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In an effort to compete with Apple Pay and PayPal, several banks are reported to be developing a digital wallet that integrates debit and credit cards. According to The Wall Street Journal, the digital wallet will be operated by Early Warning Services, a joint venture between several banks that also operates Zelle. According to the report, Wells Fargo, JPMorgan Chase, and Bank of America are among the major banks involved. The new wallet would initially be launched with Visa and Mastercard already on board. The company has confirmed to CNBC that it intends to launch a wallet product in the near future.
The move could be seen as an effort to slow Apples’s push into consumer banking, as the tech giant already offers a branded credit card and is exploring other products for their famously loyal customer base. Shares of PayPal, which has digital payments as its core business, ticked up 0.5% on Monday after initially falling more than 2%. Bernstein analyst Harshita Rawat said in a note to clients on Monday that the major banks have “likely always had PayPal envy” but that it would take time for the new wallet to be a serious risk to incumbents. “It simply takes a very long time, a killer customer experience (which needs to be better than incumbents, not just similar), and a compelling merchant value proposition to build the two-sided network effects in payments to achieve scale,” Rawat said in the note. There has been a mixed earnings season for big banks, with several CEOs, including Bank of America’s Brian Moynihan, predicting a mild recession in the United States. While interest rates have risen over the past year, bank stocks have struggled as fears of a recession and a slowing investment banking environment have partially offset gains in net interest income.

FTX has recovered over $5 billion in liquid assets, including cash and digital assets, according to attorneys representing FTX in Delaware bankruptcy court. The news comes after federal prosecutors announced plans to seize at least $500 million worth of FTX-connected assets as part of their ongoing prosecution of FTX co-founder Sam Bankman-Fried. It will be a welcome boon to FTX customers following the collapse of the crypto exchange in November. FTX’s new CEO, John J. Ray, previously attested that at least $8 billion of customer assets were unaccounted for in the “worst” case of corporate control he’d ever seen.
The $5 billion figure does not include any illiquid cryptocurrency assets, according to FTX attorney Adam Landis. He said the company’s holdings are so large that selling them would substantially affect the market, driving down their value. FTX’s collapse was attributed, among other things, to a failure to mark illiquid assets to market correctly. FTX executives, including Bankman-Fried and Alameda Research CEO Caroline Ellison, borrowed against the value of the FTX-issued token FTT. Alameda controlled the vast majority of FTT coins circulating, similar to a publicly traded companies float, and could not have liquidated their position at full book value.

Esther George, president of the Kansas City Federal Reserve, is urging her colleagues to remain aggressive in their efforts to deal with runaway inflation as she nears the end of her 40-year central banking career. She stated on Thursday that the Fed should raise its benchmark borrowing rate to above 5% and maintain it there until substantial evidence that prices are stabilizing. “Holding that until we get evidence that inflation is actually coming down is really the message we’re trying to put out there,” she told CNBC’s Steve Liesman during a “Squawk Box” interview. “I’ll be over 5%, and I see staying there for some time, again, until we get the signal that inflation is really convincingly starting to fall back toward our 2% goal.”
At the December Fed meeting, the rate-setting Federal Open Market Committee voted to raise the fed funds rate half a percentage point to a range of 4.25%-4.5%. Minutes of the meeting released on Wednesday indicated no prospect of any rate cuts in 2023. Members expressed concern that the public might mistakenly perceive a reduction in rate hikes as a softening of the policy after a string of four straight three-quarter point hikes. Asked whether her view is that the fund’s rate should hold above 5% into 2024, George replied, “It is for me.” That statement comes a day after Minneapolis Fed President Neel Kashkari wrote that he thinks the funds’ rate should rise to 5.4% and could go even higher if inflation doesn’t come down.

Despite recent turmoil and concern over Elon Musk’s priorities, Morgan Stanley remains bullish on Tesla stock. In a client note, longtime Tesla advocate Adam Jonas cut his price target on the stock to $250 from $330, his new forecast calls for a 122% upside from Wednesday’s close. Tesla will extend its lead over electric-vehicle competitors, and the Inflation Reduction Act will benefit the company. Those are the reason for Jonas’ optimistic outlook.
When addressing Tesla’s 65% drop in 2022, Jonas avoided blaming CEO Elon Musk’s obsession with Twitter, something that a growing chorus of critics has pointed out as a major loss driver. He attributed it to supply outpacing demand for the first time since the COVID-19 pandemic and assorted “technical factors.” “The last two years of demand exceeding supply will be substantially inverted to supply exceeding demand,” Jonas wrote. “Within this environment, we believe players that are self-funded (non-reliant on external capital funding) with demonstrated scale and cost leadership throughout the value chain (from manufacturing to up-stream material supply) can be relative winners.” He continued: “Between a worsening macro backdrop, record-high unfavorability, and increasing competition, there are hurdles to overcome. Yet we do believe that in the face of all these pressures, Tesla will widen its lead in the EV race, as it leverages its cost and scale advantages to further itself from the competition.”

On Tuesday, Robinhood Markets CEO Vlad Tenev said he did not know what the disgraced former CEO of FTX, Sam Bankman-Fried, intends to do with his 7.6% stake in his trading app. “I’m not surprised that it’s one of the more valuable assets they have on their balance sheet because it is public company’s stock,” Tenev said on CNBC’s “Squawk Box.” “We don’t have a lot of information that you guys don’t have. We’re just watching this unfold and … it’s going to be locked up in bankruptcy proceedings, most likely for some time. And so we’re just kind of seeing how that plays out.”
In May, Bankman-Fried took a 7.6% stake in Robinhood worth $648 million in the belief that the shares “represent an attractive investment.” As FTX spiraled into bankruptcy, Bankman-Fried’s Robinhood stake became the biggest liquid line item on his balance sheet that he could potentially sell. Shares of Robinhood have fallen more than 45% this year to under $10 apiece amid shrinking revenue and declining user numbers. Tenev said he sees a pattern of foreign companies creating U.S. subsidiaries, which haven’t been scrutinized to the same degree. FTX became a Bahamas entity in July 2021. “I think that’s something that regulators should take a look at and make sure that the scrutiny is the same if not higher, if you’re offshore and operating a business that has subsidiaries that serve American customers,” Tenev said. The Robinhood CEO said he’s still bullish on cryptocurrencies despite the FTX collapse. “We still see opportunities with crypto. I think in particular customers have been looking for regulated safer options, particularly customers in the U.S.,” Tenev said. The trading app announced Tuesday it’s rolling out retirement accounts to its users with a 1% contribution match.

On Thursday, the Commerce Department reported that inflation grew roughly in line with estimates in October, suggesting that price increases might stabilize, at least for the time being. The core personal consumption expenditures price index, which excludes food and energy and is favored by the Federal Reserve, rose 0.2% for the month and was up 5% from a year ago. The monthly increase was less than the 0.3% estimate by Dow Jones, while the annual growth was in line with estimates. The gains reflect a slowdown from September, which saw a 0.5% monthly increase and a 5.2% annual increase. Including food and energy, headline PCE was up 0.3% on the month and 6% every year. The monthly increase was the same as in September, while the annual gain was a step down from the 6.3% pace.
Furthermore, the department reported that personal income increased by 0.7% for the month, clearly exceeding the 0.4% estimate, and spending increased by 0.8%, as expected. In another key report, a widely followed gauge of manufacturing activity posted its lowest reading for November in two and a half years. The ISM Manufacturing Index registered a reading of 49%, representing the level of companies reporting growth. The reading was 1.2 percentage points below October and the lowest since May 2020, when the Covid pandemic first began. Declines in order backlogs and imports were the biggest drags on the index. The closely watched prices index was off 3.6 points to 43%, indicating inflation is abating, while the employment index also receded, down 1.6 points to 48.4% in contraction territory. Markets were mostly lower following the morning’s data, with the Dow Jones Industrial Average down more than 250 points in early trading while the S&P 500 and Nasdaq Composite posted smaller losses.

David Solomon, CEO of Goldman Sachs, said Thursday that he expects capital markets to recover soon. “I think what we’re going through at the moment is a reset of valuation expectations,” he said in an interview with CNBC’s Jim Cramer. “In the coming months, we’ll see a little reopening in the capital markets when people get used to this valuation adjustment.” During the early stages of the pandemic, low-interest rates enabled newly formed companies to thrive and witness their valuations rise rapidly. Still, this year, the market for initial public offerings collapsed. U.S.-listed companies raised $4.8 billion in proceeds during the first half of 2022 compared to $155 billion in 2021, according to EY and Dealogic.

Several factors contributed to the financial meltdown, including soaring inflation, increasing interest rates, Russia’s invasion of Ukraine, and Covid lockdowns, which led investors to shift from risky, high-growth investments to safer, defense stocks While those headwinds continue to persist, Solomon says the market is adjusting to its new reality. “There’s always a backlog of companies that need to go public,” he said. “We’re three quarters into a more difficult capital markets environment. History would tell you, three, four, five, six quarters, you get that readjustment.”

Investors are weighing whether a pivot away from rising interest rates by the Federal Reserve may come soon, and traders are considering a portfolio pivot of their own with longer-dated bonds. Long-term expectations are reflected in the funds, which are less susceptible to policy changes. And according to Strategas, Treasurys and cash-like bonds have been the two most popular ETF categories ranked by inflows this year. “The rising-rate environment has been the story of the year, and so investors are looking for new tools in their playbook,” Bryon Lake, global head of ETF Solutions at JPMorgan Asset Management, told Bob Pisani on CNBC’s ‘ETF Edge’ on Monday.

Lake runs the JPMorgan Ultra-Short Income ETF (JPST), which is currently the largest actively managed ETF in the world. The fund has a three-month duration and is currently yielding 3.2% on the SEC 30-day, he said, and 4.4% on its yield to maturity. “Investors are using JPST as a place to hide out while they wait for the market to find its footing,” he said. The actively managed ETF invests primarily in a diversified portfolio of short-term, investment grade fixed-and floating-rate corporate and structured debt. “One of the good things about the Fed hiking rates is short duration, or money market funds, are actually paying something now,” Tom Lydon of VettaFi added on ‘ETF Edge’ on Monday. Lydon stressed that three components of JPST, the three-month duration, active management, and net asset value, lead to a more attractive yield. “If you’ve kept your powder dry, and you’re looking for areas where you can actually make some money these days, it’s a great opportunity,” he said.

Patrick Harker, president of the Philadelphia Federal Reserve, said on Thursday that higher interest rates are insufficient to control inflation, so further increases are needed. “We are going to keep raising rates for a while,” the central bank official said in remarks for a speech in New Jersey. “Given our frankly disappointing lack of progress on curtailing inflation, I expect we will be well above 4% by the end of the year.” It was a reference to the federal funds rate, which is expected to remain between 3% and 3.25 percent for the foreseeable future.

Generally, the markets expect the Fed to approve its fourth consecutive interest rate hike in early November, followed by another in December. The expectation is that the Federal Open Market Committee, of which Harker is a non-voting member this year, will take rates a bit higher in 2023 before settling in a range of around 4.5%-4.75%. Harker indicated that those higher rates would likely stay in place for an extended period. “Sometime next year, we are going to stop hiking rates. At that point, I think we should hold at a restrictive rate for a while to let monetary policy do its work,” he said. “It will take a while for the higher cost of capital to work its way through the economy. After that, if we have to, we can tighten further, based on the data.” Inflation is currently running around its highest level in more than 40 years. According to the Fed’s preferred gauge, headline personal consumption expenditures inflation is running at a 6.2% annual rate, while the core, excluding food and energy prices, is at 4.9%, both well above the central bank’s 2% target. “Inflation will come down, but it will take some time to get to our target,” Harker said.

According to Jamie Dimon, the CEO of JPMorgan Chase, a “very, very serious” combination of headwinds will likely cause both the U.S. and global economies to enter a recession by the middle of next year. In an interview with CNBC, Dimon, the CEO of the largest bank in the country, stated that the U.S. economy is “actually still doing well,” and consumers are likely to be in better shape compared to the 2008 financial crisis. “But you can’t talk about the economy without talking about stuff in the future — and this is serious stuff,” Dimon told CNBC’s Julianna Tatelbaum on Monday at the JPM Techstars conference in London.

The impact of runaway inflation, interest rates increasing more than expected, the unknown effects of quantitative tightening, and Russia’s war in Ukraine are among the indicators that ring alarm bells for Dimon. “These are very, very serious things which I think are likely to push the U.S. and the world — I mean, Europe is already in recession — and they’re likely to put the U.S. in some kind of recession six to nine months from now,” Dimon said. As the Federal Reserve and other major central banks raise interest rates to combat soaring inflation, there is growing concern about the prospect of an economic recession. Charles Evans, President of the Chicago Federal Reserve, told CNBC last month that the U.S. central bank appears to be going too far and too fast in its efforts to combat high inflation. The Federal Reserve raised its benchmark interest rate by three-quarters of a percentage point last month, marking the third consecutive increase of this magnitude. Fed officials also indicated they would continue hiking rates well above the current range of 3% to 3.25%.