, writes Tim Harford.‘Charlie probably knew far better than the rest of us that death was coming’ Charlie was 32 and had arguably just had the best year of his life when his almost twin sister and FT journalist Madison Marriage learnt of his death. Here Maddison tells the tragic story of her sudden and unexpected loss. Reader feedbackOur inbox has been bulging this week with reader comments on Elon Musk’s agreed offer to buy Twitter for $44bn. Here are a few excerpts from FirstFT readers:“Is it more dangerous to let people say what they want or silence them? If people are silenced, free thought is pushed underground. At least if people are able to freely express themselves, you will know who the truly crazy and dangerous ones really are,” says Andrew from California“I think free speech is the foundation of America! That was what the founding fathers created our country on. It was not allowed in other parts of the world and it is still that way in many of the major economies,” Janice Powell, of West Monroe, Louisiana, writes.“In a democratic environment all media should be and remain public with no controlling interest in the hands of anybody (hence with no shareholder agreements allowed either) and exclusively controlled by a diffused shareholder market,” says an anonymous reader.We love to hear from our readers so please keep the comments coming. Have a good weekend and FirstFT will be back in your inbox on Monday — Gordon. More

Growth in the eurozone economy weakened during the first quarter while inflation inched up to a new record in April, raising the spectre of stagflation in a region blighted by soaring energy and food prices. Gross domestic product in the 19 countries that share the euro grew 0.2 per cent in the first three months of the year, compared with 0.3 per cent in the previous quarter, Eurostat said on Friday. Economists polled by Reuters had on average forecast growth in the bloc to remain stable.France’s economy stagnated in the first quarter while Italian output contracted. The Spanish economy also lost pace. Germany was the only one of the four biggest EU economies to beat expectations, as it posted meagre growth of 0.2 per cent from the previous three months.Inflation in the eurozone was 7.5 per cent in the year to April, up from a record high of 7.4 per cent in the previous month, Eurostat said in a separate release. Energy prices rose 38 per cent, while unprocessed food prices jumped 9.2 per cent. Core inflation, excluding energy and fuel, increased to 3.5 per cent, up from 2.9 per cent. The data show that price pressures continue to build in the eurozone, keeping inflation well above the European Central Bank’s 2 per cent target and feeding calls for it to accelerate plans to reverse its ultra-loose monetary policy.“For the ECB, the continued — albeit slowing — economic growth means that it is likely to act sooner rather than later,” said Bert Colijn, an economist at ING, forecasting that the central bank could raise interest rates in July if the economic outlook does not worsen, while adding “that’s a big if”.Russia’s invasion of Ukraine has clouded the outlook for Europe’s economy. Economists fear an escalation of western sanctions on Moscow risks leading to shortages of oil and gas that would hit industry hard and send energy prices even higher, eroding household income and sapping consumer and business confidence. Russia has already cut off gas supplies to Poland and Bulgaria.“We think eurozone GDP is likely to contract in the second quarter as fallout from the Ukraine war and surging energy prices take an increasing toll on households’ real incomes and consumer confidence as well as exacerbating supply-side problems,” said Andrew Kenningham, an economist at Capital Economics.The eurozone’s 0.2 per cent first-quarter growth compares favourably with a 0.4 per cent contraction in the US economy, caused by a record-high trade imbalance and weaker inventory growth that offset higher spending by consumers and businesses in the period. But it lagged behind a 1.3 per cent expansion in China’s economy over the opening three months of the year.Soaring consumer prices, continued pandemic restrictions and the fallout from the Ukraine war all took their toll on economic activity in the first three months of this year. Italy’s economy shrank 0.2 per cent, while Spanish growth slowed to 0.3 per cent. The strongest performers were Portugal and Austria, where output expanded by 2.6 and 2.5 per cent respectively.The flatlining of French GDP in the first quarter marks a sharp slowdown from the upgraded 0.8 per cent growth rate in the final three months of last year. Economists had expected French first-quarter growth of 0.3 per cent.The French national statistics office said output was hit by a 1.3 per cent fall in household spending, which offset the positive impact from higher investment, trade and inventories.Germany’s 0.2 per cent rise in first-quarter GDP marked a rebound from a 0.3 per cent contraction in the previous quarter, meaning Europe’s largest economy avoided a technical recession, defined as two consecutive quarters of negative growth. Economists on average expected first-quarter German growth of 0.1 per cent.The federal statistical agency said the expansion of the economy was “mainly due” to higher investment, while trade had a negative impact on growth. It said GDP was still 0.9 per cent below its pre-pandemic level in the final quarter of 2019 and warned the Ukraine war was having “a growing impact on the short-term economic development”.Italy’s 0.2 per cent drop in GDP partially reversed the 0.6 per cent expansion in the previous quarter and left overall output 0.4 per cent below pre-pandemic levels, according to the office for national statistics. The contraction was in line with analysts’ expectations.Spanish quarterly GDP growth of 0.3 per cent was a marked slowdown from the 2.2 per cent expansion between the third and fourth quarter of last year. It also undershot the 0.5 per cent expansion forecast by economists polled by Reuters.Nadia Calviño, Spain’s economy minister, slashed the government’s growth forecast for this year on Friday from 7 per cent to 4.3 per cent. More

Good morning and welcome to Europe Express.The race for a successor at the helm of the eurozone bailout fund, the European Stability Mechanism, is formally kicking off next week when the application process begins. A few names of potential candidates have already emerged and we’ll bring you up to speed with who could succeed Klaus Regling, who has chaired the ESM since its creation 10 years ago. In gas payment news, the European Commission yesterday made it clear that Moscow’s new requirements that force European energy companies to set up rouble accounts in Russia were in breach of the sanctions regime. With Emmanuel Macron having secured his second term in office, one project that had been put off in the run-up to the French presidential elections is slowly being revived again: EU’s free trade deal with Chile.And the idea of decoupling electricity and gas markets — floated by several countries, notably France and Spain — is getting some serious pushback from the EU’s energy regulator (Acer), in a report to be released later today.Bailout boss With a vacancy looming at the eurozone bailout fund later this year, member states are beginning to discuss potential candidates, write Sam Fleming in Brussels and Peter Wise in Lisbon. Those who are interested in running the European Stability Mechanism will have to throw their hats into the ring early next week, and a few names are beginning to surface already. Klaus Regling, the managing director of the European Stability Mechanism, (and previously boss of its predecessor the European Financial Stability Facility) is stepping down this year. The German economist’s successor will face a tricky task re-energising an institution that has struggled to carve out a role for itself in the most recent economic crises in euroland. Finance ministers want to decide the matter as soon as May. As Europe Express has previously written, Luxembourg’s former finance minister Pierre Gramegna, who stepped down earlier this year, has been seen as a possible contender. Officials are however beginning to discuss some other possible names — although no formal candidates have declared their hands. One is Marco Buti, the chief of cabinet of EU economics commissioner Paolo Gentiloni, according to people familiar with the process. Buti, an Italian, is former head of the economics directorate-general of the European Commission. He joined the commission in 1987 and would bring decades of economic policymaking experience to the post. But it’s not yet clear if member states are more inclined to appoint a technocrat or a politician with a finance ministry background such as Gramegna. Italy, which would have to decide to formally back Buti, also has a somewhat tempestuous relationship with the ESM. Politicians in Rome tend to turn their noses up at its loans because they view them as too politically toxic to countenance. The Netherlands has meanwhile also been eyeing the post. Menno Snel, a former state secretary of finance, has been mentioned as one possible contender. João Leão, who until recently served as Portugal’s finance minister and is now a professor at University Institute of Lisbon, is also seen as a potential candidate. The Dutch finance ministry declined to comment, as did the Portuguese and Italian governments, while the Luxembourg finance ministry did not respond to a request for comment. The big question surrounding the ESM is whether change at the top will be accompanied by a deeper rethink about its job in Europe’s economic crisis-fighting infrastructure. Thus far, however, the debate about the future role of the ESM is one that finance ministers have shown little appetite for taking on. Chart du jour: ECB mea culpaThe European Central Bank has issued a rare mea culpa for persistently underestimating inflation. It blamed its increasingly large forecast errors on soaring energy prices, supply chain bottlenecks and a faster economic rebound from the pandemic — and warned that the fallout from Russia’s invasion of Ukraine would remain very challenging to forecast.Chile con chickenWith France’s presidential election over, EU’s trade deal with Chile is being taken out of the deep freeze. President Emmanuel Macron had put the agreement on hold for fear of losing votes among farmers, since it would increase chicken imports, writes Andy Bounds in Brussels. Now that Macron has been re-elected, the European Commission is pushing ahead with a deal concluded several months ago.There has been a change of regime in Santiago, with leftwing Gabriel Boric starting his term in March. But European trade commissioner Valdis Dombrovskis told Europe Express BORIC had backed the deal. “We’re moving forward with the next technical steps, which are translations, legal scrubbing, other things. With Chile we are moving forward.”The move cannot come soon enough for many member states, who feared the EU had become incapable of concluding trade deals because of national parliamentary opposition. The Walloon parliament in Belgium initially rejected the Canada deal in 2016 and the Dutch parliament had opposed the agreement signed with Mercosur in 2019. Mercosur remains problematic. MEPs and some member states will not approve the deal without a pledge from Brazil to protect the Amazon rainforest. That is unlikely while rightwing populist Jair Bolsonaro is in charge, but he faces a tough election battle in October. The commission has at least finally started work on drafting the instrument, in effect a side letter to the agreement, it wants Brazil to agree. And even Chile, which would provide copious supplies of lithium for the EU’s battery industry, is not guaranteed. Officials say there is still a chance that Santiago asks for revisions, which would then need to be agreed by member states. More liberal member states are hoping their like-minded allies the Czech Republic and Sweden will make progress during their upcoming EU presidencies. “We have had six months dealing with trade defence. We need to shift. We need to move away from Russian and eastern Europe for supplies and we need new markets to be opened to our goods,” said one diplomat.Current affairsThe punishing increase in electricity prices seen in recent months has prompted member states to ask some searching questions about the way the EU’s markets are working, writes Sam Fleming. Among the member states calling for radical changes have been Spain, which along with France urged the idea of “delinking” energy costs from the price of gas earlier in the crisis. Now a long-awaited report from the EU’s energy agency, Acer, attempts to offer some answers on the best way of designing the union’s wholesale electricity markets. The basic message of the report, released today, is that ripping up the market’s foundations would be distinctly unwise. Under normal conditions the EU’s wholesale electricity markets work well, the report says, ensuring efficient and secure electricity supply. The objection, of course, is that the situation right now feels anything but normal. The energy component of euro-area inflation was up 44 per cent in March from a year earlier. Fears that Gazprom would start cutting EU customers off from gas supplies have become reality, with the action it took this week against Poland and Bulgaria. For some politicians, it is time for radical action on energy prices. Acer, short for Agency for the Cooperation of Energy Regulators, finds that the energy crisis is not being driven by the design of electricity markets however — and that in fact the existing system has mitigated the threat of power cuts. Ripping up the present arrangements would undermine incentives for the investments in green technology necessary for the EU’s future energy independence. That doesn’t mean reforms are unnecessary. Here are a few of the ideas the report suggests to “future-proof” the electricity market design:Consider a “temporary relief valve” to limit prices automatically when electricity prices suddenly spike Explore ways of protecting vulnerable consumer groups against massive wholesale price hikesSpeed up integration of the electricity market across bordersBoost liquidity in long-term markets and ease collateral requirements for wholesale trading Co-ordinate more to ensure large-scale generation and grid infrastructure are built rapidly More broadly, the report urges governments to focus on tackling the root causes of market problems rather than the symptoms. Right now that means driving down demand and securing gas from alternative suppliers. As the EU is discovering, achieving these twin goals is going to be far from easy. What to watch today Baltic and Polish foreign ministers meet in RigaFinal session of the Conference on the Future of EuropeSmart readsSecurity struggles: Russia’s war in Ukraine has rekindled transatlantic security ties faster and stronger than anyone could have predicted. But in the long run, the US is likely to pivot back to China and the European sovereignty discussion will be back, writes the European Council on Foreign Relations. Recovery 2.0: In the debate whether the EU needs fresh common debt or use existing funds to cope with the fallout from the war in Ukraine (including reconstruction needs), the Jacques Delors Institute says it’s not a either-or question, but rather a matter of sequencing.Pushback database: A joint investigation by Der Spiegel, Le Monde and other media reveals the methodical recording of refugee pushbacks by the bloc’s border agency Frontex in a dedicated, classified database. Dutch state of EU: The Dutch foreign minister, Wopke Hoekstra, presented his yearly report on the state of the EU yesterday, in which he said that Europe was at a crossroads given the war in Ukraine and that “a leading role for the Netherlands is not only appropriate, but also necessary”. More

Good morning. I’m not sure what to make of the negative first-quarter GDP number, which was a disappointment, but included a huge shift in the trade balance, which may be noise. But we are seeing slower growth elsewhere, so in any case the report was not wildly anomalous. The employment cost index, out this morning, will matter much more to markets. Meanwhile, three tricky topics to end the week. Email me: [email protected] soft Amazon earnings an ill omen?Amazon reported first-quarter earnings yesterday afternoon, and the shares fell as much as 10 per cent in after-market trading. Amazon Web Services did great, as it always does. There seems to be two other culprits: weak sales guidance for the second quarter, and slow growth in Amazon’s online retail business. Historically, Amazon guidance has not told us much, so I think we can look past that — it could just be conservative. But here is growth in online retail sales:Should this worry us, in the context of Amazon itself, or American consumption generally? In a call with journalists, the company’s CFO put this dreary pattern down to tough comparisons with the peak pandemic period, when online shopping boomed: We don’t see the slowness in the growth rate in dollar basis from prior quarters. What we’re seeing . . . is that there’s a very high growth period from about May 2020 through May 2021, where our growth rates went from 20 per cent to over 40 per cent. And then the next calendar year, which we’re coming up on the anniversary of, creates a lot of difficult compsI’m not sure whether I buy this or not. It makes sense that people might have bought a lot of stuff online a year ago that they are back to buying in stores now (or not buying at all). At the very least, though, that undercuts the notion that the pandemic permanently changed buying habits. Whether there is also an underlying growth deceleration, we just can’t know at this point. The pandemic makes all sorts of things hard to analyse. Against using Tips yields as a proxy for real interest ratesIt is very standard to treat the yield on inflation protected treasuries (Tips) as a proxy for the real rate of interest. It makes some sense to do so: the Tips yield is the risk-free after-inflation return a pretty large group of investors is willing to accept. But it is also very standard to point out Tips yields have been negative since the start of the pandemic, and that the idea of a negative real rate is very strange. Is capital cheaper than free? Should people pay to be rid of the stuff? And so on. People who make these kinds of points tend to think that Federal Reserve buying of Tips has hopelessly distorted their prices.Dhaval Joshi of BCA Research offers a different argument against Tips yields as a real yield proxy. It goes like this:The Tips market is small relative to demand for inflation-protected, risk-free assets: $1.5tn, compared to a $25tn Treasury market.When inflation surges, investors cram into Tips, distorting their yields. “The ultra-low real yield on inflation-protected bonds captures nothing more than the massive imbalance between huge demand for inflation hedges and tiny supply.” Here’s the proof of the distortion. The difference in yields between nominal Treasuries and Tips is often called “inflation expectations” or “inflation break-evens” because it seems to represent the yield investors are willing to give up to receive inflation protection. Note, though, that this difference neatly tracks the oil prices. Joshi’s chart:

But the idea that inflation expectations should track the oil price is absurd. The higher the oil price is now, the less it is likely to go up later, pushing inflation up. Indeed, empirical evidence shows that the oil price and subsequent inflation are inversely correlated. And the logic of this argument should hold for prices broadly. So the Tips yield cannot be a good proxy for real yields.I can’t see what is wrong with this argument, though the inflation expectations-oil price relationship looks a little messier if you go back before 2015, where Joshi’s chart begins. This strikes me as a pretty important argument, if it’s true, given how much we lean on break-even inflation to make sense of markets.Utilities, dividend stocks, and ratesIt used to be that utilities were thought of as a sort of substitute for Treasuries. Utilities are very safe, given that there is always a certain level of demand for power and the companies’ returns are often government regulated. And they tend to pay a solid dividend yield. So, as a rule, utility stocks prices went down as Treasury yields went up — the logic being: why should I take even modest risk on a utility stock when I get a good riskless yield on a Treasury? The same logic ran the other way too. This is not true lately, though (hat tip to Nicholas Bohnsack at Strategas whose work alerted me to this). Here’s a chart that shows the performance of the utility sector relative to the S&P 500, plotted against 10-year yields:

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As you can see, when yield rise, utilities have generally underperformed (see especially 2012-14, 2016-2019, 2020-21). But now yields are shooting higher, and utilities are outperforming at the same time.The difference is inflation, of course. If yields are going higher because inflation is rising, rather than because the economy is strong, it makes sense to sell bonds (which get killed by inflation) and buy utilities (which have a yield and can to a degree pass higher input costs on to consumers). Inflation upends previously reliable market correlations. This got me wondering if a similar thing is happening to dividend stocks generally. Were they historically sensitive to Treasury yields, and is the relationship changing now? Well, here is the relative performance of the iShare Select Dividend ETF, compared with the 10-year yield:

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I can’t see much of a relationship over much of the past decade. Dividend stocks underperformed pretty steadily, whatever yields were doing. Since the pandemic, though, there is a clear correlation. As inflation has risen, it makes sense that dividend stocks start to look like a good bond substitute.Many expect inflation to subside from here, but to remain higher than pre-Covid levels. If that is right, might not dividend stock valuations rise?One good readWhen Joerg Wuttke talks about China, listen. More

The RBNZ had announced in September last year that it was seeking input from the public on the potential use of a CBDC – which is the digital form of an existing currency.Several countries are exploring the use of CBDCs, with the U.S. Federal Reserve releasing a much-anticipated paper on the pros and cons of adopting a digital dollar earlier this year. The RBNZ said feedback from the public had helped affirm the importance of privacy and autonomy when it comes to a CBDC and that this would be a focus of further policy work. “Our view is that CBDC and cash would be complementary, rather than conflicting,” the central bank said in a statement.Ian Woolford, the RBNZ’s director of Money and Cash, added that the central bank was particularly focused on progressing concrete steps to improve resilience and efficiency in the cash system. More