Finance

Editor’s note (August 10th, 2022): This article, originally published on August 5th, has been updated after the release of the latest consumer-price inflation figures.What a difference a couple of data points make. Much of the recent talk about America’s economy had focused on the possibility of stagflation, as gdp shrank and prices soared. Suddenly, though, things look rosier. First, on August 5th, statisticians reported that 530,000 jobs were created in the previous month—more than twice as many as expected. Then, on August 10th, they reported that consumer prices in July were the same as in June—the first absence of month-on-month inflation since early 2020. Could the doomsayers be wrong, and America really be about to enjoy both an economic boom and price stability?Not so fast. It is foolish to rush to any conclusion based on a week’s worth of data, especially amid the lingering covid-19 pandemic and war in Ukraine. Previous bursts of optimism have proved, unlike inflation, to be transitory. Moreover, a closer look at both reports gives as much reason for consternation as for celebration.Start with the jobs figures. America’s unemployment rate in July fell to 3.5%, matching a half-century low hit just before the pandemic. Normally that would have been greeted with unalloyed joy. But the ultra-strong labour market is a challenge for companies struggling to hire staff. Wages rose at an annual pace of 5.2% over the past three months, up from 4.7% in June. Meanwhile, the dominant factor in the drop in inflation was the recent fall in oil prices. Once volatile food and energy costs are stripped out, core inflation is still up by 5.9% compared with a year earlier. Taken together, the data cast a fresh light on a debate that has raged among economists this year: just how big a trade-off the Federal Reserve faces between inflation and jobs as it tightens monetary policy. Jerome Powell, the Fed’s chairman, has long insisted that present labour-market tightness may mean there is a path whereby companies can reduce their demand for new workers without large numbers ending up on the dole. In other words, the trade-off could be less severe than in previous periods of monetary tightening. One way of understanding the debate is to consider the non-accelerating inflation rate of unemployment (nairu), also known as the natural rate of unemployment. It refers to the lowest level of unemployment that an economy can sustain before wage inflation starts to accelerate. Not directly observable, it is based on estimates. The concept of the nairu was once central to economic analysis and to the Fed’s thinking about rates. But it fell out of favour before the pandemic when unemployment dipped below the assumed nairu range of 4-5.5% without any discernible pickup in inflation. In a strategic review published in 2020, the Fed indicated that the concept would no longer figure prominently in its policy decisions.However, the surge in inflation over the past year, alongside the sharp drop in joblessness, has put the nairu back in the spotlight. There is a good case that it shifted markedly higher early in the pandemic. In mid-2020 unemployment soared to almost 15%. As Brandyn Bok and Nicolas Petrosky-Nadeau of the San Francisco Fed have noted, such a jump would normally have warranted a bigger slowdown in inflation than actually occurred. The fact that there was no deflation implies that the natural rate of unemployment probably shifted higher. The researchers estimated that the nairu may have reached 8% in 2020, before edging down to 6% at the end of 2021. Now, the economy may be experiencing the flipside of an elevated nairu: higher-than-expected inflation as unemployment falls.Structural changes in the economy during covid help explain why the natural rate of unemployment may have increased. From the boom in delivery and warehouse work to the subsequent recovery in restaurant and travel work, employers’ staffing needs have evolved fast. Compounding that has been a change in what people expect from their jobs, epitomised by the shift to more remote working. One normal response from companies has been to offer higher wages.A gap between the measured unemployment rate of 3.5% and the estimated natural rate of 6% implies that wage growth is likely to remain strong in the coming months. That will feed through into core inflation, even if oil prices continue to fall. A pessimistic interpretation is that the Fed may have to keep raising rates until measured unemployment approaches the nairu. If so, millions of people would lose their jobs.A more hopeful interpretation is that the gap may ultimately be closed more by the nairu itself falling rather than by unemployment rising. After the Fed’s most recent rate rise in July, Mr Powell laid out this perspective: “Logically, if the pandemic and the disorder in the labour market caused the natural rate to move up, then as the labour market settles down, in principle you should see it move back down.”It is easy to see why the Fed no longer places the nairu on the pedestal that it once did. Not only is it invisible, it is also unstable, especially when the economy itself is in flux. Yet slippery as it is, it gets to the crux of today’s concerns. Workers may rejoice at evidence of rapid job growth and wage increases. Only when these occur alongside a continued deceleration of inflation will economists’ consternation give way to true celebration. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

The number of long-term unemployed fell by 269,000 last month, to 1.07 million people, below its pre-pandemic baseline, according to the U.S. Department of Labor July jobs report.
Long-term unemployment poses elevated financial risks for households. Unemployment benefits generally are no longer available and it becomes tougher to find a new job.

Long-term unemployment tumbled below its pre-pandemic level in July, the U.S. Department of Labor said Friday, as an unexpectedly strong showing of job gains buoyed workers broadly across the economy.
Long-term joblessness is a period lasting at least six months. Those without work that long are exposed to more financial risks, since they’ve generally exhausted eligibility for unemployment benefits and it becomes harder to find another job during lengthy unemployment spells.

The number of long-term unemployed fell by 269,000 in July, to 1.07 million people — less than the roughly 1.1 million people in February 2020, according to the Labor Department’s monthly jobs report.
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Further, 18.9% of all unemployed Americans in July were considered long-term unemployed — a significant reduction from the 22.6% share in June and less than the 19.1% pre-pandemic share in February 2020, according to the agency.
By comparison, a year ago, in July 2021, more than 39% of all out-of-work Americans had been jobless for at least six months.
“Long-term unemployment was a serious concern earlier in the recession,” said Daniel Zhao, lead economist at career site Glassdoor. “We had this experience during the Great Recession where it was very difficult to get workers back into the labor force and back to jobs.”

Arrows pointing outwards

Long-term joblessness can lead to ‘scarring’

The rapid recovery of long-term joblessness from its pandemic-era highs — when 43% of all unemployed were out of work long-term — serves as a reminder that a quick recovery is possible, which can “help mitigate the risks of labor-market scarring,” Zhao added.
That “scarring” effect refers to the greater difficulty of returning to work after being out of a job for a long time. Workers can lose skills and their job networks may fray, for example, the longer they’re out of work. Research has also shown that, even if workers find new employment, they face negative financial side effects from that long-term joblessness in the form of lower lifetime earnings.
The overall unemployment rate in July fell to its pre-pandemic level of 3.5% — which had been the lowest unemployment rate since 1969.
U.S. employers added 528,000 jobs last month, fully recovering the roughly 22 million jobs lost during March and April of 2020.  

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Check out the companies making headlines before the bell:
Expedia (EXPE) – The travel website operator’s stock jumped 5.4% in the premarket after Expedia beat top and bottom line estimates in its latest quarterly report. Travel demand was strong, with lodging revenue up 57% from a year ago and airline ticket revenue up 22%.

Block (SQ) – Shares of the payment service company slid 6.4% in premarket trading even though it reported better-than-expected quarterly results. The drop comes as Block reports a 34% drop in revenue at its Cash App unit.
Lyft (LYFT) – The ride-hailing service’s stock rallied 7.5% in premarket action after it reported an unexpected quarterly profit and saw ridership rise to the highest levels since before the pandemic. Lyft said its results were also helped by cost controls.
DoorDash (DASH) – DoorDash surged 10.3% in the premarket after the food delivery service raised its forecast for gross order value, a key metric. DoorDash did report a wider-than-expected quarterly loss, but revenue was above Wall Street forecasts.
DraftKings (DKNG) – The sports betting company reported better-than expected-revenue and adjusted earnings for its latest quarter, and it also raised its full-year revenue forecast. DraftKings shares rallied 8.2% in premarket action.
AMC Entertainment (AMC) – The movie theater operator’s stock fell 9% in the premarket after it said it would issue a stock dividend to all common stock shareholders in the form of preferred shares. Separately, AMC reported a slightly wider-than-expected quarterly loss.

Warner Brothers Discovery (WBD) – The media company’s stock slumped 11.6% in premarket trading after it reported a quarterly loss and revenue that came in below Wall Street forecasts.
Beyond Meat (BYND) – The maker of plant-based meat alternatives reported a wider-than-expected quarterly loss and revenue that missed analyst estimates. Beyond Meat also announced it would lay off 4% of its global workforce. The stock fell 3.6% in premarket action.
Carvana (CVNA) – Carvana shares jumped 8.4% in premarket trading after the online used vehicle seller said it was “aggressively” cutting costs as it prepares for a possible economic downturn.
Virgin Galactic (SPCE) – Virgin Galactic tumbled 14.2% in the premarket after announcing a delay in the commercial launch of space flights to the second quarter of 2023. Virgin Galactic also said that it would sell up to $300 million in shares to boost its cash reserves.

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Crypto startup Nomad this week lost around $190 million in a devastating security exploit.
Nomad is offering hackers involved a bounty of up to 10% on any funds returned to the company.
The company said it has so far recouped more than $20 million of the haul.

Over $2 billion has been stolen from cross-chain bridges so far this year, according to crypto analysis firm Chainalysis
Jakub Porzycki | Nurphoto via Getty Images

Crypto company Nomad said it’s offering hackers a bounty of up to 10% to retrieve user funds after losing nearly $200 million in a devastating security exploit.
Nomad pleaded with the thieves to return any funds to its crypto wallet. In a statement late Thursday, the company said it has so far recouped more than $20 million of the haul.

“The bounty is for those who come forward now, and for those who have already returned funds,” Nomad said.
Nomad said it won’t take legal action against any hackers who return 90% of the assets they took, as it will consider these individuals to be “white hat” hackers. White hats are like the “ethical hackers” in the cybersecurity world. They cooperate with organizations to alert them to issues in their software.
It comes after a vulnerability in Nomad’s code allowed hackers to make off with around $190 million worth of tokens. Users were able to enter any value into the system and then withdraw the funds, even if there weren’t enough assets available on deposit.
The nature of the bug meant users didn’t need any programming skills to exploit it. Once others caught on to what was going on, they piled in and carried out the same attack.

Nomad said it is working with blockchain analysis firm TRM Labs and law enforcement to trace the stolen funds and identify the perpetrators behind the attack. It is also working with Anchorage Digital, a licensed U.S. bank focused on the safekeeping of cryptocurrencies, to store any funds that get returned.

The weakest link

Nomad is what’s called a crypto “bridge,” a tool that links different blockchain networks together. Bridges are a simple way for users to transfer tokens from one blockchain to another — say, from ethereum to solana.
What happens is users deposit some tokens, and the bridge then generates an equivalent amount in “wrapped” form on the other end. Wrapped tokens represent a claim on the original, which users can trade on platforms other than the one they were built on.
Given the sheer quantity of assets locked inside bridges — plus bugs making them vulnerable to attacks — they’re known to be an appealing target for hackers.
“Currently those bridges accumulate a lot of money,” Adrian Hetman, tech lead at crypto security firm Immunefi, told CNBC.
“When there is a lot of money in certain places hackers are prone to find vulnerability there and steal that money.”
The Nomad attack was the eighth-largest crypto hack of all time, according to blockchain analysis firm Elliptic. There were more than 40 hackers involved, one of whom gained just under $42 million, Elliptic said.
The exploit brings the total amount stolen from cross-chain bridges this year to over $2 billion, according to crypto security firm Chainalysis. Out of 13 separate hacks, the largest was a $615 million attack on Ronin, a network linked to the controversial crypto game Axie Infinity.
In a separate hack Tuesday, around $5.2 million in digital coins was stolen from nearly 8,000 wallets connected to the solana blockchain.

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Mainland China and Hong Kong accounted for 42% of Taiwan’s exports last year, while the U.S. had a 15% share, according to official Taiwan data accessed through Wind Information.
About 22% of Taiwan’s imports last year came from mainland China and Hong Kong, versus 10% from the U.S., official data showed.
Many Taiwan-based companies operate factories in mainland China. In 2021, Taiwan businesses received $200.1 billion in U.S. export orders, according to the U.S. Congressional Research Service.

Aerial photograph of shipping containers at the harbor in Keelung, Taiwan. Data show that Taiwan depends more on China for trade than it does on the U.S.
Sam Yeh | Afp | Getty Images

BEIJING — Data show that Taiwan depends more on China for trade than it does on the U.S., even if U.S. House Speaker Nancy Pelosi threw her weight behind Taiwan this week in a high-profile visit.
Taiwan came under military and economic pressure from Beijing this week, after the democratically self-ruled island allowed the visit of Pelosi — the highest-ranking U.S. official to set foot on Taiwan in 25 years.

The visit came despite warnings from China, which considers Taiwan part of its territory and maintains the island should have no right to conduct foreign relations. The U.S. recognizes Beijing as the sole legal government of China, while maintaining unofficial relations with Taiwan.
Still, Taiwan’s business and economic ties with mainland China and Hong Kong have grown so large that the region is by far the island’s largest trading partner.
Many large Taiwanese companies in high-tech industries such the world’s biggest chipmaker — Taiwan Semiconductor Manufacturing Co., or TSMC. — operate factories in mainland China.
Last year, mainland China and Hong Kong accounted for 42% of Taiwan’s exports, while the U.S. had a 15% share, according to official Taiwan data accessed through Wind Information.

In all, Taiwan exported $188.91 billion in goods to mainland China and Hong Kong in 2021. More than half were electronic parts, followed by optical equipment, according to Taiwan’s Ministry of Finance.

Taiwan’s exports to Southeast Asia were even greater than those to the U.S. — at $70.25 billion to the region, versus $65.7 billion to the U.S., the data showed.
As a source of Taiwan’s imports, mainland China and Hong Kong again ranked first with a 22% share. The U.S. only had a 10% share, ranking behind Japan, Europe and Southeast Asia.

Growing trade with mainland China

In recent years, Taiwan has bought an increasing amount of products from mainland China, and vice versa.
Over the last five years, Taiwan’s imports from mainland China have surged by about 87% versus 44% growth in imports from the U.S.
Taiwan’s exports to mainland China grew by 71% between 2016 and 2021. But exports to the U.S. nearly doubled, growing by 97%.

Read more about China from CNBC Pro

Comparable to Shanghai

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A recent trend in the exchange-traded funds market suggests bond demand is far from cooling.
Corporate, government and high-yield bond ETFs saw inflows last month after lower bond prices and higher yields contributed to the deceleration of fund outflows in May.

Andrew McOrmond of WallachBeth Capital, an institutional execution service provider, believes the inflows can be attributed to short-term selling or cash investors want to put to work. 
“It’s been people dipping their toes into the water,” the managing director told CNBC’s “ETF Edge” on Monday. “You’re coming out of what’s going to be a U-shaped recovery, I believe. It might already be if you compare it to Covid, which was a clear V [recovery].”
It’s a strategy that should continue to pay off for investors as they “play the recovery,” according to McOrmond. However, at some point they may want to shift to equity ETFs, too.
It’s not just bond ETFs, it’s equity ETFs too
Meanwhile, equity ETFs saw somewhat flat flows despite dividend funds’ increasing popularity among investors.

Ben Slavin, global head of ETFs at BNY Mellon, recommended the Invesco S&P 500 High Dividend Low Volatility ETF as an option for investors looking to mitigate risks.
“It’s a way to play this market more defensively but also try to collect some income in a way that really avoids some of the risk, or the perceived risk, in the bond market,” Slavin said in the same interview.
Inflows last month show ETF structure dominance, Slavin added. The ETF market saw inflows as mutual funds experienced notable outflows. 
Slavin notes investors demonstrated little conviction on how to trade bonds and equities amid reported flows. However, some still uphold interest in actively-managed, fixed-income investments.
“Actively-managed fixed income is starting to attract more attention where at least certain retail investors and maybe to some degree some professionals, as well, are just saying, ‘I’ll leave it to an actively managed product or professionals,” Slavin said.
Disclosure: Ben Slavin’s firm provides asset servicing for the Invesco S&P 500 High Dividend Low Volatility ETF.
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Visa and Mastercard have suspended card payments for advertising on Pornhub and its parent company MindGeek.
A federal judge in California on Friday denied Visa’s motion to dismiss a lawsuit by a woman who accuses the payment processor of knowingly facilitating the distribution of child pornography on Pornhub and other sites operated by parent company MindGeek.
Visa CEO and Chairman Al Kelly said he strongly disagrees with the court’s decision and is confident in his position. 
However, the court decision created uncertainty about the role of TrafficJunky, MindGeek’s advertising arm, so the company will suspend its Visa acceptance privileges until further notice, Kelly said.
Mastercard also cited new revelations from the case for its decision.

Visa and Mastercard said Thursday card payments for advertising on Pornhub and its parent company MindGeek would be suspended after a lawsuit stoked controversy over whether the payments giants could be facilitating child pornography.
A federal judge in California on Friday denied Visa’s motion to dismiss a lawsuit by a woman who accuses the payment processor of knowingly facilitating the distribution of child pornography on Pornhub and other sites operated by parent company MindGeek.

Visa CEO and Chairman Al Kelly said in a statement Thursday that he strongly disagrees with the court and is confident in his position. 
“Visa condemns sex trafficking, sexual exploitation, and child sexual abuse,” Kelly said. “It is illegal, and Visa does not permit the use of our network for illegal activity. Our rules explicitly and unequivocally prohibit the use of our products to pay for content that depicts nonconsensual sexual behavior or child sexual abuse. We are vigilant in our efforts to deter this, and other illegal activity on our network.”
Kelly said the court decision created uncertainty about the role of TrafficJunky, MindGeek’s advertising arm, and accordingly, the company will suspend its Visa acceptance privileges until further notice. During this suspension, Visa cards will not be able to be used to purchase advertising on any sites, including Pornhub or other MindGeek-affiliated sites, Kelly said.
“It is Visa’s policy to follow the law of every country in which we do business. We do not make moral judgments on legal purchases made by consumers, and we respect the rightful role of lawmakers to make decisions about what is legal and what is not,” Kelly said. “Visa can be used only at MindGeek studio sites that feature adult professional actors in legal adult entertainment.”
Separately, Mastercard told CNBC it’s directing financial institutions to suspend acceptance of its products at TrafficJunky following the court ruling. 

“New facts from last week’s court ruling made us aware of advertising revenue outside of our view that appears to provide Pornhub with indirect funding,” a statement from Mastercard said. “This step will further enforce our December 2020 decision to terminate the use of our products on that site.”
At that time, Visa also suspended sites that contained user-generated content, and acceptance on those sites has not been reinstated. 
The woman is suing Visa and MindGeek over a sexually explicit video her boyfriend filmed of her when she was 13 years old.
U.S. District Judge Cormac Carney, of the Central District of California in Santa Ana, said Visa made the decision to continue to recognize MindGeek as a merchant, despite its alleged knowledge that MindGeek monetized child porn.
Hedge-fund manager Bill Ackman recently spoke out about the controversy, calling on Visa to pressure Pornhub to remove child pornography from its site.
MindGeek told CNBC it has never tolerated child sexual abuse material or any other illegal material.
“Recently, allegations have been made that MindGeek knowingly allowed and monetized [child sexual abuse material]. These assertions are reckless and, more importantly, absolutely false,” a spokesperson at MindGeek said in a statement. “In many cases, these falsehoods have been propagated by groups whose stated agenda is to shut down the adult entertainment industry.”

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A DoorDash sign is pictured on a restaurant on the day they hold their IPO in New York, December 9, 2020.
Carlo Allegri | Reuters

Check out the companies making headlines after the bell: 
DoorDash — Shares of the food delivery company popped 12% after a revenue beat. DoorDash reported revenue of $1.61 billion in the second quarter, higher than the $1.52 billion analysts were expecting, according to Refinitiv. DoorDash said the total number of orders it delivered grew 23% year over year to 426 million, an all-time high. It did report a loss larger than expected for the quarter, however.

Beyond Meat — The alternative meat producer’s shares fell more than 2% after the company lowered its revenue forecast for 2022. Beyond Meat also announced it will trim its workforce by 4%, citing broader economic uncertainty. Beyond reported second-quarter net loss of $97.1 million, or $1.53 per share, wider than a net loss of $19.7 million, or 31 cents per share, a year earlier.
AMC Entertainment — Shares of the movie theater chain dropped 4% after the company said it plans to issue a dividend to shareholders in the form of preferred shares listed on the NYSE under the ticker APE. The name is a nod to its retail investors who supported the company during the meme-stock mania.
Virgin Galactic — The space stock tumbled more than 7% in after-hours trading after the company’s quarterly report. Virgin Galactic posted a net loss of $111 million in the second quarter, compared to a $94 million net loss in the same period a year ago. The company also delayed its commercial service launch to the second quarter of 2023.
Warner Bros. Discovery — Shares of the media giant fell 9% after the combined company disclosed a total direct-to-consumer subscriber base of 92.1 million. It marked the first time the company reported quarterly earnings since WarnerMedia and Discovery merged earlier this year.

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