Where are we? (July 10-16)
Twitter plays offense
In Elon Musk’s Twitter saga, the end of one chapter is just the beginning of another. Shortly after signaling he was backing out of his deal to buy the social media company, Mr Musk was sued by Twitter. The company accused him of “knowingly, willfully, willfully and materially” breaching their agreement. Mr. Musk’s lawyers said Friday that Twitter’s request in the lawsuit for an expedited trial in September was unreasonable and asked to delay it. When and if the case goes to trial, a judge in the Delaware Court of Chancery will decide whether Mr. Musk’s claims that Twitter withheld information about unwanted accounts on the site are valid. Both sides can also agree, with Mr. Musk paying damages. Or, if its financing falls through, it could get out of the deal by paying a $1 billion breakup fee. Another possibility is that Mr. Musk’s threat to leave scares Twitter into renegotiating with him, which could result in the company being bought at a discount. Concerned shareholders will hear how much damage Mr. Musk may have done when Twitter reports its second-quarter earnings this week.
Inflation accelerates
Already rapidly rising prices rose again last month, according to the latest Consumer Price Index report. New inflation data showed prices rose 9.1 percent in June from a year earlier. Record gas prices were the main driver of the high inflation figure. They have fallen sharply since then – a factor that could lead to signs of moderation in the July report. President Biden focused on that possibility in his response to the new numbers, calling them “outdated.” But so-called core inflation, which strips out volatile food and energy costs, was also higher than expected, at 5.9 percent. And overall, there was little to be optimistic about in last week’s report, with experts saying it presented a significant challenge for the Federal Reserve as well as American consumers.
The fall of the euro
For the first time in 20 years, 1 euro equaled 1 dollar, after the euro reached parity with the dollar last week. The currency has fallen since the start of the year due to trade disruptions, sanctions on Russian energy following the country’s invasion of Ukraine and rising food and commodity prices in the eurozone. And while the euro faded, the dollar strengthened, boosted by investors who have turned to the US currency as a safe haven amid global economic turmoil. It appears that this dynamic will continue, even as the United States faces its own economic strains.
What is expected next? (July 17-23)
Increasing interest rates on the agenda
With the fall of the euro making the continent’s economic situation look much more dire, the European Central Bank is expected to announce an interest rate hike on Thursday. The move would be the first time the ECB has raised rates in more than a decade and puts it on a more aggressive path similar to that of many other central banks around the world. Last week, the Bank of Canada raised its rates by a large percentage point. The Federal Reserve is also heading for a big rate hike as inflation continues to run at a worrying pace. Christopher Waller, a Fed governor, said he favored another three-quarter change this month, but an even bigger hike, perhaps 1 point, is possible.
A critical quarter for Netflix
Netflix has already prepared shareholders for its second quarter financial statement this week. But that doesn’t mean the news will be any easier to swallow. In April, after announcing it had lost 200,000 subscribers, Netflix warned it was likely to lose another two million in the next three months as it struggled to stay competitive among an array of streaming options. Since then, the company has made several rounds of layoffs, while its share price has plummeted. As the streaming giant tries to recover, it is planning to create a cheaper, ad-supported subscription tier with Microsoft as its partner. But the move is no guarantee of smoother waters for the company.
Chances of a recession
The possibility of an impending recession depends on who you ask. Talk to the chief economist at Wells Fargo and he’ll tell you that a recession in 2023 “looks more likely than not.” Ask S&P Global Ratings and it will say that the possibility of a deep decline is essentially a swing. Last week, despite what some would consider clear warning signs, JPMorgan Chase and Morgan Stanley said there was no recession yet. Despite the range of perspectives, the fact is that most people—analysts, economists, and laypeople alike—are thinking about it and looking for clues in indicators like yield curves, inflation data, quarterly earnings and investor sentiment. And as the Fed tries to rein in the economy, anxiety that it could lead the country into a serious slowdown will continue to grow.
What else?
Bank of America was fined $225 million by federal regulators for misusing pandemic unemployment benefits. Amid the travel chaos, Delta Air Lines flew an empty plane to London’s Heathrow Airport to pick up stranded luggage and bring it back to the United States. And Heathrow said it would limit passenger numbers until the end of the summer as it faces staff shortages.
