Finance

Goldman is close to announcing that it is the first major U.S. bank to trade an over-the-counter crypto transaction, CNBC has learned.
Goldman traded a bitcoin-linked instrument called a non-deliverable option with crypto merchant bank Galaxy Digital, according to the two firms.
The move is seen as a notable step in the development of crypto markets for institutional investors, in part because of the nature of OTC trades. Compared to the exchange-based CME Group bitcoin products that Goldman began trading last year, the bank is taking on greater risk by acting as a principal in the transactions, according to the firms.
“This trade represents the first step that banks have taken to offer direct, customizable exposures to the crypto market on behalf of their clients,” said Galaxy co-president Damien Vanderwilt.

A Goldman Sachs Group Inc. logo hangs on the floor of the New York Stock Exchange in New York, U.S., on Wednesday, May 19, 2010.
Daniel Acker | Bloomberg | Getty Images

Goldman Sachs is pushing further into the nascent market for derivatives tied to digital assets.
The firm is close to announcing that it is the first major U.S. bank to trade an over-the-counter crypto transaction, CNBC has learned. Goldman traded a bitcoin-linked instrument called a non-deliverable option with crypto merchant bank Galaxy Digital, according to the two firms.

The move is seen as a notable step in the development of crypto markets for institutional investors, in part because of the nature of OTC trades. Compared to the exchange-based CME Group bitcoin products that Goldman began trading last year, the bank is taking on greater risk by acting as a principal in the transactions, according to the firms.
That Goldman, a top player in global markets for traditional assets, is involved is a signal of the increased maturity of the asset class for institutional players like hedge funds, according to Galaxy co-president Damien Vanderwilt.
“This trade represents the first step that banks have taken to offer direct, customizable exposures to the crypto market on behalf of their clients,” Vanderwilt said in an interview.
The options trades are “much more systematically-relevant to markets compared to cleared futures or other exchange-based products,” Vanderwilt said. “At a high-level, that’s because of the implications of the risk banks are taking on; they’re implying their trust in crypto’s maturity to date.”
Hedge funds have been seeking derivative exposure to bitcoin, either to make wagers on its price without directly owning it, or to hedge existing exposure to it, the firms said. The market for these instruments is mostly controlled by crypto-native firms including Galaxy, Genesis and GSR Markets.

“We are pleased to have executed our first cash-settled cryptocurrency options trade with Galaxy,” Max Minton, Goldman’s Asia Pacific head of digital assets, said in a statement. “This is an important development in our digital assets capabilities and for the broader evolution of the asset class.”
The bank has seen high demand for options tied to digital assets, Goldman’s global head of crypto trading Andrei Kazantsev said in December.
“The next big step that we are envisioning is the development of options markets,” he said.

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Chinese authorities are trying to maintain their zero-Covid strategy that used swift lockdowns to help the economy grow in 2020.
But local officials now face multiple challenges at once: Keeping jobs whose performance hinges on controlling Covid outbreaks, limiting the spread of a highly transmissible variant and supporting enough growth to achieve the national GDP target of “around 5.5%.”
China’s steel-making hub of Tangshan city ordered that as of Sunday, all non-emergency vehicles —which would include trucks for transporting steel — are banned from local roads, except for those that obtain special approval.

A worker wearing personal protective equipment disinfects a truck entering JD.com’s logistics park in Shanghai, China, on Wednesday, March 9, 2022.
Qilai Shen | Bloomberg | Getty Images

BEIJING — As some parts of China reopen, others are imposing new Covid-related restrictions, reflecting the challenge government officials face in controlling the worst outbreak since early 2020.
Chinese authorities are trying to maintain their zero-Covid strategy that used swift lockdowns to help the economy grow in 2020. Beijing has increasingly emphasized how the strategy needs to be “dynamic.”

But local officials now face multiple challenges at once: Keeping their jobs whose performance hinges on controlling Covid outbreaks, limiting the spread of a highly transmissible variant and supporting enough growth to achieve the national GDP target of around 5.5% set by Beijing.
“Officials at all levels must give top priority to epidemic response,” according to a readout Friday of a top-level government meeting chaired by Chinese President Xi Jinping.

“Anyone who fails to perform their duties and responsibilities and thus leads to a drastic escalation will be investigated and held to account right away in accordance with discipline and regulations,” the readout said.
Dozens of local Chinese officials have lost their jobs or received punishments after failing to prevent the latest spike of cases.
Mainland China’s new daily Covid cases remained well above 1,000 over the weekend, with hundreds of asymptomatic ones.

The northern province of Jilin reported Friday the first two deaths in the latest Covid wave, which stems primarily from the highly transmissible omicron variant. The number of new cases and deaths is still low compared with other major countries.

Testing, road controls cause delays

On the economic front, regions are affected by business disruptions and uncertainty, even if stricter Covid controls don’t necessarily halt production outright.
China’s steel-making hub of Tangshan city ordered that as of Sunday, all non-emergency vehicles are banned from local roads, except for those that obtain special approval. Several districts ordered residents to stay home and told businesses such as gyms to close.
There was no specific order for steel mills. But Chinese financial news outlet Cailian reported, citing locals, that Tangshan’s steel trade and logistics businesses had stopped work, while some producers had retained a few workers for basic production.
Tangshan reported nine confirmed Covid cases this weekend.
In southern China, the tech and manufacturing city of Shenzhen has kept ports open despite orders last week to halt other business activity and factory production.
Shipping giant Maersk said late last week Covid testing requirements for truck drivers and stricter road control between Shenzhen and nearby cities means trucking services in the area will likely “be severely impacted by 40%.” That’s up from the company’s assessment a few days earlier of a 30% impact.
“Consequently, there will be longer delivery time and a possible rise in transport costs such as detour fee and highway fee,” Maersk said.

‘One policy per business’

Shenzhen reported 82 new cases over the weekend — relatively high for China. However, municipal authorities declared Sunday that the outbreak was “controllable.” They announced the city would resume “normal” operations and production Monday, including public transportation.
It’s less clear how normal life can be in practice. The city said anyone taking public transit must show a negative virus test taken within the last 48 hours.
Some neighborhoods remain under lockdown, and non-essential businesses are to remain shut, the city said. Authorities told parents to help their children with online learning — without making it clear whether businesses would allow employees to work from home.

Read more about China from CNBC Pro

Similarly, in a southern manufacturing center of Dongguan, local authorities emphasized the need for “targeted” Covid control measures, including “one policy per business” or factory.
Dongguan’s city-wide lockdown measures announced last Tuesday are set to expire at the end of Monday, although public transit resumed operations on Friday.
The city reported a total of two new confirmed Covid cases over the weekend.
Shanghai has taken one of the most targeted lockdown policies in China, as authorities seek to balance economic growth with Covid control. The city reported 41 new confirmed cases for the weekend.
However, the outbreak is still taking its toll on big businesses. Shanghai Disney Resort announced it would be closed from Monday until further notice due to the pandemic.

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Steven Birdsall, chief revenue officer of Anaplan Inc., left, and Frank Calderoni, president and chief executive officer of Anaplan Inc., center, talk to a trader during the company’s initial public offering on the floor of the New York Stock Exchange in New York on Oct. 12, 2018.
Michael Nagle | Bloomberg | Getty Images

U.S. stock futures were steady in overnight trading on Sunday after the S&P 500’s best week since 2020.
Dow futures edged up 15 points. S&P 500 futures rose 0.04% and Nasdaq 100 futures were flat.

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Last week, the three major averages notched their best week since November 2020, boosted largely by growth stocks. The S&P 500 surged 6.1% from Monday to Friday. The Dow Jones Industrial Average ended the week 5.5% higher, and the technology-focused Nasdaq Composite spiked 8.1%.
“After one of the best weeks in years, now the question is will stocks be able to hold those gains? One bit of good news is April is historically one of the best months for stocks, so the calendar remains a positive for the bulls,” said Ryan Detrick of LPL Financial.
The S&P 500 recouped nearly half of its correction losses last week as investors received highly anticipated clarity from the Federal Reserve, which raised interest rates for the first time since 2018. The central bank signaled it expects to raise rates at its remaining six meetings this year. 
“I think the stage has been set by the Fed for investors to focus on earnings again,” said Julian Emanuel, head of equities, derivatives and quantitative strategy at Evercore ISI. “Bottom line…earnings estimates since the beginning of the year have risen.”
Market participants are also monitoring the war between Russia and Ukraine. Ukraine’s President Volodymyr Zelenskyy warned that if peace talks with Russian leader Vladimir Putin fail, it would mean the start of a third global war.

“If these attempts fail, that would mean that this is a third world war,” Zelenskyy said in an interview with CNN’s Fareed Zakaria that aired Sunday morning.
Ukrainian and Russian officials have met intermittently for peace talks, which have failed to progress to key concessions.
Investors are also evaluating a rise in Covid cases in Europe stemming from an emerging variant.
The economic calendar is relatively light this week but several companies report earnings. Nike and Tencent Music report quarterly results on Monday.
—CNBC’s Patti Domm contributed to this report.

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ALMOST A MONTH after Russia’s invasion of Ukraine sent the oil price surging, the turbulence in one of the world’s most crucial commodities markets shows little sign of coming to an end. The price of a barrel of Brent crude oil was around $108 on March 18th, still higher than its level when the war began, of about $94. But over the past fortnight it has whipsawed from a peak of $128 to as low as $98. The pandemic-related chaos of 2020 aside, the OVX index of oil-market volatility has rarely been higher in the past decade than it has been this month.The swings reflect the interplay between the geopolitical and economic forces buffeting the world today, from war to rising interest rates and covid-19. Even beyond the outcome of the conflict in Ukraine, there are three big sources of uncertainty for the oil market.The first is what the members of the Organisation of the Petroleum Exporting Countries (OPEC) do as the West’s sanctions bite and Russian production is shunned. America has banned imports of Russian oil; even in countries that have not taken the same step, prospective buyers are struggling to transact with the Russian financial intermediaries that have been cut off from the plumbing of global finance as a result of sanctions, and may fear fresh sanctions to come.On March 16th the International Energy Agency, an industry forecaster, said that international markets could face a shortfall of 3m barrels of oil per day from April as a consequence. (The world consumed about 98m barrels a day last year.) The disruption in what was once a fluid global market is best illustrated by the gap between the prices of the Brent benchmark and Urals oil. On January 31st it stood at about 60 cents per barrel. By March 18th it had widened to nearly $30.This leaves a great deal of power in the hands of the two countries that are most able to offset a chunk of the Russian shortfall: Saudi Arabia and the United Arab Emirates. So far, both have resisted pleas to raise output substantially. At a meeting in early March, OPEC and its allies (including Russia) merely confirmed their existing plans to raise overall output by 400,000 barrels per day. Their next gathering, at the end of this month, will be watched closely. With so much influence in the hands of two governments in particular, even small shifts in public pronouncements have the potential to set off swings in the oil price.The second seam of uncertainty relates to the capacity of American shale-oil production to meet the supply shortfall. During the first fracking boom, which lasted from around 2010 to 2015, American output surged, causing the oil price to slump and weakening OPEC‘s hand. But conditions in the American economy have changed dramatically since, leaving analysts and industry insiders doubtful that shale can rise to the challenge.For a start, financing conditions are less encouraging than they were during the production boom in 2010-15. The Federal Reserve is expected to raise interest rates several times this year and next: two-year Treasury yields are just shy of 2%, compared with the sub-1% levels that persisted during most of the past boom. Another constraint on production comes from America’s tight labour market. There were just over 128,000 people employed in oil-and-gas extraction in America in February, down from more than 200,000 in late 2014. With the headline unemployment rate at 3.8% and employers struggling to fill existing vacancies already, finding several tens of thousands of workers to move across the country will be no mean feat.The industry’s attitudes have also shifted. Both American producers and their potential creditors are now far more cautious about borrowing. Banks and asset managers are bound by stricter environmental standards. That is one factor driving costs higher. In the final quarter of last year, energy-exploration and production firms reported the steepest increase in lease-operating expenses (ie, the recurring costs of operating wells) in at least six years, according to a survey by the Dallas Fed. Drillers themselves, having struggled to make consistent profits in the past, are far keener on capital discipline this time, too.The third and perhaps most vexing component of the volatility in the oil price is to do with demand. China’s “zero-covid” strategy is being tested to an extreme degree. The country has recorded its highest numbers of cases since the pandemic began, and tens of millions of people are locked down in Shanghai and Shenzhen, two prosperous cities and important export hubs. Platts Analytics, a commodities-research house, suggests that the restrictions could cut oil demand by 650,000 barrels per day in March, roughly equivalent to Venezuela’s oil output.Even before the lockdowns began, there were worrying signs of a slowdown in China’s economy, particularly in the property sector. Land-sales revenue, the fuel on which Chinese local governments run, plunged by 30%, year on year, in January and February. The Hang Seng Mainland Properties Index of developers’ stocks recently touched a near-five-year low, and has declined by around 50% since the start of the pandemic. The authorities, meanwhile, are torn between their campaign to rein in leverage in the property sector, and their desire to keep the economy growing at a steady clip. Any sign that the slowdown in the world’s biggest importer of energy is becoming broad-based would mean more tumult in commodities markets.The machinations of OPEC, the shale calculus in America, and the health of the Chinese economy: if the heightened volatility in the oil market is to recede, then these sources of uncertainty will have to abate. Any one of these factors would usually be sufficient to generate wild price swings. Together, they make a volatile mix.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

Shoppers wait for a GameStop store to open on at the Tysons Corner Center, in Tysons, Virginia, November 27, 2020.
Hannah McKay | Reuters

Check out the companies making headlines in midday trading Friday.
GameStop — Shares of the video game retailer gained about 3.5%, erasing big overnight losses, as investors looked past the company’s unexpected loss during the holiday quarter. GameStop said it’s launching a new marketplace for nonfungible tokens, or NFTs, by the end of the second quarter.

FedEx — FedEx shares fell nearly 4% after the company missed earnings estimates for the quarter. The company beat on revenue but said worker shortages amid the omicron variant outbreak hurt its bottom line.
Tesla — Shares gained 4% after Morgan Stanley reiterated its overweight rating on Tesla. The call came after CEO Elon Musk tweeted that he was “Working on master plan part 3.” Morgan Stanley said it sees “Part 3 as mass industrialization, a network flywheel and ‘connecting the dots’ across adjacent TAMs.”
Moderna — Shares of Moderna rose 6% on news that it is seeking FDA approval for a second Covid-19 booster shot for adults 18 years or older. Pfizer and its partner BioNTech requested approval for a Covid-19 booster for those 65 and older this week.
Rent the Runway — Shares of the fashion rental company soared 19% after Jefferies initiated coverage of the company with a buy rating, noting the company’s high barrier to entry could help it drive as much as 50% top-line growth. Jefferies also initiated coverage of the RealReal, Farfetch and ThredUp with buy ratings. The stocks rose 8%, 5% and 4%, respectively.
Joann — The craft retailer’s stock fell 6% after the company reported disappointing quarterly sales for the previous quarter. Joann also saw a $60 million increase in ocean freight costs last year — one of many supply chain disruptions. Piper Sandler downgraded the retailer to neutral from overweight.

Wingstop — Shares of the chicken wings restaurant franchise were flat after falling nearly 5% in midday trading as Piper Sandler downgraded the stock to underweight from overweight. The firm expects the stock to experience resistance in the near term.
MongoDB — Shares of the tech company rose nearly 7% after an upgrade to buy from UBS. The investment firm said in a note to clients that the company is gaining more traction with customers.
Garmin — The consumer electronics stock gained 2.7% on the heels of an upgrade to buy from Bank of America. The recent pullback in the stock makes Garmin a buy the dip candidate considering its strong fundamentals, Bank of America said in a note to clients.
U.S. Steel — Shares of U.S. Steel fell nearly 5% after issuing weaker-than-expected guidance for the quarter, The company cited increasing raw materials costs as one of the contributors.
— CNBC’s Yun Li, Jesse Pound, Hannah Miao and Maggie Fitzgerald contributed reporting

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U.S. gas prices are up more than $1 a gallon, on average, since the start of the year, according to the U.S. Energy Information Administration.
Lower-income households spend more of their budgets on transportation (and other necessities) than higher earners, according to economists.

Luke Sharrett/Bloomberg

High gasoline prices are impacting all American drivers — but low-income households bear the brunt of it.
That’s because low earners funnel a bigger share of their budgets to transportation costs and other staples, like food and energy, relative to wealthier households.

U.S. gas prices had jumped to $4.32 a gallon, on average, as of March 14, up more than $1 a gallon from the beginning of 2022, according to the U.S. Energy Information Administration.
The war in Ukraine has led already high oil prices to spike, trickling down to consumers at the pump, though prices have fallen a bit from recent highs.

“You’re seeing a lot of poor people — especially the rural poor driving a lot — getting hit harder,” said Kent Smetters, an economist at the University of Pennsylvania and faculty director of the Penn Wharton Budget Model.
Federal data from the U.S. Bureau of Labor Statistics bears out this pattern.
In 2019, Americans spent 3.3% of their budgets (almost $2,100) on gasoline, motor oil and other fuels, on average. (Gasoline accounts for more than 90% of this category, Smetters said.)

But those with $30,000 to $40,000 of annual pre-tax income spent a larger portion (4.1%) of their budgets at the pump, on average — about $1,700 total.
Gasoline spending as a share of annual expenditures skews downward as income grows, data show.

For example, gasoline costs accounted for 2% of overall spending for those with more than $200,000 of income, on average. That’s half the share of the $30,000-$40,000 group. (The dollar total amount of spending was nearly double, at $3,300).
(While 2020 federal data was the latest available, 2019 statistics offer a more accurate analysis since the pandemic distorted gasoline consumption, Smetters said.)
The gasoline-spending trend may not seem readily apparent for the lowest earners. For example, those with less than $15,000 of annual income spent 3.7% of their budgets on gas in 2019, on average — the same share as households earning $70,000 to $100,000 a year.
However, that dynamic results from car ownership. Low earners own fewer cars, on average, and therefore fewer of those households use gasoline, skewing down the group’s average expenditures.  
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“The $15,000 [group] is low-income enough that a lot of them live in urban areas and do not own a car,” Smetters said.
Just 61% of households in the lowest-income group own or lease a vehicle, as do 82% of those with $15,000 to $30,000 of income. More than 90% of other households own a vehicle.
Higher earners also have more cars, on average. The lowest earners own or lease one vehicle, on average, while those earning more than $100,000 a year have nearly three.

Gasoline perspective

Robbie Goodall | Moment | Getty Images

Some may view a 2-percentage-point difference between high and low earners in the share of annual gasoline outlays as negligible.
However, here’s one way to think about that difference: It’s about equal to the amount of money that lower-income households spend on meats, poultry, fish and eggs, Smetters said.
“Put differently, if lower-income households could spend the same share on gas (and other fuels) as higher-income households, then lower-income households could double their intake of these proteins,” Smetters said.
The 2019 expenditure data is a good indicator of spending but doesn’t necessarily reflect household expenses in the current environment.

Households may adjust to higher prices by driving less to limit the dent on their wallets. (That’s not possible for everyone though, especially those who drive to work and can’t work from home; low earners are less likely than wealthier Americans to be able to work remotely.)
The sticker price for gasoline hit an all-time this month. However, it’s not a record high when accounting for inflation over the decades — most recently, prices at the pump were higher in 2008, 2011 and 2012, when gasoline topped out at about $5.31, $4.98 and $4.86 a gallon in today’s dollars, respectively, according to a CNBC analysis of federal data.

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Christopher Waller, U.S. President Donald Trump’s nominee for governor of the Federal Reserve, speaks during a Senate Banking Committee confirmation hearing in Washington, D.C., U.S, on Thursday, Feb. 13, 2020.
Andrew Harrer | Bloomberg | Getty Images

Federal Reserve Governor Christopher Waller told CNBC on Friday that the central bank may need to enact one or more 50-basis-point interest rate hikes this year to tame inflation.
Though he voted this week for just a 25-basis-point move due to uncertainty from the Russian invasion of Ukraine, Waller said he thinks the Fed may need to be more aggressive soon.

“I really favor front-loading our rate hikes, that we need to do more withdrawal of accommodation now if we want to have an impact on inflation later this year and next year,” he told CNBC’s Steve Liesman during a live “Squawk Box” interview. “So in that sense, the way to front-load it is to pull some rate hikes forward, which would imply 50 basis points at one or multiple meetings in the near future.”
In addition to the rate hikes, Waller said he thinks the Fed needs to start reducing its bond holdings soon.
The central bank balance sheet has ballooned to just over $9 trillion, and officials are preparing the process to start rolling off some of their holdings. Waller said that process should start “in the next meeting or two.”
“We’re in a different place than we were before,” he said. “We have a much bigger balance sheet, the economy’s in a much different position. Inflation is raging. So, we’re in a position where we could actually draw down a large amount of liquidity out of the system without really doing much damage.”
Waller’s comments came less than two hours after one of his colleagues, St. Louis Fed President James Bullard, said the Fed should raise rates in total at least 300 basis points this year. A basis point is 0.01 percentage point.

Bullard was one only policymaker this week to vote against the quarter-point increase, saying the Fed should have gone by half a point as part of a deliberate policy aimed at curbing inflation running at 40-year highs.
Prior to the meeting, Waller also had been pushing for a 50 basis point move, but said he had a change of heart for now.
“The data’s basically screaming at us to go 50, but the geopolitical events were telling you to go forward with caution,” he said. “So those two factors combined pushed me off of advocating for a 50-basis-point hike and supporting the 25-point hike that we enacted.”
The full Federal Open Market Committee also pointed to rate hikes that would push the benchmark fed funds rate, which banks charge each other for overnight lending, to 1.75% by year’s end.
Waller said he believes the Fed should shoot a little higher than that. He did not specify by how much but said he thinks the “neutral rate” that is neither stimulative nor restrictive is between 2%-2.25% and the Fed should “try to be above that by the end of the year.”
The rate hike approved this week was the Fed’s first in more than three years.

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St. Louis Fed President James Bullard on Friday released a statement explaining his dissent from this week’s decision to raise rates by 0.25 percentage point.
Bullard said the Fed needs to show it is serious about combating inflation and should hike rates the equivalent of 12 times this year.

James Bullard
David Orrell | CNBC

St. Louis Fed President James Bullard said Friday he thinks the central bank should raise interest rates the equivalent of 12 times this year to convince the public it is serious about fighting inflation.
As the lone dissenter at this week’s Federal Reserve meeting, Bullard said in a statement that he would like to see the central bank’s benchmark interest rate boosted above 3% from the near-0% level where it had stood.

“This would quickly adjust the policy rate to a more appropriate level for the current circumstances,” he said.
Following its two-day meeting, the Federal Open Market Committee on Wednesday said it would raise overnight rates for banks by 0.25 percentage point, historically the typical increment with which the FOMC moves. Accompanying economic projections indicated a path this year that would see the equivalent of seven rate hikes, or 1.75 percentage points.
The move was the first time the Fed has raised the rate since December 2018 and came in response to a stunning increase in inflation that has seen prices rise at their fastest pace in 40 years.
Bullard was the only FOMC member to vote against the move, stating he would have preferred a rate hike of 0.5 percentage point, or 50 basis points. He added the Fed also should have started the process of reducing the nearly $9 trillion in bond holdings it has accumulated over the past 14 years.
In his statement Friday, Bullard said inflation is hurting people the Fed is trying to help the most, namely those on the lower rungs of the economic ladder.

“The burden of excessive inflation is particularly heavy for people with modest incomes and wealth and for those with limited ability to adjust to a rising cost of living,” he said. “The combination of strong real economic performance and unexpectedly high inflation means that the Committee’s policy rate is currently far too low to prudently manage the U.S. macroeconomic situation.”
Fed officials overall were divided on how to proceed with rates this year.
Ten members penciled in a fed funds rate of 1.75%-2% by year’s end, but eight said it should be higher. The highest “dot” on the committee’s dot plot, presumably Bullard’s, indicated a range of 3%-3.25%.
He pointed out that the Fed has moved that aggressively before, in 1994-95 to combat a revving economy and a gradual rise in inflation.
“The results were excellent,” Bullard said. “The Committee achieved 2% inflation on average and the U.S. economy boomed during the second half of the 1990s. I think the Committee should try to achieve a similar outcome in the current environment.”
On the issue of the Fed’s balance sheet, Bullard did not provide details of what he thinks the central bank should do, saying only that “a plan” at this week’s meeting would have been appropriate.
The post-meeting statement indicated that the committee “expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.” Fed Chairman Jerome Powell said afterward that the process could begin as soon as May.

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