Economy

Total consumer credit rose $8.93 billion in June, slowing from a $13.95B gain seen in the prior month, the Federal Reserve said Wednesday, missing economists’ estimates for a $9.8B gain. The rise in June took the annual rate to 2.1% annual rate, weaker than the 1.5% rise in the prior month.The slowdown in credit usage comes just as fears of a economic slowdown returned focus following a string of weaker-than-expected data including the weaker jobs report last week. Revolving credit including credit cards, declined by nearly $1.7B, or 1.5%, in June after 6.3% jump in the prior month.Nonrevolving credit such as student loans, rose by a 3.4% rate after a 2.4% rise in the prior month. More

MUMBAI (Reuters) – India’s central bank is widely expected to hold rates steady on Thursday, but with growing worries about the global economy investors are hoping for a more dovish tone from policymakers that could open the door for an October rate cut.All 59 economists in the Reuters poll conducted in late July predicted the Reserve Bank of India would hold the repo rate at 6.50% for a ninth straight meeting.Still, investors are hopeful the RBI will soften its stance on inflation following the recent souring of global market sentiment and near-certainty of an interest rate cut by the U.S. Federal Reserve in September. “We expect the policy to have a dovish tilt taking cognizance of the recent weakness in global economy and volatility in financial markets,” said Parijat Agrawal, head of fixed income at Union Mutual Fund.”We expect the policy rates to remain unchanged (but) the Monetary Policy Committee may change its stance to neutral,” he said.Global equities and currencies tanked early this week as the Bank of Japan hiked rates to their highest levels since 2008 last week and fears of a U.S. recession rose on the back of weak employment numbers. While Indian equities fared relatively better, the rupee fell to all-time lows, prompting central bank intervention.”Staying relatively hawkish will only create an unwanted rupee carry, and increase the problem of plenty for the RBI,” said Madhavi Arora, chief economist at Emkay Global.However, another food driven spike in retail inflation to above 5% in June could prevent the central bank from signalling a policy pivot just yet.Governor Shaktikanta Das has repeatedly said the RBI wouldn’t shift policy gears until inflation was firmly on the path to reaching the target of 4%.Meantime, growth in the Indian economy remains strong. Despite some slowdown expected from the 8.2% expansion in fiscal 2024, India will remain among the fastest growing economies globally if the 7.2% expected growth is achieved.Traders are not expecting any significant changes to the central bank’s approach to liquidity management, although the banking system is flush with cash.In the absence of any change in rates or stance, the 10-year yield is seen holding in a 6.8%-6.9% range in the near-term with expectations of a fall towards 6.6%-6.5% once rate cut views get firmly built in.A change in stance to neutral could push the rupee to 84 levels while the 10-year bond yield could see a 5-10 basis points fall, traders said. More

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LONDON (Reuters) – A wager that stock markets would stay calm has cost retail traders, hedge funds and pension funds billions after a selloff in global stocks, highlighting the risks of piling into a popular bet. The CBOE VIX index, which tracks the stock market’s expectation of volatility based on S&P 500 index options, posted its largest-ever intraday jump and closed at its highest since October 2020 on Monday as U.S. recession fears and a sharp position unwind have wiped off $6 trillion from global stocks in three weeks.Investors in 10 of the biggest short-volatility exchange traded funds saw $4.1 billion of returns erased from highs reached earlier in the year, according to calculations by Reuters and data from LSEG and Morningstar. These were bets against volatility that made money as long as the VIX, the most-watched gauge of investor anxiety, remained low. Wagers on volatility options became so popular that banks, in an effort to hedge the new business they were receiving, might have contributed to market calm before the trades suddenly turned negative on Aug. 5, investors and analysts said.Billions flew in from retail investors but the trades also garnered the attention of hedge funds and pension funds. While the total number of bets is difficult to pin down, JPMorgan estimated in March that assets managed in publicly traded short volatility ETFs roughly totaled $100 billion. “All you have to do is just look at the intra-day rate of change in the VIX on Aug. 5 to see the billions in losses from those with short vol strategies,” said Larry McDonald, author of How to Listen When Markets Speak.But McDonald, who has written about how bets against volatility went wrong in 2018, said publicly available data on ETF performance did not fully reflect losses incurred by pension funds and hedge funds, which trade privately through banks.On Wednesday, the VIX had recovered to around 23 points, well off Monday’s high above 65, but holding above levels seen just a week ago. VOLATILITY’S RISEOne driver behind the trading strategy’s popularity in recent years has been the rise of zero-day expiry options – short-dated equity options that allow traders to take a 24-hour bet and collect any premiums generated.Starting in 2022, investors including hedge funds and retail traders, have been able to trade these contracts daily instead of weekly, allowing more opportunities to short volatility while the VIX was low. These contracts were first included in ETFs in 2023. Many of these short-term options bets are based around covered calls, a trade that sells call options while investing in securities such as U.S. large-cap stocks. As stocks rose, these trades earned a premium as long as market volatility remained low and the bet looked likely to succeed. The S&P 500 rose over 15% from January to July 1 while the VIX fell 7%. Some hedge funds were also taking short volatility bets through more complicated trades, two investor sources told Reuters. A popular hedge-fund trade played on the difference between the low volatility on the S&P 500 index compared to individual stocks that approached all-time highs in May, according to Barclays research from that time. Hedge-fund research firm PivotalPath follows 25 funds that trade volatility, representing about $21.5 billion in assets under management of the roughly $4-trillion industry. Hedge funds tended to bet on a VIX rise, but some were short, its data showed. These lost 10% on Aug. 5 while the total group, including hedge funds that were short and long volatility, had a return of between 5.5% and 6.5% on that day, PivotalPath said. ‘DAMPENED VOLATILITY’ Banks are another key player standing in the middle of these trades for their larger clients.The Bank of International Settlements in its March quarterly review suggested that banks’ hedging practices kept Wall Street’s fear gauge low. Post-2008 regulations limit banks’ ability to warehouse risk, including volatility trades. When clients want to trade price swings, banks hedge these positions, the BIS said. This means they buy the S&P when it falls and sell when it rises. This way, big dealers have “dampened” volatility, said the BIS.In addition to hedging, three sources pointed to occasions where banks hedged volatility positions by selling products that allowed the bank to even out its trades, or remain neutral. Marketing documents seen by Reuters show that Barclays, Goldman Sachs and Bank of America this year were offering complex trade structures, which included both short- and long-volatility positions. Some, according to the documents, do not have a constant hedge built into the trade to buttress against losses and are protected “periodically,” the papers say. This might have exposed investors to higher potential losses as the VIX spiked on Aug. 5. Barclays and Bank of America declined to comment. Goldman Sachs did not immediately respond to a request for comment. “When markets were at near highs, complacency became rife, so it’s not surprising investors, largely retail, but also institutional, were selling volatility for the premium,” said Michael Oliver Weinberg, professor at Columbia University and special advisor to the Tokyo University of Science. “It’s always the same cycle. Some exogenous factor causes markets to sell off. Those that were short vol will now be hit with losses,” he said. More

$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

Despite not yet fully returning to the Federal Reserve’s target, Wells Fargo anticipates the report will show significant progress.The bank predicts that the headline CPI will rise by 0.2% in July, maintaining the year-over-year rate at a three-year low of 3.0%.”The core CPI also looks set to advance 0.2% in July amid a rebound in some of the more volatile ‘super core’ components,” the analysts noted.They also expect the recent decline in shelter inflation to continue, alongside a reduction in prices for core goods. If these predictions hold, the 12-month change in core CPI would reach a fresh cycle low of 3.2%.Looking ahead, Wells Fargo forecasts continued subsidence in inflation.They highlight that labor costs are no longer a significant threat to the Fed’s 2% inflation target due to increased labor force growth and decreasing demand for workers.Additionally, weakening consumer demand is putting downward pressure on prices, particularly for discretionary items, driving inflation back to pre-pandemic levels.While core Personal Consumption Expenditures (PCE) inflation is likely to remain around its current rate through year-end, Wells Fargo expects the annualized pace of inflation to align with the Federal Open Market Committee’s (FOMC) target.Given the concerning labor market conditions, they anticipate the Fed will consider inflation close enough to target and may begin a rate-cutting cycle at its next meeting. More

U.S. inventories “are not at a level that is worrisome or that seems to indicate a significant slowdown right in the offing,” Maersk CEO Vincent Clerc told CNBC, as fears of a recession in the world’s largest economy mount.
Chinese exports have helped drive overall container demand in the most recent quarter, Clerc said.
Maersk on Wednesday reported a decline in year-on-year underlying profit to $623 million from $1.346 billion in the second quarter, and a dip in revenue to $12.77 billion from $12.99 billion.

Shipping giant Maersk, considered a barometer for global trade, is not seeing signs of a U.S. recession as freight demand remains robust, the company’s chief executive said Wednesday.
“We’ve seen in the last couple of years, actually, [the shipping container] market remaining surprisingly resilient to all the fear of recessions that there has been,” Vincent Clerc told CNBC’s “Squawk Box Europe” Wednesday, adding that container demand was generally a good indicator of underlying macroeconomic strength.

U.S. inventories — goods being stored before delivery or processing — “are higher than they were at the beginning of the year, but they are not at a level that is worrisome or that seems to indicate a significant slowdown right in the offing,” Clerc said, despite noting some unpredictability in numbers for companies replenishing stocks.
“We look also at purchase orders from a lot of retailers and consumer brands that need to import into the U.S. for the coming month of demand, and it seems still to be pretty robust … at least the data and the indicators that we’re having seem to point toward still some good level of confidence that the current consumption levels in the U.S. will continue.”
The last week has seen a sudden escalation in worries about a recession in the world’s biggest economy, the U.S., following a set of weaker-than-expected jobs data which has divided economists and market participants.
U.S. retail trade inventories — a measure of unwanted build — in May were up 5.33% from a year ago at $793.86 billion, according to the most recent release from the U.S. Census Bureau.
A report released by leasing platform Container xChange on Wednesday said indicators suggest inventories are higher than demand, meaning a less “prosperous time” in the coming months for container traders, the logistics market and retailers who stockpiled.

Maersk’s Clerc said the company had been surprised by the resilience of container volumes across the last few years, and said it expected that to continue in the coming quarters — with no indication the global economy is heading toward recessionary territory.
Chinese exports have been the engine behind strong container volumes as the global share of containers originating in or heading for China has increased, he continued.
In 2022, the Danish firm had a markedly more gloomy outlook, warning of a drag on demand from inflation, the threat of a global recession, the European energy crisis and the war in Ukraine.
A combination of those factors drove down freight rates in 2023, sending Maersk’s profits tumbling.
That trend was partially reversed this year amid soaring geopolitical tensions in the Red Sea, which led shipping firms to divert trade routes around the southern coast of Africa — extending journey times and taking capacity out of the global system.

Red Sea to cause further inflation

Clerc told CNBC Wednesday he expected Red Sea diversions to continue at least until the end of the year.
“That, of course, requires more capacity, more ships in order to move global trade around the world, and that has created some shortages here in the second quarter and in the third quarter that we’re dealing with at the moment,” he said.
“That means, in the short term, higher cost, and we have had to take on significant cost as a result of this, both in terms of having needing more ships and needing also more containers to do the job that is expected of us.”
If the situation persists, Maersk will see “significant inflation” in its cost base which it will need to pass on to customers, he continued, with Asia to Europe or U.S. east coast routes costing between 20% and 30% more.
The impact of capacity constraints in the short term has been positive for the Danish shipping giant’s margins and led to three profit upgrades in recent months, Clerc added.
Maersk on Wednesday reported a decline in year-on-year underlying profit to $623 million from $1.346 billion in the second quarter, and a dip in revenue to $12.77 billion from $12.99 billion.
While weaker on an annual basis, the company said ocean freight margins were “significantly better” than in the first quarter of 2024 and fourth quarter of 2023, with an earnings before interest and taxes margin of 5.6% versus -2% and -12.8% in those prior periods.
Maersk shares were 1.6% lower at 12:45 p.m. in London on Wednesday. More