Finance

Inflation, whipped up by the supply chain crisis, will push bond yields higher over the next several weeks, according to Wells Fargo Securities’ Michael Schumacher.
The firm’s head of macro strategy believes the benchmark 10-year Treasury Note yield could reach 1.9% before year-end — a 23% jump from Wednesday’s close.

“Number one is inflation. It’s everywhere,” he told CNBC’s “Trading Nation” on Wednesday.
Schumacher also sees anticipation surrounding how the Federal Reserve will react as an upward driver for yields.. He notes a few central banks, including Norway and New Zealand, have already adjusted their policy rates.
“The Fed is probably going to taper [and] announce it next month,” he said. “It’s going to push yields up in our view. It will go up a bit more, and then probably drop in December.”
That’s when Schumacher he expects investor jitters over the debt ceiling and government funding will make a comeback and drive yields lower.
But Schumacher, who’s bearish on bonds, believes a move lower would be temporary.

“This all goes back to inflation,” he said. “It’s going to be here for a while, and this is really coloring our market outlook.”
The latest economic numbers spell hotter than expected inflation. The Labor Department reported on Wednesday the consumer price index increased 0.4% last month — a year-over-year gain of 5.4%. It’s the highest year-over-year gain in more than three decades.
“[This is] not just the U.S. issue. It really relates to the entire industrialized world at this point,” Schumacher noted.
Despite his inflation concerns, Schumacher is not in the stagflation camp, which refers to pressures that push prices higher during periods of slowing growth.

Stagflation is ‘overplayed’

“It’s overplayed, frankly,” he said. “People say, ‘Well, gee, growth is going to be slower next year that this year.’ Well, okay, that’s true. But the question is by how much, and is growth really going to be seriously disappointing in 2022? We think not. And, if you have growth in the U.S. that’s 2[percent]-plus. It’s probably not really stagflationary.”
He has been bullish on economic growth since the throes of the pandemic. Last December, Schumacher told “Trading Nation” the Covid-19 vaccines would dramatically boost confidence in the economy and push Treasury yields higher. Since his interview, the 10-year yield is up 72%.
From an investment standpoint, Schumacher would only consider owning a long duration bond as a short-term place to hide out from stock market volatility. He finds Treasury yields unattractive for long-term investors because they’re not keeping up with inflation.
“The Fed is very concerned about this, and Chairman Powell has made this pretty clear,” Schumacher said. “We do think that’s going to push Mr. Powell to argue for tapering in a couple weeks.”
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Traders work on the floor at the New York Stock Exchange.
Brendan McDermid | Reuters

U.S. stock futures were little changed Wednesday night after the S&P 500 snapped a three-day losing streak as companies kicked off the quarterly earnings season.
Dow Jones Industrial Average futures rose 46 points, or 0.13%. S&P 500 and Nasdaq 100 futures inched up 0.18% and 0.24%, respectively.

The major averages were little changed by the end of the regular session. The Dow was flat at 34,377.81, the S&P 500 gained 0.3% and the Nasdaq Composite ticked up 0.7%.

Minutes from the Federal Open Market Committee’s September meeting, released Wednesday afternoon, showed that the central bank could begin the tapering process in mid-November or mid-December.
“We still think November but one month isn’t going to matter to markets at this point,” said Lawrence Gillum, fixed income strategist for LPL Financial. “There was some interesting discussion on lift-off though and it looks like the Committee remains divided. The future make-up of the Committee only adds uncertainty to when lift-off will actually take place.”
Earlier in the day, JPMorgan kicked off big bank earnings with stellar results that exceeded expectations on a $1.5 billion boost from better-than-expected loan losses. Still, shares fell by 2.6% and other bank stocks slid too.

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Bank of America, Citigroup, Morgan Stanley and Wells Fargo are all scheduled to report earnings before the bell Thursday. Dow member UnitedHealth Group is also on deck, as well as Domino’s Pizza.

Earlier Wednesday, the Labor Department reported the core Consumer Price Index, which excludes food and energy, rose 0.2% month over month in September and 4% over the last 12 months, compared to estimates of 0.3% and 4%, respectively.
September producer price index data and weekly jobless claims will be released Thursday.

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 The Federal Reserve could begin reducing the pace of its monthly asset purchases as soon as mid-November, according to minutes from the September meeting,
The summary, released Wednesday, indicated the tapering process could see a monthly reduction of $10 billion in Treasurys and $5 billion in mortgage-backed securities.
Officials at the meeting expressed concern about inflation, saying it could last longer “than they currently assumed.”

Federal Reserve officials could begin reducing the extraordinary help they’ve been providing to the economy by as soon as mid-November, according to minutes from the central bank’s September meeting released Wednesday.
The meeting summary indicated members feel the Fed has come close to reaching its economic goals and soon could begin normalizing policy by reducing the pace of its monthly asset purchases.

In a process known as tapering, the Fed would reduce the $120 billion a month in bond buys slowly. The minutes indicated the central bank probably would start by cutting $10 billion a month in Treasurys and $5 billion a month in mortgage-backed securities. The Fed is currently buying at least $80 billion in Treasurys and $40 billion in MBS.
The target date to end the purchases should there be no disruptions would be mid-2022.
The minutes noted “participants generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate.”
“Participants noted that if a decision to begin tapering purchases occurred at the next meeting, the process of tapering could commence with the monthly purchase calendars beginning in either mid-November or mid-December,” the summary said.

The Fed next meets Nov. 2-3. Starting the tapering process in November is on the aggressive side of market expectations.

The minutes said members’ estimates “were consistent with a gradual tapering of net purchases being completed in July of next year.”
“If they announce [tapering] in November, I don’t see why they would wait. Just go ahead and get going,” said Kathy Jones, chief fixed income strategist at Charles Schwab. Jones said she was a bit surprised by a notation in the minutes that “several” members “preferred to proceed with a more rapid” tapering pace.

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“That would be pretty aggressive,” she said. “There must be some outspoken people who are pretty concerned that they need to move even faster.”
St. Louis Fed President James Bullard is one such member, telling CNBC on Tuesday that he thinks tapering should be more aggressive in case the Fed needs to rate interest rates next year to combat persistent inflation.
At the September policymaking session, the committee voted unanimously to hold the central bank’s benchmark short-term borrowing rate at zero to 0.25%.
The committee also released the summary of its economic expectations, including projections for GDP growth, inflation and unemployment. Members scaled back their GDP estimates for this year but upped their outlook for inflation, and indicated they expect unemployment to be lower than earlier estimates.

Concerns about inflation

In the “dot plot” of individual members’ expectations for interest rates, the committee indicated it could begin raising interest rates as soon as 2022. Markets currently are pricing in the first rate hike for next September, according to the CME FedWatch tool. Following the release of the minutes, traders increased the likelihood of a September hike to 65% from 62%.
Officials, though, stressed that a tapering decision should not be seen as implying pending interest rate hikes.
However, some members at the meeting showed concern that current inflation pressures might last longer than they had anticipated. Traders are pricing in a 46% chance of two rate hikes in 2022.
“Most participants saw inflation risks as weighted to the upside because of concerns that supply disruptions and labor shortages might last longer and might have larger or more persistent effects on prices and wages than they currently assumed,” the minutes stated.
The document noted that “a few participants” said there could be some “downside risks” for inflation as long-standing factors that have kept prices in check come back into play. The majority of Fed officials have been holding to theme that the current price increases are transitory and due to supply chain bottlenecks, and other factors likely to subside.
Inflation pressures have continued, though, with a reading Wednesday showing that consumer prices are up 5.4% over the past year, the fastest pace in decades.

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Delta Air Lines Airbus A330-300 landing at Athens International Airport AIA ,LGAV / ATH Eleftherios Venizelos, with registration N806NW, a former Northwest Airlines Airplane.
Nicolas Economou | NurPhoto | Getty Images

Check out the companies making headlines in midday trading.
BlackRock — Shares of the asset management giant rose 3.7% after BlackRock beat expectations on the top and bottom lines for the third quarter. The company reported $10.95 per share on $5.05 billion in revenue, fueled by a jump in fee revenue. Analysts surveyed by Refinitiv were expecting $9.35 per share on $4.9 billion in revenue.

JPMorgan Chase — Shares of JPMorgan fell 2.6% despite the bank’s better-than-expected quarterly profit. Revenue for the largest U.S. bank by assets also came in higher than expected. The stock is up more than 26% this year. Other bank stocks also dipped ahead of earnings reports later this week. Bank of America almost 1% and Wells Fargo shed more than 1%. Citigroup also fell slightly.
Delta Air Lines — Shares of Delta Air Lines fell more than 5% after the company reported quarterly financial results. The company posted higher-than-expected revenue and its first quarterly profit without counting federal aid since the start of the pandemic. However, the airline said higher costs of fuel and other expenses will pressure its fourth-quarter earnings. Other air carriers also retreated. American Airlines shed and United Airlines lost roughly 3%.
Moderna — Shares of the vaccine maker gained more than 3% ahead of the Food and Drug Administration’s first step in deciding if Moderna should dispense booster doses of its Covid shot. The federal agency will host an advisory committee meeting later this week to discuss the matter. On Tuesday, FDA scientists said data shows two doses are still enough to protect against severe disease and death in the U.S. and declined to take a stance on whether it would back booster shots.
Advanced Micro Devices — The chip maker added nearly 4% and was among the highest gainers in the S&P 500 Tuesday. The move comes amid the ongoing global chip shortage, and despite recent weakness in other chip stocks. Xilinx, which AMD plans to acquire, gained 3.6%.
Apple — Apple shares fell less than 1% after Bloomberg reported the company would cut its iPhone production due to the chip shortage.

Plug Power — Shares of the hydrogen fuel cell maker jumped more than 11% after it announced a partnership with aircraft maker Airbus to decarbonize air travel and airport operations. It plans to make a U.S. airport the first “hydrogen hub” pilot airport.
Vimeo — The video platform company gained 12% after it reported monthly metrics for September, recording a 33% jump in revenue from the previous year and a 16% increase in average revenue per user. Wells Fargo also initiated coverage of the stock with an overweight rating.
Monster Beverage — Energy drink maker Monster’s shares slid almost 3% after an analyst at Jefferies downgraded the stock to a hold from a buy and lowered its price target to $92 from $113.
WestRock — The paper and packaging company fell 2.6% after Truist initiated coverage of the stock with a hold rating, giving it a $47 price target with 8% implied downside.
Sarepta Therapeutics — Biotech firm Sarepta tumbled more than 12% after issuing guidance below analysts’ forecasts and announced a $500 million stock offering.
 — CNBC’s Hannah Miao and Jesse Pound contributed reporting

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Here are the numbers: earnings of $3.74 per share vs. $3 per share estimate of analysts surveyed by Refinitiv.
Revenue: $30.44 billion vs, $29.8 billion estimate.

JPMorgan Chase on Wednesday posted third-quarter results that exceeded expectations on a $1.5 billion boost from better-than-expected loan losses.
The gain came after the bank released $2.1 billion in reserves and had $524 million of charge-offs in the quarter, New York-based JPMorgan said in a release.

The bank produced $3.74 per share in earnings, which includes a 52 cent per share boost from reserve releases and a 19 cent per share benefit tied to a tax filing. JPMorgan shares rose 0.78% in premarket trading.
Here are the numbers:

Earnings: $3.74 per share vs. $3 per share estimate of analysts surveyed by Refinitiv.
Revenue: $30.44 billion vs $29.8 billion estimate.

The bank “delivered strong results as the economy continues to show good growth – despite the dampening effect of the Delta variant and supply chain disruptions,” CEO Jamie Dimon said in the statement. “We released credit reserves of $2.1 billion as the economic outlook continues to improve and our scenarios have improved accordingly.”
Dimon reiterated a message from previous quarters, which also benefited from reserve releases, that managers didn’t consider the gain to be fundamental to their business. The firm set aside billions of dollars for losses last year after the onset of the coronavirus pandemic, and this year has been releasing those funds after the losses didn’t arrive.
Indeed, analysts have said that banks have exhausted most of the benefit from releases and must now rely on core activities like growing loans and rising interest rates to boost profits.

Companywide revenue rose 2% to $30.4 billion, mostly driven by booming fees in the firm’s investment banking and asset and wealth management divisions. Net interest income of $13.2 billion edged out the $12.98 billion StreetAccount estimate on higher rates and balance sheet growth.
Fixed income revenue dropped 20% to $3.67 billion, below the $3.73 billion StreetAccount estimate. But equities trading revenue more than made up the shortfall, producing $2.6 billion, beating the $2.16 billion estimate.
Robust levels of mergers and IPO issuance in the quarter helped the firm’s investment bank. The company posted a 50% increase in investment banking fees to $3.28 billion, exceeding the estimate by half a billion dollars.
For most of the pandemic, booming trading revenue across Wall Street has benefited JPMorgan’s investment bank. But that was expected to moderate in the third quarter. Last month, JPMorgan executive Marianne Lake said that trading revenue will be 10% lower than a year ago, which was an unusually strong quarter.
The firm’s asset and wealth management division posted a 21% increase in revenue to $4.3 billion on higher management fees and growth in balances. Assets under management rose 17% to $3 trillion on rising equity markets.
Dimon will likely be asked about the bank’s acquisition strategy after a string of recent deals. Last month, the bank acquired restaurant review service the Infatuation and college-planning platform Frank. That followed three acquisitions of fintech start-ups in the past year.
Shares of JPMorgan have climbed 30% this year before Wednesday, trailing the 37% increase of the KBW Bank Index.
This story is developing. Please check back for updates.

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Check out the companies making headlines before the bell:
JPMorgan Chase (JPM) – JPMorgan Chase reported a profit of $3.74 per share for the third quarter, compared with a consensus estimate of $3.00, while revenue also topped Wall Street forecasts. CEO Jamie Dimon said the quarter was strong despite negative economic impact from the Delta variant and supply chain disruptions.

BlackRock (BLK) – The asset management firm earned an adjusted $10.95 per share for the third quarter, beating the $9.35 consensus forecast. Revenue beat estimates as well, despite the implementation of some fee waivers during the quarter. Asset under management grew, although less than analysts had anticipated. BlackRock rose 2.6% in the premarket.
Delta Air Lines (DAL) – The airline beat estimates by 13 cents with adjusted quarterly earnings of 30 cents per share, while revenue beat forecasts as well. Delta’s quarterly profit was it’s first since before the pandemic, but it does anticipate a modest current quarter loss due to higher fuel costs. Delta fell 1.6% in the premarket.
SAP (SAP) – SAP rallied 5.3% in premarket trading after the German business software company raised its full-year outlook for a third time. The upgrade comes as more customers shift operations to the cloud.
Plug Power (PLUG) – The hydrogen fuel cell maker jumped 7.1% in the premarket after announcing a partnership with Airbus to decarbonize air travel and airport operations, with plans to select a U.S. airport as the first “hydrogen hub” pilot airport.
Hasbro (HAS) – Hasbro Chief Executive Officer Brian Goldner has died at age 58, just days after taking a medical leave. The toymaker did not announce a cause of death, but Goldner had been diagnosed with prostate cancer in 2014. Hasbro shares fell 1% in premarket action.

Qualcomm (QCOM) – Qualcomm announced a $10 billion share buyback program. The chipmaker’s newly announced buyback is in addition to $900 million still remaining from a buyback program instituted in July 2018. The stock gained 1.8% in the premarket.
Apple (AAPL) – Apple is likely to cut iPhone 13 production by as many as 10 million units due to the global chip shortage, according to people familiar with the matter who spoke to Bloomberg. That would represent a cut of about 11% from current plans.
Vimeo (VMEO) – Vimeo said its total revenue in September jumped by 33% over a year ago, with the video software company’s subscriber numbers up 14% and average revenue per user up 16%. Vimeo gained 3.6% in premarket trading.
Sun Country Airlines (SNCY) – Sun Country slumped 5.7% in the premarket after the company announced an 8 million-share stock offering. The shares are being sold by existing stockholders and the company will not receive any proceeds from the offering.
Sarepta Therapeutics (SRPT) – Sarepta slid 5.8% in premarket trading after issuing guidance that was below analyst forecasts, as well as announcing a $500 million stock offering. The biotech company’s shares fell 8.1% Monday despite upbeat drug trial results, but they rebounded 4.1% Tuesday.

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Imports in U.S. dollar terms rose 17.6% last month from a year ago to $240 billion. That’s less than the 20% estimated by analysts polled by Reuters.
China’s trade surplus with the U.S. rose to a monthly record of $42 billion — exports surged by about 30% from a year ago, while imports climbed by just under 17%. The U.S. remained China’s largest trade partner on a single-country basis.
Chinese imports of coal and natural gas surged, while that of soybeans and crude oil fell.
China’s exports in U.S. dollar terms surged 28.1% year-on-year in September to $305.74 billion, beating the 21% growth figure expected by the Reuters poll.

Aerial photo of Taicang port container terminal, Suzhou City, Jiangsu Province in China, Oct. 4, 2021.
Finn | Barcroft Media | Getty Images

BEIJING — China reported disappointing growth in imports in September, while exports beat expectations, according to data released Wednesday by the customs agency.
Imports in U.S. dollar terms rose 17.6% last month from a year ago to $240 billion. That’s less than the 20% estimated by analysts polled by Reuters.

China’s sales of goods to other countries remained a bright spot for the economy. Exports in U.S. dollar terms surged 28.1% year-on-year in September to $305.74 billion, beating the 21% growth figure expected by the Reuters poll.

China’s trade surplus with the U.S. rose to a monthly record of $42 billion — exports surged by about 30% from a year ago, while imports climbed by just under 17%. The U.S. remained China’s largest trade partner on a single-country basis.
The volume of Chinese imports of soybeans, of which the U.S. is the largest supplier, fell 30% in September from a year ago, although the value in U.S. dollar terms rose by about 10%.

Paying up for coal

China’s imports of coal and related products surged 76% from a year ago in September to 32.9 million tons — the highest monthly level since December. The value of those coal imports more than tripled year-on-year to $3.91 billion.
Prices for thermal coal, the primary fuel for electricity production, have more than doubled this year, according to futures traded on the Zhengzhou Commodity Exchange. A shortage of coal has forced power cuts at factories, and prompted authorities to call for more coal imports, including from Russia.

Chinese imports of natural gas rose 21.8% year-on-year to 10.6 million tons in September, at a value that more than doubled to $5.19 billion.

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However, purchases of crude oil declined by 15.2% from a year ago to 41.1 million tons last month, while the value of those imports surged by 35%. The U.S. was the largest producer of crude oil last year, and China was the top destination for U.S. exports of the commodity, accounting for 15% according to the U.S. Energy Information Administration.
A breakdown of China’s coal imports by country wasn’t available as of midday Wednesday.
Australia was once China’s largest source of imported thermal coal. But China stopped its purchases of Australian coal in late 2020 as political tensions escalated after Australia supported an investigation into how Beijing handled the coronavirus pandemic.
Customs data Wednesday showed Chinese imports from Australia surged about 50% year-on-year to $15.04 billion in September, while exports climbed nearly 24% year-on-year to about $6 billion.

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NOT LONG ago pundits obsessively checked the latest statistics on covid-19 cases. Now they are doing the same with the inflation numbers. American consumer prices rose by 5.4% in the year to September, according to figures published on October 13th, exceeding economists’ forecasts. A survey from the New York Fed released the previous day showed a small pickup in consumers’ inflation expectations. In its semi-annual report on the global economy the IMF warned that the prospects for inflation were “highly uncertain”. Soaring energy costs will push up consumer prices in the near term. Pay, too, is surging, as red-hot demand runs up against a shortage of workers. Does it stand to fuel further price rises?When covid-19 first struck, most forecasters expected bosses to slash bonuses and yearly rises, or even to cut basic pay, as they did after the global financial crisis in 2007-09. Although wage growth did slow modestly early in the pandemic, that restraint has since been abandoned. Oxford Economics, a consultancy, finds that pay in the rich world is growing at a rate well north of its pre-pandemic average. The acceleration in compensation per employee across the OECD, a club of mostly rich countries, is equally arresting (see chart 1).The wage numbers have sometimes misled during the pandemic. When lockdowns were imposed poorly paid people in service jobs dropped out of the workforce, for instance, which had the effect of raising average pay as measured by statisticians. Even so, wage growth seems to have been stronger than the scale of the economic downturn alone would have suggested. Goldman Sachs, a bank, has created a “tracker” that corrects for pandemic-related distortions. Underlying wage growth, at about 2.5% across the G10 group of large economies, is as fast as it was in 2018.No wonder then that pay has become a hot topic in the corporate world. On October 6th Bank of America increased its company-wide minimum wage by 5%. Amazon now boasts of roles in transport and packaging paying $22.50 an hour in America, making left-wing activists’ demands for a federal minimum wage of $15 seem quaint. An index compiled by Goldman suggests that the share prices of American companies most exposed to rising labour costs have fallen by 4% since May, even as the broader stockmarket has risen by 7%. Even bosses in Germany, long used to acquiescent unions, now face demands to pay up.Some workers are benefiting more than others. Analysis by The Economist of British wage data by industry suggests that annual pay growth is twice as dispersed as it was before the pandemic. Wages in the accommodation and food-service sector, which is struggling to attract workers, rose by 8% in the year to July; increases in manufacturing have been more modest. In America the wages of the least-paid quartile of workers are growing 70% faster than those at the top (see chart 2).Underlying pay is rising about three times as quickly in Anglo-Saxon countries as in continental Europe. That could be because places such as America and Canada rely more on the consumer-facing industries experiencing the worst labour shortages. And France and Italy, where annual pay growth is below 1%, probably do not face the same immigration crunch as Britain, which has Brexited, or Australia and New Zealand, which have closed their borders to keep out covid-19.Only a few years ago economists were bemoaning weak wage growth. So it may seem churlish not to pop the champagne now that the opposite is happening. But pay can rise for a variety of reasons, some more benign than others. For a given level of productivity, higher wages must show up in one of two ways: as higher inflation or as a higher “labour share” of GDP.Take inflation first. Costlier staff may force bosses to raise the price of whatever they are selling. At worst, higher inflation could cancel out any rise in cash wages, leaving workers no better off than they were before (and perhaps encouraging them to seek further increases). American real wages are growing on a monthly basis but they remain lower than a year ago.Some firms seem happy to pass on a bigger wage bill to consumers. On a recent earnings call an executive at Domino’s Pizza discussed how the firm might offset wage rises (pricier margheritas might be on the way). Most S&P 500 companies are protecting margins “by passing on price increases to consumers”, says Goldman. Other firms, however, may absorb higher wages by accepting lower profits. That would change the distribution of the economic pie, raising the “labour share”, or the proportion of GDP paid to workers as wages. Our analysis suggests that the labour share in the G7 has risen by about one percentage point since the pandemic began—equivalent to $400bn or so of extra real income for households each year.What does this mean for the wider economy? A big topic of debate among economists is whether the labour share before covid-19 had been declining or not. It seems most likely that the share fell in America, so a recovery might be welcome. But an ever-rising labour share would be a worry: it would crimp companies’ profits and thus the investments that are crucial to improving long-run economic growth.There is another, happier, possibility. If productivity rises, then wage growth need not cause sustained inflation, nor push up the labour share. Instead the economic pie would grow, with more for everyone.Some evidence suggests that workers are doing more with less. Firms are investing in new technologies to meet new demands, especially from online commerce. “Hybrid” work may be more efficient than everyone being in the office all the time. Productivity statistics are even cloudier than the wage ones; but since the third quarter of 2020 output per employed person has risen in 25 of the 29 rich countries for which figures are available.The rise in wages, then, seems to reflect a number of underlying economic forces, and need not feed through entirely to inflation. But forecasting prices is just as hard as predicting covid-19 case numbers. One thing is clear: that if the pay surge endures, the consequences will be profound. ■ More