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Consumer spending in July exhibited resilience as inflation slowed down, as indicated by the Commerce Department’s report. The advanced retail sales figures revealed a 0.7% seasonally adjusted increase for the month, surpassing the Dow Jones estimate of 0.4%. Excluding automobile sales, robust growth of 1% was recorded, compared to a forecast of 0.4%. These readings marked the strongest monthly gains since January. Although the figures aren’t inflation-adjusted, they underscore consumers’ ability to keep pace with price hikes experienced over the last two years. Notably, the consumer price index rose by 0.2% in the same month, indicating a sustained demand. Online retailers boosted July’s numbers with a 1.9% spending surge, followed by a 1.5% increase in sporting goods and related stores, and a 1.4% rise in food service and drinking places. However, furniture sales declined by 1.8%, and electronics and appliance stores reported a 1.3% drop. Gas station sales only rose by 0.4% despite rising fuel prices. These numbers contribute to the narrative that the U.S. economy might sidestep a predicted recession, which was feared due to a series of Federal Reserve interest rate hikes aimed at managing inflation. Despite 11 rate increases since March 2022, consumers, who drive about two-thirds of the $26.8 trillion U.S. economy, have demonstrated resilience.

The report revealed that spending was broadly distributed, with most categories displaying growth. However, motor vehicle sales fell by 0.3%. On a 12-month basis, sales increased by 3.2%, aligning exactly with the annual CPI increase. In a separate report, it was noted that inflation pressures persist, following the highest inflation level in over 40 years in the summer of 2022. Import prices rose by 0.4% in July, higher than the 0.2% estimate. This was primarily driven by a 3.6% increase in imported fuel prices. Excluding fuel, import prices remained unchanged. The mixed data bag included the Empire State Manufacturing Survey, which reflected a significant drop in activity in the New York region in August. Despite this, the index for future business conditions, measuring expectations six months ahead, increased. These readings hint at the complex and evolving economic landscape, where spending remains robust despite uncertainties.

U.S. regulators have imposed $549 million in penalties against Wells Fargo and several other smaller or non-U.S. firms for failing to maintain proper electronic records of employee communications. The Securities and Exchange Commission (SEC) announced charges and fines amounting to $289 million against 11 firms, highlighting their “widespread and longstanding failures” in record-keeping. The Commodity Futures Trading Commission (CFTC) also fined four banks a combined total of $260 million for failing to uphold record-keeping requirements. This enforcement action represents the regulators’ ongoing campaign to curb using secure messaging apps like Signal, WhatsApp, and iMessage among Wall Street employees. The initiative began in late 2021 and has resulted in settlements with major players such as JPMorgan Chase, Goldman Sachs, Morgan Stanley, and Citigroup, amassing over $2 billion in fines related to the issue, as stated by the SEC and CFTC.

The implicated firms admitted to using platforms like WhatsApp for business discussions, violating federal securities laws by not preserving records. Wells Fargo, a relatively smaller player on Wall Street, received the largest fines among the penalized banks, amounting to $200 million. French banks BNP Paribas and Societe Generale were each fined $110 million, while Bank of Montreal faced a $60 million penalty. Japanese firms Mizuho Securities and SMBC Nikko Securities, along with U.S. boutique investment banks such as Houlihan Lokey, Moelis, and Wedbush Securities, were also fined. Aside from the monetary penalties, the banks were instructed to “cease and desist” from future violations and bring in consultants to assess their policies, according to the SEC. On Wall Street, maintaining records of communications via official channels is crucial to comply with fairness requirements, although using side channels for business communication has been a concern due to potential legal and regulatory risks stemming from unrecorded conversations.

Kansas City Federal Reserve to Get New Leader. Jeffrey R. Schmid will Take Over as Inflation-Fighting Central Bank Maps Its Future. Jeffrey R. Schmid, a seasoned regulator, and banker with over 40 years of experience, is set to become the new leader of the Kansas City Federal Reserve on August 21. He will be succeeding Esther George, who retired earlier this year. Schmid’s extensive background includes serving as the president and CEO of Southern Methodist University’s Cox School of Business, as well as holding significant positions at the Federal Deposit Insurance Corporation and Mutual of Omaha Bank, where he played a key role in its establishment. Maria Griego-Raby, president and principal of Contract Associates in Albuquerque, New Mexico, expressed confidence in Schmid’s capabilities, citing his regional ties, banking experience, and unique perspective as a native Nebraskan. She led the search for George’s successor as deputy chair of the bank’s board of directors.

The appointment follows the Federal Reserve’s approval of 11 interest rate increases aimed at combating a 40-year high in inflation. George was known for her hawkish stance, advocating tighter monetary policy. Schmid’s tenure as the head of the Kansas City Fed will last until February 28, 2026, completing the remainder of George’s five-year term. Notably, Schmid will assume his new role just before the annual Jackson Hole summit hosted by the Kansas City district. The summit, scheduled from August 24 to 26 this year, traditionally features a keynote address from the Fed chair and plays a significant role in shaping policy strategy.

The Federal Reserve has approved a much-anticipated interest rate hike, raising the benchmark borrowing costs to their highest level in over 22 years. The central bank’s Federal Open Market Committee (FOMC) raised the funds rate by a quarter percentage point to a target range of 5.25%-5.5%. The decision was widely expected by financial markets. Federal Reserve Chairman Jerome Powell stated that while inflation has moderated somewhat, it has not yet reached the Fed’s 2% target. The FOMC will continue to assess economic data and implications for inflation to determine future rate moves.

This is the 11th rate hike since the tightening process began in March 2022. The FOMC decided to skip the June meeting to evaluate the impact of previous rate increases. The committee has also been reducing its bond holdings on the balance sheet. The economy has shown resilience despite the rate hikes, with second-quarter GDP growth tracking at a 2.4% annualized rate. Employment has remained strong, with nonfarm payrolls expanding by nearly 1.7 million in 2023 and an unemployment rate of 3.6% in June. Inflation remains a concern, with the consumer price index rising 3% on a 12-month basis in June, above the Fed’s 2% target. The Fed’s preferred measure, the personal consumption expenditures price index, rose 3.8% on a headline basis and 4.6% on a core basis for May. The FOMC’s future rate moves will depend on incoming data, and the committee remains committed to a data-dependent approach.

Warren Buffett’s Berkshire Hathaway has significantly reduced its stake in Activision Blizzard as Microsoft’s acquisition of the video game company nears completion. According to a new 13G filing released on Monday evening, the Omaha-based conglomerate now holds a 1.9% stake in Activision with 14,658,121 shares. This is a substantial decrease compared to the 6.3% stake it held at the end of March and the 6.7% stake at the end of 2022. The news of Microsoft’s $68.7 billion acquisition of Activision led to a surge of more than 9% in Activision’s shares last week after the Federal Trade Commission’s bid to block the deal was unsuccessful. Microsoft’s appeal against the block by U.K. regulators was granted a two-month pause on Monday. As of Monday’s close, Activision’s stock traded at $93.21 per share, slightly below Microsoft’s initial offer of $95 per share, announced in January 2022.

Buffett’s investment firm initially took a stake in Activision in late 2021, with the help of his investing lieutenants, Ted Weschler and Todd Combs, at an average cost of $77 per share. The move was part of a merger arbitrage strategy, speculating on the successful completion of Microsoft’s acquisition of the gaming company. Buffett and his longtime business partner, Charlie Munger, have been involved in merger arbitrage deals for the past five decades, a practice that used to be known as “workouts.”

The Berkshire Hathaway Energy company has agreed to purchase a 50% stake in the Cove Point liquefied natural gas facility for $3.3 billion in cash. Warren Buffett’s big energy and utility division bought the stake from Dominion Energy and will now own a 75% limited partnership stake in Cove Point LNG, located in Lusby, Maryland. A subsidiary of Brookfield Infrastructure Partners holds the remaining 25%. While the deal announced Monday isn’t large for Berkshire, it builds on a growing bet on energy infrastructure at the conglomerate as it gains control of one of the rare functional facilities in the U.S. that can export LNG. “It builds on their long-term theme of energy resources becoming more valuable and ownership of one of only a few US LNG exporters,” said Bill Stone, chief investment officer at Glenview Trust and a Berkshire shareholder.

The Cove Point LNG Terminal has a storage capacity of 14.6 billion cubic feet and a daily send-out capacity of 1.8 billion cubic feet. The firm has a long-term contract with Sumitomo Corp., a Japanese trading company Buffett invested in. Berkshire Hathaway bought a stake in Dominion’s gas pipeline and storage assets for $4 billion in 2020. Greg Abel, Berkshire Hathaway Energy’s chairman and former CEO, previously told CNBC that the deal in 2020 was made through a strong relationship with the prior Dominion CEO, Tom Farrell. Abel is now vice chairman for noninsurance operations at Berkshire Hathaway and the successor to the 92-year-old “Oracle of Omaha.” Buffett said Abel has taken on many of the responsibilities at the conglomerate.

The Nasdaq has concluded an extraordinary first half 2023 with a 32% gain, marking its sharpest first-half jump since 1983. This achievement is remarkable, considering the transformative changes in the tech industry over the past four decades. From the rise of Microsoft and the dot-com bubble to the emergence of trillion-dollar companies, the industry has experienced significant shifts. However, none of these periods have witnessed a start to the year as impressive as 2023. This surge in tech stocks comes amidst a potentially shaky US economy. The risk of a recession and the collapse of Silicon Valley Bank in March have loomed over the markets. Despite these challenges, momentum and the fear of missing out have been major driving factors for investors, even as concerns about overvalued stocks persist. After a challenging 2022, in which the Nasdaq lost one-third of its value, the focus shifted to cost-cutting and efficiency. Major companies such as Alphabet, Meta, and Amazon implemented mass layoffs, leading to improved earnings and a more realistic growth outlook. In 2023, Meta and Tesla have more than doubled in value, while Alphabet is up 36% after a significant drop in 2022.

Tech companies like Nvidia, Microsoft-backed OpenAI, and Apple have played key roles in driving growth. Nvidia’s shares soared by 190% in the first half, surpassing a market cap of $1 trillion. OpenAI’s ChatGPT program has gained recognition, and Apple’s announcement of the Vision Pro headset has reignited investor enthusiasm. The headset, priced at $3,499, marks Apple’s first major product release since 2014. Bryn Talkington, managing partner at Requisite Capital Management, expressed confidence in tech’s continued dominance, particularly in artificial intelligence (AI).

Online money transfer firm Wise shares surged 16 per cent on Tuesday as the company reported a jump in profits thanks to rising interest income. The company said in a statement to the stock market that its profit before tax had tripled to £146.5 million ($186.5 million). Earnings per share tripled to 11.53 pence. During that period, the company saw customers grow by 34%, reaching 10 million users by March 31, 2023, and volumes grew by 37% to £104.5 billion. Wise shares closed at £6.11 Tuesday, up 16% on the day.

As a result of high inflation, the Bank of England raised interest rates to 5% last week. This helped Wise achieve financial success. Like other fintechs, Wise has accrued income from interest on funds in customer accounts. Monzo and Starling Bank recently reported their profitability milestones, citing increased lending income. Wise said Tuesday its revenues grew 51% to £846.1 million from £559.9 million the year prior. The overall income reported by the firm rose to £964.2 million, up 73% year-on-year. This was boosted by a surge in customer deposits. Still, Wise has been grappling with less positive developments.

On Wednesday, Federal Reserve Chairman Jerome Powell affirmed that more interest rate increases are likely until inflation is brought down further. Speaking a week after the Federal Open Market Committee decided not to raise interest rates for the first time in more than a year, the central bank leader indicated that the move likely represented only a brief respite and not an indication of the end of rate hikes. “Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” Powell said in prepared remarks for testimony he will deliver to the House Financial Services Committee. The speech is part of his semiannual appearance on Capitol Hill to update lawmakers on monetary policy.
Following last week’s two-day FOMC meeting, officials expect 0.5 percentage point increases through 2023. This would indicate two additional increases, assuming a quarter-point increase. The Fed’s benchmark borrowing rate ranges between 5% and 5.25%. Although inflation has cooled but “remains well above” the Fed’s 2% target, Powell said the central bank still has more work. “Inflation has moderated somewhat since the middle of last year,” he said. “Nonetheless, inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go.” Fed officials typically focus on “core” inflation, which excludes food and energy prices. That shows inflation running at a 4.7% year-over-year rate through April, according to the central bank’s preferred measure of personal consumption expenditure prices. The core consumer price index for May

UBS and the Swiss government announced Friday that they had signed a loss protection agreement, which will take effect once the takeover of Credit Suisse has been completed. The Swiss government will cover losses of up to $9 billion Swiss francs ($10 billion) following UBS’ acquisition of its former rival. This is guaranteed on a “designated portfolio of Credit Suisse non-core assets,” once UBS incurs the first 5 billion Swiss francs in losses. “The priority for the federal government and UBS is to minimise potential losses and risks so that recourse to the federal guarantee is avoided to the greatest extent possible,” the Swiss government said in a statement.
The administration added that it had facilitated the deal to “safeguard financial stability and thus avert damage to the Swiss economy,” but had always agreed to guarantee a portion of losses due to UBS taking over a portfolio of assets that “do not fit its business and risk profile.” In return, the agreement states that, after the takeover, UBS must support the development of Switzerland’s status as a financial centre. The bank has confirmed intentions to keep the headquarters of the merged group in Switzerland for the duration of the loss protection provisions. “UBS will manage these assets in a prudent and diligent manner and intends to minimize any losses and maximize value realization on these assets,” UBS said. UBS Group shares were down 0.2% at 10:00 a.m. London time.