Finance

Sod’s law, the axiom that if something can go wrong then it will, is about as British as it gets. But traders around the world have their own version: that markets will move in whatever direction causes the most pain to the most people. This year, they have been vindicated by a soaring stockmarket that few saw coming, in which the biggest winners have been the shares that were already eye-wateringly expensive to begin with. In April fund managers told Bank of America’s monthly survey that “long big tech” was the most faddish trade going, making it an obvious one for the professionals to avoid. Over the next few months shares in the biggest big tech firms duly left the rest of the market in the dust.Other than simply pay up and pray for the run to keep going, what is a value-conscious investor to do? The pluckiest option—calling the market’s bluff and betting on a crash—has left many of the hedge funds that tried it running for cover. In June and July, say Goldman Sachs’s brokers, such funds abandoned their positions at the fastest pace in years. Those looking on may not thrill at the prospect of recreating their experience. But if you don’t think stocks can rise much more yet can’t stomach the risk of shorting them, logic dictates a third option. You can try to profit from them not moving much at all.A growing number of investors are doing just this—or, in industry jargon, selling volatility. The trade-du-jour is the “buy-write” exchange-traded fund (etf), a formerly obscure category that is now hoovering up capital. Since the start of 2023, buy-write etfs have seen their assets balloon by 60%, to nearly $60bn.In practice, such investors are buying baskets of stocks while selling (or “writing”) call options on them. These are contracts that give the buyer the right (though not the obligation) to buy the stocks for a set price (or “strike price”) in the future. Usually the strike price is set “at the money”, or at whatever level the stocks are trading when the option is written. If they then rise in price, the buyer will exercise the option to purchase them at the below-market value. Conversely, if they fall, the buyer will let the option expire unused, not wanting to pay above-market value for the stocks.The original investor, who sold the call option and bought stocks, is betting that share prices stay precisely where they were. That way, they get to pocket the option price (“premium”) without having to sell the stocks for less than they are worth. If prices instead increase, the option seller still keeps the premium, but must forgo all the share-price growth and sell the stocks for their original value. If they fall, the investor takes the hit as the option will not be exercised, meaning they will keep the shares and their losses. This is at least cushioned by the premium they received in the first place.To those marketing them, buy-write etfs are more than just a punt on placidity. Global X, a firm that offers 12 such funds, lists their primary goal as “current income”. Viewed in this light they might appear like a dream come true, because regularly selling options can generate a chunky income stream. One of the more popular vehicles is the Global X Nasdaq 100 Covered Call etf, with assets worth $8.2bn. Averaged over the year to June, each month it has collected option premiums worth 3% of assets and made distributions worth 1% to investors. Even in a world of rising interest rates, that is not to be sniffed at. Ten-year Treasuries, by comparison, yield 4.2% a year.Readers who do not believe in free lunches may sense a rather large catch coming. Yet it is not the familiar one applying to bets against market turbulence, which is that years of steady profits can be followed by a sudden, unexpected shock and a total wipeout. A buy-write etf may well fall in value, but in this respect it is no riskier than a corresponding “vanilla” fund that just owns the underlying stocks.The real hitch is that while such etfs offer equity-like potential losses, their profits can never exceed the monthly income from selling options. Those profits thus resemble the fixed-income stream generated by a bond. They also up-end the logic for buying stocks in the first place: that a higher risk of losses, compared with bonds, is worth the shot at wild, uncapped returns. The nightmare scenario is that stocks go on a blistering bull run that buy-write investors miss out on, followed by a plunge that hurts them almost as much as everyone else. This year has already had the bull run. If Sod’s law continues to hold, buy-writers should watch out.■Read more from Buttonwood, our columnist on financial markets:In defence of credit-rating agencies (Aug 10th)Meet America’s disguised property investors (Aug 3rd)Investors are seized by optimism. Can the bull market last? (Jul 25th)Also: How the Buttonwood column got its name More

China’s economic problems are distinctive. Inflation is too low, not too high. Many cities have too much housing, not too little. The country’s unmatched saving rate suggests it is, if anything, making excessive provision for its future.China’s response to economic difficulties is also—how to put this politely?—idiosyncratic. Consider the way it handled a barrage of bad news this week from the National Bureau of Statistics (nbs). The bureau reported retail sales and industrial production were both worse than expected in July. Property sales slumped again. Urban unemployment rose. And this data followed earlier releases showing declining consumer prices, a precipitous drop in exports, vanishing foreign-direct investment and weak demand for credit. To soften the blow, the People’s Bank of China (pboc) duly lowered interest rates, as other central banks would do. But it reduced its medium-term rate by only 0.15 percentage points and its one-week rate by even less—not so much a cut as a nick. What explains its restraint? The pboc used to rely on loan quotas, money-supply targets and jawboning to make its monetary policy work; the bank’s former governor would say his benchmark for policy rates was the economy’s underlying “potential” growth rate. That might contribute to its inertia, as potential growth is a slow-moving variable, governed by fundamentals like productivity and demography. Other central bankers would say their job is to change interest rates as much as necessary to keep an economy’s actual growth close to its potential. Although the pboc is making the transition to a new set of levers and dials, it still seems to lack confidence in interest rates as a stabilisation tool. The idiosyncrasies of China’s policymaking do not end there. Indeed, the official response to bad news includes failing to report it. Since China’s economy reopened, the unemployment rate among urban youth (aged 16 to 24) has been rising conspicuously, leading to uncomfortable headlines. In June the rate reached 21.3%. Analysts expected it to rise again in July. Rather than face embarrassing figures, the nbs decided to stop publishing them.This decision invited ridicule. One online commentator feigned gratitude that the bureau buried the figures, rather than fiddled them. Another offered an analogy: “A tv advert said to quit smoking, so I quit tv.” A third invoked a line from “Creation of the Gods”, a recent film: “What a horse sees is decided by the man who rides it.”In explaining its decision, the bureau said it needed to review its methods. Measuring youth unemployment is undeniably difficult, because youngsters juggle studies, work and job-hunting. To count as unemployed, a person has to be looking for work. Many jobless youngsters are not, because they are concentrating on their education. In the first quarter of the year, for example, two-thirds of China’s 96m urban youths were neither in work nor looking for it. Of the remaining third, a little over 6m were both searching for a job and failing to find one. It is this subgroup of 6m who count as unemployed. There are other subtleties. In most big economies, such as America and the euro area, a person can count as unemployed only if they have taken steps to find a job in the past four weeks. China casts a wider net. Its unemployment figures include those who looked for work in the past three months. If China adopted the four-week standard, its youth unemployment rate could drop by seven percentage points, according to calculations using 2020 data by Zeng Xiangquan of Renmin University.The right response to such difficulties is, of course, to air them. China has hidden other data, too. Its publication of the Gini coefficient, a measure of income inequality, has been stop-start. There is still no figure for 2022. It released a measure of consumer confidence every month for more than 30 years, until confidence fell sharply in April. None of these responses to China’s problems will help solve them. The country’s statisticians lack confidence in their methods, its central bank lacks confidence in its tools and the country’s consumers lack confidence in the future. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

The 2010s were Germany’s decade. A Jobwunder (employment miracle) that began in the 2000s reached full flower, largely unimpeded by the global financial crisis of 2007-09, as labour reforms introduced by Gerhard Schröder, chancellor from 1998 to 2005, combined with China’s demand for manufactured goods and a boom in emerging markets to add 7m jobs. From the mid-2000s to the end of the 2010s, Germany’s economy grew by 24%, compared with 22% in Britain and 18% in France. Angela Merkel, chancellor from 2005 to 2021, was lauded for her grown-up leadership. Populism of the Trump-Brexit variety was believed to be a problem for other countries. Germany’s social model, built upon close relationships between unions and employers, and its co-operative federalism, which spread growth across the country, wowed commentators, who published books with titles such as “Why the Germans Do It better”. Germany’s footballers even won the World Cup.The 2020s are shaping up to be very different, and not just because the national football team is faltering. Alternative für Deutschland, a far-right populist party, is polling at 20%. Germans are unhappy with their government. Most worrying, Germany’s vaunted economic model and state look unable to provide the growth and public services people have come to expect. This is partly a story of a country uncomfortably exposed to circumstances, not least war in Europe and slowdown in China. According to imf forecasts, Germany will be the only g7 economy to contract this year. Less widely appreciated, though, is the fact that the country’s long-term prospects have dimmed. Germany is exposed to a triple whammy: its industry looks vulnerable to foreign competition and geopolitical strife; its journey to net-zero emissions will be difficult; and its workforce is unusually elderly. To make matters worse, the German state appears ill-prepared for these challenges.Interest rates have risen rapidly in the euro zone, as they have across the rich world, to deal with the inflation unleashed by covid-19 and Russia’s war in Ukraine. Higher rates are starting to hurt German construction and business investment. Yet the country tends to be less sensitive to rate increases than most. Far more difficult are changes wrought by external factors. More than any other major European economy, Germany depends on China (see chart 1), meaning the Asian giant’s slower than expected recovery from zero covid is proving painful. Meanwhile, the gas-price shock of last year still reverberates—and gas futures signal that prices will remain roughly double their pre-pandemic level in the coming years. Energy-intensive industrial production has yet to recover from last year’s lows. And the country’s consumers are struggling: real wages have only just started to grow, having fallen to levels last seen in 2015. Ministers are mulling how to respond. The Greens, part of a coalition government with the Social Democrats and fdp, a pro-business party, want to spend €30bn ($33bn, or 0.7% of gdp) on subsidising electricity for industrial use and funding green building and social housing. “The current weakness of the construction sector could indeed be used by the public sector to build more instead,” agrees Monika Schnitzer, head of the German Council of Economic Experts, an official body. The fdp, for its part, would like to cut taxes and create incentives for the private sector to invest, such as by allowing faster depreciation of investment goods. Both plans would lead to a wider fiscal deficit, and thus involve accounting trickery to get around the country’s strict deficit limits. Whatever response politicians eventually agree upon, Germany’s problems seem likely to last for a while. The purchasing-managers’ manufacturing index is at its lowest since the early months of covid. Surveys such as the ifo index show that German business leaders are gloomy about the future. Expectations for the next six months continue to deteriorate. The imf reckons that the country’s economy will grow by only 8% between 2019 and 2028, about as fast as Britain, the other European struggler. Over the same period, France is forecast to grow by 10%, the Netherlands by 15% and America by 17% (see chart 2).Mein GottThe first challenge Germany faces arises from geopolitics. Both America and Europe want to re-engineer supply chains in order to be less reliant on any single non-Western supplier, in particular China. The world order that emerges will provide some benefits for Germany. Firms seeking to “re-shore” production of crucial inputs, such as semiconductors, or build factories for new products, such as electric vehicles (evs), may be lured to its shores. Tesla, an ev-maker, has already built a factory near Berlin, and plans to expand it to create Germany’s biggest car plant. Intel has agreed to create a €30bn chipmaking hub in Magdeburg, central Germany. On August 8th tsmc and three other chipmakers More

China’s Ministry of Commerce signaled Thursday it would respond, if needed, to the Biden administration’s executive order to restrict U.S. investments in advanced Chinese technology.
When asked about U.S. Commerce Secretary Gina Raimondo’s plans to visit China, the ministry’s spokesperson declined to confirm a time, but said the two countries remained in close communication.

Chinese and U.S. flags flutter near The Bund, before U.S. trade delegation meet their Chinese counterparts for talks in Shanghai, China July 30, 2019.
Aly Song | Reuters

BEIJING — China’s Ministry of Commerce signaled Thursday it would respond, if needed, to the Biden administration’s executive order to restrict U.S. investments in advanced Chinese technology.
China’s Ministry of Commerce has met with businesses to understand the order’s impact, spokesperson Shu Jueting said in Mandarin, translated by CNBC.

“On that basis, we are making a comprehensive assessment of the executive order’s impact, and will take necessary countermeasures based on the assessment’s results,” Shu said.
U.S. President Joe Biden last week signed an executive order aimed at restricting U.S. investments into Chinese semiconductors, quantum computing and artificial intelligence companies over national security concerns.

The Treasury is mostly responsible for implementation, and is currently gathering public comments in order to form a draft regulation.
When asked about U.S. Commerce Secretary Gina Raimondo’s plans to visit China, Shu declined to confirm a time, but said the two countries remained in close communication. More

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Don’t count out additional interest rate hikes, according to former Federal Reserve governor Randall Kroszner.
Kroszner, who’s now a University of Chicago economics professor, believes rates are staying high into well next year.

“I don’t see how they can be comfortable to say, ‘okay we’re not going to be raising anymore’ if the labor market is as strong as it is now,” Kroszner told CNBC’s “Fast Money” on Wednesday.
His comments came after the Fed released the minutes from its July policy meeting. Fed officials indicated “upside risks” to inflation could push them to raise rates further.
Kroszner, who helped lead the response during the global financial crisis, thinks the Fed won’t officially put the brakes on rate hikes until they “see some of the heat coming out of the labor market.” He also believes Fed members will be at odds at what they need to see.

‘Makes the Fed’s job a little bit harder’

With student loan repayments set to resume in the fall and the back-to-school season kicking off, consumer confidence is another area the Fed is watching, Kroszner added.
“The consumer has been pretty resilient and that’s great, but it also makes the Fed’s job a little bit harder,” he said. “They’re going to want to see a little bit less strength there before they’re going to be able to to feel comfortable to say okay, no more hikes.”

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A runner jogs past the Cisco Systems headquarters in San Jose, California, Feb. 8, 2021.
David Paul Morris | Bloomberg | Getty Images

Check out the companies making headlines in extended trading.
Cisco Systems — Shares of the computer networking giant gained about 2.5% after posting fiscal fourth-quarter earnings that beat Wall Street’s expectations. The company posted adjusted earnings of $1.14 per share, while analysts had forecast $1.06 per share, according to Refinitiv. Revenue came out to $15.2 billion, exceeding expectations of $15.05 billion.

Synopsys — The stock advanced 2.3% after the electronic design automation company beat fiscal third-quarter earnings expectations. Synopsys reported adjusted earnings of $2.88 per share, which was 14 cents per share higher than analysts’ expectations, according to Refinitiv. Its revenue of $1.49 billion also came out just above expectations. The California-based company on Wednesday also announced Sassine Ghazi as its CEO and president, effective Jan. 1.
Wolfspeed — Shares plunged 13% after hours following Wolfspeed’s fiscal fourth-quarter earnings report, which missed expectations on the bottom line. The company posted an adjusted loss of 42 cents per share, while analysts called for a loss of 20 cents per share. Wolfspeed reported $236 million in revenue, however, surpassing analysts’ expectations of $223 million, according to Refinitiv.
Amcor — The packaging stock added 2.5% after the closing bell. Amcor, which hit its 52-week trading low Wednesday, reported adjusted earnings per share of $0.19 for its fiscal fourth quarter. That exceeded the $0.18 forecast from analysts surveyed by FactSet. Amcor’s revenue failed to meet expectations, however, coming at $3.67 billion while analysts had forecast $3.79 billion.
Hawaiian Electric Industries — Shares of Hawaiian Electric slipped nearly 2% after hours Wednesday. The action followed a report in The Wall Street Journal that said the company is in talks with firms that specialize in restructuring. The stock’s losses, now about 55% this week, continued amid Wall Street’s ongoing concerns about the company’s potential liability in the deadly Maui wildfires. 
VinFast Auto — Shares of the Vietnamese electric vehicle maker fell about 5%. Its shares jumped more than 250% Tuesday after VinFast went public through a SPAC deal, but the stock gave back some of those gains Wednesday and dipped 18.7%. More

Plastic bags hang on a self-checkout kiosk at a Target store in Chicago.
Daniel Acker | Bloomberg | Getty Images

Check out the companies making headlines in midday trading.
Target — Target shares added 2.9% even after the retailer cut its full-year earnings forecast and second-quarter sales fell short of expectations. The company reported earnings of $1.80 per share on revenue of $24.77 billion. Wall Street analysts surveyed by Refinitiv had expected earnings of $1.39 per share on $25.16 billion in revenue. Inventory also improved year over year.

Coinbase — The U.S. cryptocurrency exchange slipped 0.2%. The National Futures Association, which has been designated by the Commodity Futures Trading Commission as a self-regulatory organization, approved the company to operate a futures trading service in addition to its already-standing spot crypto trading.
TJX Companies — The discount retailer jumped 4.1% after beating Wall Street expectations for its fiscal second quarter. TJX reported adjusted earnings of 85 cents per share on $12.76 billion in revenue, while analysts surveyed by Refinitiv expected 77 cents earned and $12.45 billion in revenue.
Coherent — Shares plummeted 29.9% a day after Coherent delivered weak guidance for its fiscal first quarter. The manufacturer of lasers and optics forecast earnings of 5 cents to 20 cents per share and revenue of $1 billion to $1.1 billion. Analysts polled by FactSet called for 47 cents per share in earnings and revenue of $1.16 billion.
VinFast Auto — The Vietnamese electric vehicle stock tumbled 18.8%. The company debuted on the Nasdaq on Tuesday and popped more than 250% that day.
JD.com — U.S. shares of the Chinese e-commerce company slid 3%, even as JD.com beat expectations on the top and bottom lines for its most recent quarter.

Keurig Dr Pepper — The beverage stock advanced 1.2% following a UBS upgrade to buy from neutral. The firm cited a cheap valuation in its decision.
H&R Block — The tax prep software stock popped 9.7%. The action follows a day after H&R Block announced a 10% hike to its dividend. The company also surpassed analysts’ expectations for its fiscal fourth quarter, posting adjusted earnings of $2.05 per share on revenue of $1.03 billion. Wall Street estimated earnings of $1.88 per share and revenue of $1.01 billion, per Refinitiv.
Agilent Technologies — Shares slid 3.4% a day after the laboratory technology company cut its full-year guidance, citing a soft macroeconomic environment. The company beat consensus estimates on both the top and bottom line. Agilent posted adjusted earnings of $1.43 per share on revenue of $1.67 billion, while analysts called for earnings of $1.36 per share and revenue of $1.66 billion, per Refinitiv.
Jack Henry & Associates — The financial technology stock retreated 7% after guiding expectations for full-year earnings under where analysts forecast. Jack Henry anticipates earnings of $4.92 to $4.99 per share, while analysts called for $5.32 a share, per Refinitiv. Elsewhere, the company beat expectations on both lines for its fiscal fourth quarter.
Mercury Systems — The aerospace stock climbed 6.9% despite a weak quarterly report and future guidance. Late Tuesday, Mercury posted 11 cents in adjusted earnings per share on $253.2 million of revenue in its fiscal fourth quarter, while the consensus estimates of analysts polled by FactSet placed earnings per share at 52 cents and revenue at $278.8 million.
Cava — Cava lost gained 1.2% after the Mediterranean restaurant chain reported a profit for its first quarter post-IPO. The company posted earnings of 21 cents per share on revenue of $172.9 million.
Jack in the Box — Shares of the restaurant stock rose 2.3% after Loop Capital reiterated its buy rating on Jack in the Box. Shares of the company have fallen for six straight sessions, due in part to a negative reaction by investors to Jack in the Box’s quarterly report last week. Loop Capital said in a note that the sell-off has created a “very attractive entry point.”
GE HealthCare — Shares added 0.2% after Wells Fargo initiated coverage of GE HealthCare with an overweight rating and $90 price target, which suggests 28% upside from Tuesday’s close. The Wall Street firm said the company’s Alzheimer’s drug Leqembi is a potential growth driver.
News Corp — Shares advanced 1% after Morgan Stanley resumed coverage of the media stock, saying shares should rise over the next two months.
Getty Images — The image platform’s stock slid 2.1% following an upgrade to outperform from in line by Imperial Capital. Imperial noted the company has a leading market position and can generate free cash flow.
Intel — Shares slid 3.6% after Intel announced Wednesday it will end its agreement to acquire Tower Semiconductor, citing a failure to obtain regulatory approvals in time. Intel is set to pay a $353 million termination fee to Tower. Shares of Tower Semiconductor tumbled 11%.
General Motors — General Motors declined 1.4% in midday trading. United Auto Workers President Shawn Fain said Tuesday that members have until Aug. 24 to authorize a strike if they don’t have a new contract agreement with the Big Three automakers by next month’s expiration of the current deal. He warned of slow progress in the union’s negotiations with automakers General Motors, Ford Motor and Stellantis.
— CNBC’s Sarah Min, Samantha Subin, Michelle Fox and Jesse Pound contributed reporting. More

Federal Reserve officials expressed concern at their most recent meeting about the pace of inflation and said more rate hikes could be necessary in the future unless conditions change, minutes released Wednesday from the session indicated.
That discussion during a two-day July meeting resulted in a quarter percentage point rate hike that markets generally expect to be the last one of this cycle.

However, discussions showed that most members worry that the inflation fight is far from over and could require additional tightening action from the rate-setting Federal Open Market Committee.
“With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” the meeting summary stated.
That latest increase brought the Fed’s key borrowing level, known as the federal funds rate, to a range targeted between 5.25%-5%, the highest level in more than 22 years. 
While some members have said since the meeting that they think the further rate hikes could be unnecessary, the minutes suggested caution. Officials noted pressure from a number of variables and stressed that future decisions will be based on incoming data.
“In discussing the policy outlook, participants continued to judge that it was critical that the stance of monetary policy be sufficiently restrictive to return inflation to the Committee’s 2 percent objective over time,” the document said.

Lots of uncertainty

Indeed, the minutes suggested considerable misgivings over the future direction of policy.
While there was agreement that inflation is “unacceptably high,” there also was indication “that a number of tentative signs that inflation pressures could be abating.”
“Almost all” the meeting participants, which includes nonvoting members, were in favor of the rate increase. However, those opposed said they thought the committee could skip a hike and watch how previous increases are impacting economic conditions.
“Participants generally noted a high degree of uncertainty regarding the cumulative effects on the economy of past monetary policy tightening,” the minutes said.
The minutes noted that the economy was expected to slow and unemployment likely will rise somewhat. However, staff economists retracted an earlier forecast that troubles in the banking industry could lead to a mild recession this year.

Real estate concern

But there was concern over problems with commercial real estate.
Specifically, officials cited “risks associated with a potential sharp decline in CRE valuations that could adversely affect some banks and other financial institutions, such as insurance companies, that are heavily exposed to CRE. Several participants noted the susceptibility of some nonbank financial institutions” such as money market funds and the like.
For the future of policy, members emphasized two-sided risks of loosening policy too quickly and risking higher inflation against tightening too much and sending the economy into contraction.
Recent data shows that while inflation is still a good distance from the central bank’s 2% target, it has made marked progress since peaking above 9% in June 2022.
For instance, the consumer price index, a widely followed measure of goods and services costs, ran at a 3.2% 12-month rate in July. The Fed’s favorite measure, the personal consumption expenditures price index excluding food and energy, stood at 4.1% in June.
However, policymakers worry that declaring victory too soon could repeat critical mistakes of the past. In the 1970s, central bankers raised rates to combat double-digit inflation, but backed off quickly when prices showed tentative signs of backing off.
Despite the intent of the hikes to slow down the economy, they’ve had seemingly little effect on overall growth.
GDP gains have averaged above 2% in the first half of 2023, with the economy on pace to rise another 5.8% in the third quarter, according to updated projections from the Atlanta Fed.
At the same time, employment growth has slowed some but still remains robust. The unemployment rate was at 3.5% in July, hovering around its lowest level since the late 1960s. Job openings have come in some from record levels but still far outnumber the pool of available workers.
Some Fed officials of late have indicated that while rate cuts are unlikely this year, increases could be over. Regional Presidents John Williams of New York and Patrick Harker of Philadelphia, for instance, both said last week they could see a pathway to holding the line here. Market pricing is strongly pointing to no additional hikes, with less than a 40% chance of another increase priced in before the end of the year, according to CME Group data. More