President Joe Biden said getting inflation under control was his “top priority” in his State of the Union address on Tuesday.
That is no easy task. In fact, it got even harder early Wednesday as oil and other commodity prices climbed once again. Brent crude futures surged another 5% to $110 a barrel early Wednesday, while West Texas Intermediate futures rose to $109.
Higher oil prices for longer will only exacerbate inflationary pressures. To put it into context, when U.S. inflation hit another 40-year high in January, WTI futures were trading at less than $90 a barrel.
Inflation was already a major problem but Russia’s invasion of Ukraine, another issue on Biden’s plate, has played havoc with the potential solutions.
It also makes the Federal Reserve’s job tougher.
Just weeks ago the Fed was primed for aggressive rate increases, starting this month, to fight rising prices. But markets have effectively priced out a 50 basis-point increase in March, with just a 2.7% chance, according to CME’s FedWatch tool, compared with 34% a week ago.
Market participants have been pitting Russian sanctions and the subsequent growth risks against surging inflation in trying to determine Fed policy.
Right now the former is winning. The yield on the 10-year Treasury reached 2% at the end of last week but was trading below 1.75% Wednesday.
Fed Chair Jerome Powell will testify before Congress on Wednesday and Thursday, all too aware of the magnitude of the challenge facing him. Markets will be hanging on his every word.
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Biden Condemns Putin, Vows to Fight Inflation
Western unity in the face of Russia’s invasion of Ukraine took center stage at President Joe Biden’s first State of the Union address, though he also emphasized his efforts to tame the raging domestic inflation that has hurt his standing in the U.S.
Russian President Vladimir Putin’s war “was premeditated and totally unprovoked,” Biden said. “He rejected repeated, repeated efforts at diplomacy. He thought the West and NATO wouldn’t respond ...Putin was wrong. We were ready.” Biden said the U.S. would close its airspace to Russian aircraft, following the same move by U.K., European Union, and Canada as the West continues to ratchet up the pressure on Russia. Officials are concerned that prices for goods, especially oil prices, could skyrocket in the near future, adding to the inflationary pressures that cloud the economy. During his speech, the president proposed bringing production back stateside to counter inflation. With an average 40.7% approval rating and looming midterm elections, Biden tried to reframe his agenda. He called on Congress to take up lowering costs for prescription drugs, healthcare premiums, education, and child care—all staples of his social spending plan. What’s Next: Markets will be watching for Congress’ reaction to the speech to determine how divided political discussion is around key issues.
More Western Businesses Cutting Off Services to Russia
More Western companies cut ties or suspended operations in Russia and the global community has boycotted Russian businesses, cultural and athletic organizations after Russia invaded Ukraine. Exxon Mobil said it would shut down production at Sakhalin Island in Russia and make no new investments in the country.
Apple has halted sales of its products in Russia and put limits on Apple Pay, it confirmed on Tuesday. It also blocked downloads of RT News and Sputnik, two state news organizations, from its App Store outside of Russia. DirecTV is dropping RT, formerly known as Russia Today, from its namesake satellite service, while Alphabet’s YouTube and Meta Platforms cut RT’s and Sputnik’s reach on their platforms. Nike said it can’t guarantee deliveries or sell merchandise on Nike.com or the Nike app in Russia. But WeWork, which rents out office space, was undecided, telling Barron’s it is “prepared to take action” to ensure an orderly shut down there. The Munich Philharmonic fired Russian conductor Valery Gergiev for not rejecting the invasion of Ukraine. The International Olympic Committee called for banning Russian and Belarussian athletes and officials from the Paralympic Winter Games in Beijing 2022, and FIFA barred the Russian soccer team from the 2022 World Cup. What’s Next: Walt Disney, WarnerMedia, and Sony Pictures all ended plans to release new films in Russia, including Pixar’s Turning Red, debuting March 11. Warner won’t release The Batman on Friday, Sony Pictures is withholding Morbius, and Paramount Global is delaying The Lost City and Sonic The Hedgehog 2.
—Janet H. Cho
More U.S. Companies Returning to Offices in March
More U.S. employers are bringing workers back to the office in March, encouraged by high Covid-19 vaccination rates, declining Omicron coronavirus variant cases, and more relaxed mask-wearing rules, including Cisco Systems, American Express, Facebook’s Meta Platforms, and Wells Fargo.
American Express will begin a hybrid model March 15, in which workers can average one to three days a week in an office, depending on their jobs. Citigroup asked vaccinated employees to return to its U.S. offices at least two days a week starting March 21, after opening some offices last year. In 10 U.S. cities, office occupancy averaged 36.4% as of mid-February, said security firm Kastle Systems. At the same time, more people have been attending sporting events and live theater, and visiting restaurants. Carnival Cruise Line and Norwegian Cruise Line now recommend but don’t require wearing masks on board, and Royal Caribbean Cruises made masks optional for fully vaccinated passengers in February. Disney Cruise Line requires passengers ages 2 and older to wear masks indoors except when in their rooms or actively eating or drinking. Covid-19 vaccine maker Novavax said it expects 2022 sales of $4 billion to $5 billion. The biotech is seeking U.S. regulatory authorization of its vaccine and is testing an Omicron-variant-specific formula. What’s Next: If the trend of declining Covid-19 cases continues, New York City Mayor Eric Adams said the city could lift its vaccine requirement to enter restaurants, gyms and entertainment venues on March 7.
—Janet H. Cho
Nordstrom Latest Retailer to Deliver Strong Holiday Results
Nordstrom stock was soaring early Wednesday after the department store retailer posted upbeat fiscal fourth-quarter earnings and issued an even stronger forecast. It’s the latest department store to deliver merry holiday results.
Nordstrom has long had best-in-class customer service and been an omnichannel leader, although the market hasn’t always rewarded that. The stock rose 32.6% to $25.90 in premarket trading Wednesday, after falling 5.8% in Tuesday’s regular session. The retailer said it earned $1.23 a share on revenue that rose more than 23% to $4.38 billion. Analysts were looking for earnings per share of $1 on revenue of $4.36 billion. For the full year, Nordstrom expects to earn between $3.15 and $3.50 a share, well ahead of the $2 consensus estimate. Nordstrom had declined more than 13% since the start of the year, performing much worse than peers Macy’s and Kohl’s.
What’s Next: Retailers could come under pressure in coming months as consumers feel the squeeze from rising energy costs and inflationary pressures that are clouding the economy.
U.S., Allies to Release Emergency Oil Reserves
The U.S. and other nations agreed to release a collective 60 million barrels of crude from their emergency reserves in response to the escalating crisis in Ukraine, which caused oil prices to surge more than 10% on Tuesday, to over $100 a barrel. U.S. oil prices breached $110 a barrel Wednesday.
The surging price of oil puts it at the highest level since 2013. The International Energy Agency said releasing reserves would send a clear message to global markets that there won’t be a shortage of supply, despite Russia’s attack on Ukraine. The U.S. Strategic Petroleum Reserve will contribute 30 million barrels of the total being released, with the rest coming from allies including Japan and the U.K. In a statement, the White House said IEA members would consider additional releases as necessary. Oil producing nations known as OPEC+, a group that includes Saudi Arabia and Russia, meet today on production levels. Members have previously agreed to bring back 400,000 barrels a day, despite urging from some nations to increase supply more quickly. Chevron said it would buy between $5 billion and $10 billion of its stock each year, up from previous guidance of $3 billion to $5 billion. It also said capital spending would be capped at $17 billion a year through 2026, which is less than half its peak spending. What’s Next: Chevron also said it expects oil production to increase 13% by 2026, to more than 3.5 million barrels a day, Bloomberg reported. It expects to achieve that growth through shale production in the Permian Basin in Texas and the Tengiz oil field in Kazakhstan.
*** Dear Quentin,
Our only daughter is getting married. It’s getting expensive. Do we owe her younger brothers anything to even out the monetary gifts? One of them is married, and we covered the groom’s side of that wedding, but that was about 15% of what our daughter’s wedding costs will be. We have the money, but we’re unsure about our duties to our other children. Many thanks.
Read The Moneyist’s response here.
*** —Newsletter edited by Liz Moyer, Camilla Imperiali, Steve Goldstein, Rupert Steiner
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