Finance

The ENDLESS queues, filled with American accents, outside Dishoom, a chain of upmarket British curry houses that has gained international fame thanks to TikTok, tell a story which anyone who has recently visited Paris, Rome or Tokyo can confirm: the dollar is mighty. American tourists are rushing to take advantage of bargain sterling-, euro- and yen-denominated holidays. Those who booked early will have scored the biggest bargains, however. The dollar is still strong by the standards of the past two decades. But since its peak in September, it has dropped by 13% against a basket of currencies. The sell-off accelerated last week, when the dollar fell by 3%—a big move for a currency. The dxy index, which measures the currency against six others, is at its lowest since April 2022, just after the Federal Reserve started to raise interest rates.The recent weakening is welcome news for those parts of the world, particularly developing countries, which rely on financing in foreign currencies. Emerging-market issuance of dollar bonds hit an 11-year low in 2022. Frontier markets—the smallest, least liquid and often poorest such markets—issued less than $10bn of dollar bonds last year, down from $30bn in 2021. Sadly for these countries, there is reason to doubt the dollar’s dip is the start of a new phase. To understand why, consider what caused the fall. The recent sell-off was prompted by American inflation data, released on July 12th, which showed consumer prices rose by just 3% year-on-year in June—still above the Fed’s 2% target, but the lowest rate in over two years, and below analysts’ expectations. Investors now wonder if the Fed is about to declare victory in its fight against inflation.Another reason for the recent decline is that inflation is falling more slowly outside America, particularly in Britain and the euro zone. Even in the land of low inflation, Japan, consumer prices rose by 3.2% year-on-year in May—higher than America’s figures a month later. Central bankers in such countries may have more fighting ahead. Higher rates would drag investment from dollar-denominated assets into higher-yielding currencies.The third reason for the decline is middling American growth. The country’s gdp is expected to increase by a modest 1.3% this year. Stephen Jen, now of Eurizon Capital, an asset-management firm, first posited the idea of a “dollar smile” a couple of decades ago. The theory suggests that when America is powering ahead of the world, the dollar strengthens as investors pour in. But the currency can also strengthen when the world’s largest economy is in the doldrums, since a depressed American economy is a threat to global financial stability. That paradoxically adds to demand for the country’s safe Treasury bonds. Mr Jen today sees the American economy’s lukewarm growth, which puts it in the middle of the smile, as a sign of dollar weakness to come.Yet these driving forces are hardly guaranteed to continue. Each could suddenly reverse, causing the dollar to strengthen once more. If inflation proves to be stickier than expected in America, for instance, and stops dropping quite so rapidly, Fed policymakers have made clear that they would be willing to keep raising interest rates aggressively. Moreover, it is still possible that America’s economy will slow under the weight of higher interest rates, despite the remarkable resilience it has so far displayed.Indeed, it may transpire that other rich economies are simply running a few months behind America. American prices rose more rapidly than those elsewhere in 2021, and the Fed began raising interest rates earlier than most central banks the next year. Britain’s latest inflation figures, released on July 19th, showed prices rising by 7.9% year-on-year in June, below the 8.2% forecast. Whether an investor believes the surge in inflation was caused by a transitory burst of supply-side factors, or is the result of monetary and fiscal largesse, they will think there is a good chance inflation elsewhere will follow America’s downwards trend. If this does happen, monetary policy in America and the rest of the world would look more similar. The global situation would also look similar to that found—with the exception of recent years—since the dollar’s sharp rally in late 2014 and throughout 2015. Now, as then, the American economy is stronger than its competitors and American stocks are more favoured than those elsewhere. With these two pillars of strength in place, it is difficult to imagine a markedly weaker dollar.■Read more from Buttonwood, our columnist on financial markets:The mystery of gold prices (Jul 13th)Can anything pop the everything bubble? (Jul 4th)Americans love American stocks. They should look overseas (Jun 26th)Also: How the Buttonwood column got its name More

The Tesla factory in Tilburg, Netherlands.
Jasper Juinen | Bloomberg | Getty Images

Check out the companies making headlines in extended trading.
Netflix — The streaming giant’s shares tumbled more than 5% after posting its quarterly results Wednesday after hours. The company said it was too early to assess the effects of its crackdown on its password sharing and revenue from its ad-supported offering. In its latest quarter, Netflix posted earnings of $3.29 per share on revenue of $8.19 billion. Analysts polled by Refinitiv called for earnings of $2.86 per share and revenue of $8.3 billion.

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IBM — The business services company’s shares shed 0.7% following its mixed second-quarter earnings report. The company posted revenue of $15.48 billion, missing Wall Street’s forecast of $15.58 billion, according to Refinitiv. IBM reported adjusted earnings of $2.18 per share, which was higher than analysts’ consensus estimate of $2.01 per share.
Tesla — Tesla shares fluctuated near the flatline following its second-quarter earnings announcement. While the company reported record-high quarterly revenue, operating margins also fell to 9.6%, the lowest level in the past five quarters due to price cuts and incentives.
United Airlines — United Airlines shares jumped 2.5% after its second-quarter earnings and revenue topped analysts’ expectations despite flight disruptions at its Newark, New Jersey, hub. The company posted adjusted earnings of $5.03 per share and total revenue of $14.18 billion. Meanwhile, analysts polled by Refinitiv had estimated $4.03 earnings per share and $13.91 billion in revenue. The company also announced a stronger-than-expected forecast for the current quarter. American Airlines shares gained 1.4% following the news.
Zions Bancorp — The regional bank stock rallied 7% after its earnings results topped analysts’ estimates. Zions posted $1.11 earnings per share in the second quarter, while analysts’ consensus estimates were $1.08, according to FactSet.
Las Vegas Sands — The resort developer’s stock declined nearly 3%. The action came despite a beat on the top and bottom lines. Las Vegas Sands posted adjusted earnings of 46 cents a share on revenue of $2.54 billion in the second quarter. Analysts polled by Refinitiv anticipated earnings of 43 cents per share on revenue of $2.39 billion.
Discover Financial — Shares of the digital banking company plunged 13% after its second-quarter results missed analysts’ estimates. Discover Financial posted $3.54 earnings per share on revenue of $3.88 billion in the second quarter. Analysts had anticipated $3.67 earnings per share and revenue of $3.88 billion, according to FactSet. Discover disclosed it’s in discussions with regulators over a “card product misclassification” issue. The company has also paused share buybacks. More

From one perspective, it seems like a torrid time to be a banker. A handful of financial institutions failed in the first quarter of the year after their depositors fled, spooked by the impact of higher interest rates. After these failures, smaller banks struggled to keep hold of deposits, pushing up their interest costs. At the same time, the economy is cooling, owing to higher rates, raising the prospect of job losses and defaults. Higher rates have almost entirely shut down activity in capital markets. The climbing cost of debt has put off would-be acquirers in the business world, prompting firms to delay issuing bonds and encouraging startups to delay initial-public offerings. The misery is particularly obvious at the most famous of all Wall Street institutions: Goldman Sachs. The firm is also the most exposed to ups and downs in dealmaking and most reliant on trading revenues, meaning it has struggled over the past year or so. Yet Goldman hit another low on July 19th, when it reported its lowest quarterly profits in three years. Cyclical woes have been compounded by an ill-fated push into consumer lending, which now looks like a serious error. In the second quarter the firm wrote off $500m of its investment in GreenSky, an online lender acquired by David Solomon, Goldman’s boss, in 2021. The poor results will only add to the pressure facing Mr Solomon. Things are much sunnier for the rest of America’s big lenders, however. Despite the recent turmoil, between July 14th and July 18th they reported strong quarterly results. Their seemingly perverse success is explained by the fundamentals of banking. When a financier provides a loan he must consider two things above all else. The first is the interest he can expect to receive. By handing over $100 he might hope to earn, say, $5 a year for the life of the loan, before the $100 is paid back. The other is the risk that the borrower will default, failing to repay the principal. These risks and rewards must be balanced such that, even if some borrowers default, the income is sufficient to compensate. In other words, the juice must be worth the squeeze. For most institutions, the juice has never been more worth it. Thanks to the highest interest rates in 15 years, net interest income at Bank of America, Citigroup, JPMorgan Chase and Wells Fargo hit a record $63bn in the second quarter (see chart). All that extra juice does not seem to have come with much additional squeeze. Provisions for loan losses—the money banks must set aside to protect against defaults, based on their assessments of the economic outlook—have risen only modestly, to around $7.5bn. True, that level is higher than in recent quarters. But it is hardly alarming. Aggregate provisions were far higher in 2020 and, indeed, in almost every quarter from 2007 to 2012. Add this all up and quarterly net interest income, minus provisions for loan losses, has hovered at around 1.4% of total loan books a quarter, or about 6% annualised, throughout 2023. This is higher than at any time since 2005. Forget the turmoil: so long as you do not work at Goldman, there has rarely been a better time to be a commercial banker. JPMorgan even posted its best ever quarterly profits. There are flickers of life in capital markets, too. Debt and equity-issuance numbers surpassed expectations. Bank bosses sound increasingly optimistic. “We’re seeing less anxiety around funding, as most large corps are biting the bullet and paying higher rates to take advantage of issuance windows,” reported Jane Fraser of Citi.These results support the conclusion, which is gradually becoming the consensus view on Wall Street, that the American economy has taken the most extreme dose of monetary tightening in 40 years on the chin. The housing market appears to have bottomed out, as does the stockmarket. Meanwhile, the labour market remains robust. The hope is that financial markets really have adjusted to sky-high rates with much less pain than anticipated. For once, bankers will not be the only ones cheering on bumper profits. ■ More

A Carvana used-car vending machine in Miami, May 11, 2022.
Joe Raedle | Getty Images

Check out the companies making headlines in midday trading.
Carvana — Shares soared 40.2% after the used-car retailer reached a deal that will reduce its total outstanding debt more than $1.2 billion. The agreement will eliminate over 85% of its 2025 and 2027 unsecured note maturities and lower its required cash interest expense $430 million a year for the next two years.

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Goldman Sachs — The banking titan advanced 1% despite missing expectations of analysts polled by Refinitiv for earnings and revenue. Goldman said the profit miss was tied to write-downs in the commercial real estate business and the sale of lending unit GreenSky.
Joby Aviation — Shares sank more than 15.8% after JPMorgan downgraded the electric aircraft maker to underweight, calling its recent stock outperformance “largely overblown.”
Omnicom — Shares tumbled 10.4% after the marketing and communications company missed revenue expectations, reporting $3.61 billion in the second quarter against a forecast of $3.67 billion from analysts polled by FactSet. The company beat expectations for earnings expectations by one cent at $1.81 per share.
Elevance Health — The stock rose 4.4% after Elevance Health beat analysts’ expectations on the top and bottom lines in its second-quarter results. The health insurance provider reported adjusted earnings of $9.04 per share, better than consensus estimates of $8.78 per share, according to FactSet. Revenue came in at $43.38 billion, compared with the $41.64 billion forecast. Additionally, Elevance said medical enrollment rose by 938,000 members on a year-over-year basis. It also raised its full-year guidance, which also beat expectations.
Northern Trust — Northern Trust jumped 13.4% after reporting earnings. The regional bank posted earnings of $1.56 per share, a 16% drop from the same quarter in the prior year. It reported total revenue of about $1.8 billion, down 1% from the year-ago period.

Interactive Brokers — Shares slid 5% after the electronic broker missed earnings estimates. The firm posted adjusted earnings per share at $1.32 for the second quarter, under the consensus estimate of $1.40 per share from analysts polled by Refinitiv.
J.B. Hunt Transport Services — The transportation and logistics stock rose 3.8% despite a disappointing quarterly report. J.B. Hunt posted $1.81 in earnings per share on $3.13 billion, while analysts polled by Refinitiv estimated $1.92 in earnings per share and $3.31 billion in revenue.
Western Alliance Bancorporation — Shares of the regional bank rose 7.8%, erasing premarket losses following the bank’s mixed second-quarter earnings announcement Tuesday after the bell. The company announced earnings of $1.96 per share and $669 million in revenue. Analysts had estimated earnings of $1.98 per share and revenue of $652 million, according to Refinitiv. The bank also reported a rise in deposits during the quarter.
AT&T — The telecommunications stock climbed 8.5%. Shares have been under pressure in recent days following a Wall Street Journal investigation that found miles of lead cables in the U.S. AT&T said Tuesday that it has no plans to remove cables from Lake Tahoe. Argus downgraded the stock to buy from hold, citing concerns around the cables.
Qualcomm — Shares rose 2.8% after JPMorgan added the stock to its focus list and said it’s one of the firm’s best growth ideas.
Cisco — Shares of the enterprise technology company rose 1.3% after JPMorgan upgraded Cisco to overweight from neutral. The investment firm said a slowdown in demand for Cisco’s products is likely close to bottoming out.
Charles Schwab — The financial stock added 0.1% after JPMorgan added the stock to its focus list following its earnings report, citing improving fundamentals.
Amazon — The e-commerce giant traded 1.9% higher after Bank of America reiterated the stock as a buy, saying it’s optimistic on earnings.
ServiceNow — The software stock jumped 1% to hit a 52-week high after Bank of America reiterated the firm as a top pick. The Wall Street firm said its channel checks suggested healthy deal activity in the second quarter amid easing macro pressure.
— CNBC’s Samantha Subin, Hakyung Kim, Sarah Min, Jesse Pound, Michelle Fox and Yun Li contributed reporting. More

Goldman Sachs reported second quarter earnings of $3.08 a share vs. an expected $3.18 a share.
The bank also posted revenue of $10.9 billion, which came in just above estimates.
The company disclosed a $504 million impairment tied to GreenSky and $485 million in real estate writedowns.

Goldman Sachs on Wednesday posted profit below analysts’ expectations amid writedowns tied to commercial real estate and the sale of its GreenSky lending unit.
Here’s what the company reported:

Earnings: $3.08 a share vs. $3.18 a share Refinitiv estimate
Revenue: $10.9 billion, vs. $10.84 billion estimate

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Second-quarter profit fell 58% to $1.22 billion, or $3.08 a share, on steep declines in trading and investment banking and losses related to GreenSky and real estate, which sapped about $3.95 from per share earnings. Revenue fell 8% to $10.9 billion.
The company disclosed a $504 million impairment tied to GreenSky and $485 million in real estate writedowns. Those charges flowed through its operating expenses line, which grew 12% to $8.54 billion.
Shares of the bank dropped more than 1% in premarket trading.
Goldman CEO David Solomon faces a tough environment for his most important businesses as a slump in investment banking and trading activity drags on. On top of that, Goldman had warned investors of write-downs on commercial real estate and impairments tied to its planned sale of fintech unit GreenSky.
Unlike more diversified rivals, Goldman gets the majority of its revenue from volatile Wall Street activities, including trading and investment banking. That can lead to outsized returns during boom times and underperformance when markets don’t cooperate.

Exacerbating the situation, Solomon has spent the past few quarters retrenching from his ill-fated push into consumer banking, which has triggered expenses tied to shrinking the business.
“This quarter reflects continued strategic execution of our goals,” Solomon said in the earnings release. “I remain fully confident that continued execution will enable us to deliver on our through-the-cycle return targets and create significant value for shareholders.”
The bank put up a paltry 4.4% return on average tangible common shareholder equity in the quarter, a key performance metric. That is far below both its own target of at least 15% and competitors’ results including JPMorgan Chase and Morgan Stanley.
Trading and investment banking has been weak lately because of subdued activity and IPOs amid the Federal Reserve’s interest rate increases. But rival JPMorgan posted better-than-expected trading and banking results last week, saying that activity improved late in the quarter, and that raised hopes that Goldman might exceed expectations.
Fixed income trading revenue fell 26% to $2.71 billion, just under the $2.78 billion estimate of analysts surveyed by FactSet. Equities trading revenue was essentially unchanged from a year earlier at $2.97 billion, topping the $2.42 billion estimate.  
Investment banking fees fell 20% to $1.43 billion, just below the $1.49 billion estimate.
Asset and wealth management revenue fell 4% to $3.05 billion as the firm booked losses in equity investments and lower incentive fees.
Analysts will likely ask Solomon about updates to his plan to exit consumer banking. Goldman has reportedly been in discussions to offload its Apple Card business to American Express, but its unclear how far those talks have advanced.
Goldman shares have dipped nearly 2% this year before Wednesday, compared with the approximately 18% decline of the KBW Bank Index.
On Friday, JPMorgan, Citigroup and Wells Fargo each posted earnings that topped analysts’ expectations amid higher interest rates. Tuesday, Bank of America and Morgan Stanley also reported results that exceeded forecasts. More

A Carvana used-car vending machine displays vehicles in Miami, Dec. 9, 2022.
Joe Raedle | Getty Images

Check out the companies making headlines before the bell:
Carvana — Carvana jumped 16% after the online auto retailer reached a deal with noteholders to lower its total debt outstanding by more than $1.2 billion.

Interactive Brokers — Shares slid 5% after Interactive Brokers’ earnings missed estimates. The firm reported second-quarter adjusted earnings of $1.32 per share. That’s lower than analysts’ expectations of $1.40 per share, according to Refinitiv.
Omnicom — Omnicom dropped 6% after the global marketing company’s revenue missed estimates. Omnicom posted second-quarter revenue of $3.61 billion, lower than forecasts of $3.67 billion, according to consensus estimates from FactSet. It narrowly beat earnings expectations, posting adjusted earnings of $1.81 per share, higher than the consensus estimates of $1.80 per share.
Goldman Sachs — The bank stock declined 0.3% after Goldman Sachs missed expectations in its second-quarter earnings. The company posted earnings of $3.08 a share, lower than the Refinitiv forecast of $3.18 per share. Goldman also reported revenue of $10.9 billion, which was more than the expected $10.84 billion.
Joby Aviation — The electric aircraft stock sank 6.3% in premarket trading after being downgraded by JPMorgan to underweight from neutral. The Wall Street firm said Joby’s recent rally is “largely overblown” and likely the result of short covering. Shares are up 200% year to date.
Cinemark — Shares fell 3.3% after JPMorgan downgraded the movie theatre chain to neutral from overweight, citing the impact of the actors strike in Hollywood. 

J.B. Hunt Transport Services — The transportation and logistics company declined 2.2% after posting disappointing quarterly results. J.B. Hunt reported second-quarter earnings of $1.81 per share on revenue of $3.13 billion. Analysts polled by Refinitiv had expected per-share earnings of $1.92 on revenue of $3.31 billion.
Western Alliance — Shares of the regional bank dipped 2.4% following the bank’s mixed second-quarter earnings results. The company posted earnings of $1.96 per share, and revenue of $669 million. Analysts polled by Refinitiv had estimated earnings of $1.98 per share and revenue of $652 million. The bank reported a rise in deposits during the quarter.
U.S. Bancorp — Shares of the large regional bank dipped 1% after US Bancorp reported its second-quarter results. The bank reported $1.12 in adjusted earnings per share on $7.14 billion of revenue. Analysts were expecting $1.12 in earnings per share on $7.16 billion of revenue, according to Refinitiv.
Nasdaq — Shares rose 0.3% after Nasdaq topped profit and sales expectations in its second-quarter results. Nasdaq posted adjusted earnings of 71 cents per share on revenue of $925 million. Analysts had expected per-share earnings of 66 cents on revenue of $914.9 million, per Refinitiv.
— CNBC’s Michelle Fox, Alex Harring, Hakyung Kim and Jesse Pound contributed reporting. More

Life Changes

Student loan payments and interest accrual have been paused since 2020 due to the pandemic. They’re set to resume in October and September, respectively.
Interest accumulation is a key difference between Direct Subsidized Loans and Direct Unsubsidized Loans.
The U.S. Department of Education pays interest on subsidized loans in some cases, like when borrowers are in school or defer their loan payments. That’s not true of unsubsidized loans.

Damircudic | E+ | Getty Images

The looming end of a pandemic-era pause to student loan payments and interest puts a spotlight on a big difference between two types of debt: subsidized and unsubsidized loans.
Interest accrual is among the primary differences between the federal loans — also known as Stafford Loans — which are for the cost of higher education.

How interest accrues on subsidized, unsubsidized loans

Direct Subsidized Loans are available to undergraduate students who demonstrate a financial need.
They don’t accrue interest while a borrower is in school (at least half-time) or during a six-month grace period after leaving school. The loans also don’t accrue interest during deferment, a period when payments are postponed due to unemployment or economic hardship.
The U.S. Department of Education pays the interest on subsidized loans in these instances.

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However, that protection isn’t available for Direct Unsubsidized Loans, which are available to a broader group of borrowers (including graduate students) and are not based on financial need.
Interest on unsubsidized loans starts accruing immediately and borrowers are responsible for interest amassed during all periods — making this debt more expensive than subsidized loans.

In some cases — after a deferment, for example — unpaid interest on unsubsidized loans may “capitalize.” When this happens, unpaid interest is added to the loan’s principal balance; future interest is then calculated off that higher principal, thereby increasing future interest payments.

Borrowers can carry both subsidized and unsubsidized loans, which have different borrowing limits.
About 30.3 million borrowers had subsidized Stafford Loans as of March 31, with an average balance of $9,800, according to Education Department data. About 30.7 million people have an unsubsidized loan, with an average balance of about $19,000, according to the Education Department.
(The term Stafford Loan is an informal way of referring to Direct Subsidized Loans and Direct Unsubsidized Loans made via the Direct Loan Program. It also refers to subsidized or unsubsidized Federal Stafford Loans made via the Federal Family Education Loan, or FFEL, program.)

How the payment pause, interest waiver affected loans

The payment pause and interest waiver has been in place for more than three years, since the onset of the pandemic in 2020.
During that time, interest wasn’t accruing on any loans — meaning unsubsidized loans essentially became subsidized debt for some borrowers.
However, interest will start accumulating on borrowers’ debt again on Sept. 1, and monthly payments will resume in October.
The interest waiver cost the federal government about $5 billion a month.

Some financially strapped borrowers may now wonder if it’s a good idea to pursue deferment or forbearance as payments resume, said Mark Kantrowitz, a higher education expert. But “you’re effectively digging yourself into a deeper hole” by pursuing these avenues, Kantrowitz said, since interest will typically be accruing during deferral or forbearance.
(There are exceptions, such as if a subsidized loan is in deferment or if either type of loan is in deferment due to active medical treatment for cancer.)
Pursuing an income-driven repayment plan, which caps monthly payments, is generally a better option for borrowers, unless the financial difficulty is short term in nature, Kantrowitz said.
“In general, you don’t want to use deferment or forbearance if you’re capable of repaying the loan,” he said. More

Olalekan Jacob Ponle, a Nigerian cyber scammer who lived a profligate lifestyle on social media, was sentenced to eight years in federal prison for scamming businesses across the U.S.
Ponle will pay $8 million in restitution, having already surrendered 151 bitcoin to the U.S. government, and will also forfeit a variety of high-end cars and watches.
Ponle’s rendition from the UAE came in July 2020, despite the lack of any formal extradition treaty between the U.S. and the UAE.

Residential skyscraper buildings beyond luxury villas on the waterfront of the Palm Jumeirah in Dubai, United Arab Emirates, on Thursday, Jan. 19, 2023.
Christopher Pike | Bloomberg | Getty Images

A United Arab Emirates resident and Nigerian citizen was sentenced to 8 years in federal prison for orchestrating a multi-million dollar fraud scheme that victimized businesses across the U.S., Illinois federal prosecutors said.
Olaekan Jacob Ponle was extradited from the UAE into the custody of the Federal Bureau of Investigation in July 2020, where he remained until pleading guilty to a single wire fraud count earlier this year, the Justice Department said in a Tuesday press release.

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Ponle worked with a network of scammers to masquerade as corporate entities using phishing emails. The scammers duped employees into sending money on behalf of their “employers,” who were really scammers.
Ponle, better known as Woodberry, was a minor celebrity in his home country of Nigeria thanks to his profligate displays of wealth on social media.
Ponle relied on a network of “mules” to receive the funds and convert them into Bitcoin that he received. The Nigerian citizen used the proceeds of his scam to purchase ultra-high-end vehicles, including a Rolls Royce Cullinan and a Lamborghini Urus.
Ponle will forfeit those items, collectively valued at over $1 million, and pay more than $8 million in restitution to victim companies. Ponle had already forfeited 151 bitcoin, valued at over $4.5 million as of Wednesday.
Ponle was prosecuted despite the lack of an extradition treaty between the UAE and the United States. Federal officials at the DOJ’S Office of International Affairs worked with their UAE counterparties to secure Ponle’s rendition. More