1 big thing: "How it Happened: Putin's Invasion"

Markets

A line of three blocks increasing in height.

green

Stay on top of the latest market trends and economic insights

Axios Markets

Standard

1 big thing: How Fed policy can narrow racial divides

2. Catch up quick

3. Inflation’s poster child

4. So much for global mega banks

5. Charted: Hedge funds still can’t match the S&P 500  

💰 Good morning, Markets friends! Today's newsletter is 1,065 words, 4 minutes.

🚨 It’s Lael Brainard’s turn to head to the Senate today, where she’ll make her case to be confirmed as vice chair of the Federal Reserve. The hearing kicks off at 10am ET, and some Senate Republicans are open to voting yes, Axios’ Hans Nichols and Neil Irwin report. 

1 big thing: Gap grows between rich, poor countries

An illustration of the world as a cracked piggy bank.

3. Powell's next four years

Federal Reserve Chair Jerome Powell. Photo: Graeme Jennings-Pool/Getty Images

4. One piece of the worker shortage

5. Exclusive: King Center, Goldman's One Million Black Women partner

https://images.axios.com/veMWeVOjfFMWe4Ha31Ka8oRN-bA=/0x435:3264x2271/1920x1080/2022/01/11/1641944830414.jpg

👋 Good morning! Today’s newsletter is 1,206 words, 5 minutes.

👀 All eyes will be on the latest inflation numbers when they’re released this morning. 

Economists expect that as of December, the Consumer Price Index will show an increase of 7% over the course of the year. 

1 big thing: Putin's (natural) gaslighting of Europe

Photo illustration of Vladimir Putin surrounded by yellow stars and pipelines.

Bonus chart: Europe's natural gas problem

3. Meme stock test

Outside view of the closed AMC Theater, amid the coronavirus pandemic

4. More Fed trading fallout

Outgoing Fed vice-chair Richard Clarida at his 2018 confirmation hearing. Andrew Harrer/Bloomberg via Getty Images

5. Not-so-private capital

☀️ Good morning, Markets people! Today’s newsletter is 1,228 words, 5 minutes. 

🚨 This morning, Fed chair Jerome Powell heads to his confirmation hearing before the Senate Banking Committee. 

In his opening statement, he’ll pledge to use the Fed’s tools to prevent higher inflation from becoming entrenched. See his full statement here. 

1 big thing: The labor shortage is bigger than the pandemic

Bonus chart: Missing in action

3. Rising mortgage rates could slow house price surge

4. Corporate America's incredibly profitable pandemic

5. Court nixes workplace vax mandate

🥳 Happy Friday! We Markets newsletter writers will be off on Monday observing Martin Luther King Jr. Day — we'll be back in your inbox Tuesday.

🚨Breaking late last night: President Biden's nominees for the Federal Reserve's board of governors. Read more about Sarah Bloom Raskin, Lisa Cook and Philip Jefferson — and what their nominations mean for the future of the Fed. 

⏱ Today's newsletter is 1,189 words, 4.5 minutes. 

National

Data: Morning Consult/Axios Inequality Index; Chart: Axios Visuals

The peak for tech layoffs may be in the rearview mirror.

Driving the news: Polling out Wednesday from the Morning Consult/Axios Inequality Index provides another piece of evidence that the flurry of layoffs in higher-paying fields, including tech, has largely run its course.

The share of higher-income people who reported losing their job in the past two months has come back down, after spiking during the first half of the year.

But, but, but: That blitz of layoffs took a toll. High-income workers report being more worried about losing their jobs than they were last year.

Go deeper: Women were disproportionately affected by the tech layoffs

Women were disproportionately affected by the tech layoffs

Big layoffs in higher-paying jobs may be in the rearview mirror

Layoffs

Jobs

The peak for tech layoffs may be in the rearview mirror.Driving the news: Polling out Wednesday from the <a class="gtmContentClick" data-vars-link-text="Morning Consult/Axios Inequality Index" data-vars-click-url="https://link.axios.com/click/32482915.526639/aHR0cHM6Ly9wcm8ubW9ybmluZ2NvbnN1bHQuY29tL3RyYWNrZXJzL2Vjb25vbWljLWluZXF1YWxpdHktaW5kZXg_dXRtX3NvdXJjZT1uZXdzbGV0dGVyJnV0bV9tZWRpdW09ZW1haWwmdXRtX2NhbXBhaWduPW5ld3NsZXR0ZXJfYXhpb3NhbSZzdHJlYW09dG9w/62f285f2d140b63a6d082370Bb1f82222" data-vars-content-id="191bad36-0f5d-44d4-801c-ff0ca8e666cd" data-vars-headline="Big layoffs in higher-paying jobs may be in the rearview mirror" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://link.axios.com/click/32482915.526639/aHR0cHM6Ly9wcm8ubW9ybmluZ2NvbnN1bHQuY29tL3RyYWNrZXJzL2Vjb25vbWljLWluZXF1YWxpdHktaW5kZXg_dXRtX3NvdXJjZT1uZXdzbGV0dGVyJnV0bV9tZWRpdW09ZW1haWwmdXRtX2NhbXBhaWduPW5ld3NsZXR0ZXJfYXhpb3NhbSZzdHJlYW09dG9w/62f285f2d140b63a6d082370Bb1f82222" target="_blank">Morning Consult/Axios Inequality Index</a> provides another piece of evidence that the flurry of layoffs in higher-paying fields, including tech, has largely <a class="gtmContentClick" data-vars-link-text="run its course" data-vars-click-url="https://link.axios.com/click/32482915.526639/aHR0cHM6Ly93d3cuYmxvb21iZXJnLmNvbS9uZXdzL2FydGljbGVzLzIwMjMtMDgtMTYvdGVjaC1maXJtcy1hcmUtc2xvd2luZy1sYXlvZmZzLWJ1dC1zdGlsbC1ub3QteWV0LXJlc3VtaW5nLWhpcmluZz91dG1fc291cmNlPW5ld3NsZXR0ZXImdXRtX21lZGl1bT1lbWFpbCZ1dG1fY2FtcGFpZ249bmV3c2xldHRlcl9heGlvc2FtJnN0cmVhbT10b3A/62f285f2d140b63a6d082370B03236cfe" data-vars-content-id="191bad36-0f5d-44d4-801c-ff0ca8e666cd" data-vars-headline="Big layoffs in higher-paying jobs may be in the rearview mirror" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://link.axios.com/click/32482915.526639/aHR0cHM6Ly93d3cuYmxvb21iZXJnLmNvbS9uZXdzL2FydGljbGVzLzIwMjMtMDgtMTYvdGVjaC1maXJtcy1hcmUtc2xvd2luZy1sYXlvZmZzLWJ1dC1zdGlsbC1ub3QteWV0LXJlc3VtaW5nLWhpcmluZz91dG1fc291cmNlPW5ld3NsZXR0ZXImdXRtX21lZGl1bT1lbWFpbCZ1dG1fY2FtcGFpZ249bmV3c2xldHRlcl9heGlvc2FtJnN0cmVhbT10b3A/62f285f2d140b63a6d082370B03236cfe" target="_blank">run its course</a>.

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

The world's debt-to-GDP ratio ticked down in 2022 — largely thanks to the impact of inflation, which reduced the real value of debt as economic activity remained strong, according to the International Monetary Fund's 2023 Global Debt Monitor, unveiled last week. 

The big picture: However, the IMF's economists see debt levels returning to the pre-pandemic growth trend — and some are starting to contemplate the political and market limitations of ever-expanding deficits.

By the numbers: Since the global financial crisis, public sector debt — i.e. government debt — has increased by nearly 30 percentage points relative to GDP.

In nine of the 21 major developed economies, it surged by 45 points, said Joyce Chang, JPMorgan's chair of global research, speaking at an IMF event launching the latest debt report.

Why it matters: With interest costs ballooning, the discussion among global finance types is turning to the debt sustainability of advanced economies — not just that of frontier countries. The market's tolerance for deficit growth may eventually hit a wall, just as governments seek to fund a host of critical issues that will define the next decade.

For example, climate spending needs are massive. Military spending needs may grow, given challenges from China. 

"And then, of course, there is inequality that's looming in all countries, and you need to have social spending to support the very poorest," Martin Mühleisen, a senior fellow at the Atlantic Council, tells Axios.

At the event, Jeromin Zettelmeyer, director at policy research firm Bruegel and a former IMF deputy director, said, "My worry is that the main casualty of [rising deficits] is going to be the fight against climate change — where we are seeing some political cracks, even in Europe." 

Zoom out: Conflicts around how to manage (or bring down) debt levels can tear societies apart, and open up room for populism and divisiveness, Zettelmeyer added.

The key question: "Given the increased ambitions concerning the role of government that appeared in the pandemic ... How can governments finance all [these priorities] in a way which is compatible with financial stability in particular, and macroeconomic stability in general?" Vitor Gaspar, director in the IMF fiscal affairs department, said at the event.

Rising deficits draw attention as government spending needs pile up

"My worry is that the main casualty is going to be the fight against climate change."

Debt

Stock market

The world&#x27;s debt-to-GDP ratio ticked down in 2022 — largely thanks to the impact of inflation, which reduced the real value of debt as economic activity remained strong, according to the International Monetary Fund&#x27;s <a class="gtmContentClick" data-vars-link-text="2023 Global Debt Monitor" data-vars-click-url="https://www.imf.org/en/News/Seminars/Conferences/2023/09/13/back-to-the-trend-global-debt-evolution" data-vars-content-id="54166cfa-ec63-421a-9a90-afa55d7e2253" data-vars-headline="Rising deficits draw attention as government spending needs pile up" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.imf.org/en/News/Seminars/Conferences/2023/09/13/back-to-the-trend-global-debt-evolution" target="_blank">2023 Global Debt Monitor</a>, unveiled last week. The big picture: However, the IMF&#x27;s economists see debt levels returning to the pre-pandemic growth trend — and some are starting to contemplate the political and market limitations of ever-expanding deficits.

Data: Consumer Price Index for footwear via FRED; Chart: Axios Visuals

Painful pandemic-era inventory shortages of consumer goods have reversed and, in some cases, become painful gluts.

The big picture: Take sneakers. Factory shutdowns from Vietnam to China in 2020 and 2021 severely pinched supply — and the scarcity sent prices soaring.

But it wasn't too long before pileups of late deliveries had shoe companies like Nike and Adidas sitting on mountains of excess inventory.

Nike, for its part, is still trying to move some of that glut — a process that's taken longer than some analysts expected — and markdowns have been the name of the game.

The latest: The inventory stockpiles are one reason Nike's shares have cratered this year, even as the overall stock market recovered.

Data: Yahoo Finance; Chart: Axios Visuals

Nike stock this week hit a milestone no exec wants to see: Tuesday was its ninth consecutive day of losses, making it the company's longest losing streak since it went public in 1980, Bloomberg reports. (It was down again Wednesday.)

The latest bad vibes came from earnings reports by Nike sellers Dick's Sporting Goods and Foot Locker — both cited excess inventories, among other issues.

The bottom line: Early in the pandemic, Americans binged on activewear and goods of all kinds, no matter the price. Now, there's less demand, as people look to spend money on experiences. 

Nike's shares crater as sneaker inventory piles up post-pandemic

Pandemic-era inventory shortages have reversed and, in some cases, become painful gluts.

Supply chain and inventory

Chart shows the year-over-year change in U.S. footwear prices

Painful pandemic-era inventory shortages of consumer goods have reversed and, in some cases, become painful gluts.The big picture: Take <a class="gtmContentClick" data-vars-link-text="sneakers" data-vars-click-url="https://www.axios.com/2023/02/22/sneakers-resale-price-drop" data-vars-content-id="8b37c4e0-3258-4076-a206-8a3e9d41021b" data-vars-headline="Nike&#x27;s shares crater as sneaker inventory piles up post-pandemic" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2023/02/22/sneakers-resale-price-drop" target="_self">sneakers</a>. Factory shutdowns from Vietnam to China in 2020 and 2021 severely pinched supply — and the <a class="gtmContentClick" data-vars-link-text="scarcity sent prices soaring" data-vars-click-url="https://www.axios.com/2021/05/10/pandemic-sneaker-trading-resale-stockx" data-vars-content-id="8b37c4e0-3258-4076-a206-8a3e9d41021b" data-vars-headline="Nike&#x27;s shares crater as sneaker inventory piles up post-pandemic" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2021/05/10/pandemic-sneaker-trading-resale-stockx" target="_self">scarcity sent prices soaring</a>.

Data: PitchBook LCD; Chart: Thomas Oide/Axios

Summer's over and you know what that means: It's time to issue some bonds! (Oh ... is that not what you thought it meant?)

The big picture: After the normal August slowdown in markets and the long Labor Day weekend, big U.S. companies kicked off September licking their borrowing chops.

Last week, investment-grade companies (those with higher credit ratings) raced to market with such fervor that it wound up being just shy of the busiest week so far this year for new issuance. 

Companies including John Deere, Philip Morris and S&P Global, to name a few, all raised funds in the bond market. 

Zoom in: On Tuesday alone, the first post-holiday day for the markets, an eye-popping $38 billion worth of bonds were placed — the highest daily tally since April 30, 2020, according to PitchBook LCD.

And for context, April 2020 was a pretty gangbusters time for the markets. The Fed had just announced unprecedented backstops in the wake of the nascent COVID-19 pandemic, and companies were flooding the market to raise cash for the unknowns that lay ahead. 

Why it matters: Last week's blitz of activity shows healthy companies aren't letting the new higher-rate world keep them from raising more funds. It's directionally in line with the seasonal bump we always see in the first part of September.

Yes, but: The front-loaded nature of last week's deals is a sign that company execs are wary of the recent interest rate volatility — they all wanted to jump to the front of the line. 

What they're saying: "What drove the outsize Tuesday was issuers just wanting to get ahead ... given the rally that we had in rates after the jobs data, they're looking to lock in their financing costs as soon as possible," Arvind Narayanan, senior investment grade portfolio manager at Vanguard, tells Axios. 

That's especially true since more volatility's expected around this week's CPI report and next week's Fed meeting, he adds. 

Companies race to tap the bond market ahead of rates volatility

Last Tuesday was the most active day in more than three years for investment-grade bond deals.

Bond markets

Chart: U.S. investment grade bond issuance

Summer&#x27;s over and you know what that means: It&#x27;s time to issue some bonds! (Oh ... is that not what you thought it meant?)The big picture: After the normal August slowdown in markets and the long Labor Day weekend, big U.S. companies kicked off September licking their borrowing chops.

Data: Ice Data Indices via FRED; Chart: Axios Visuals

The benchmark Treasury yield's rapid climb higher these last few months has sent shivers up the spines of those who might need to borrow money soon. But something unusual is happening in the corporate bond market — borrowing costs haven't really gone up.

Why it matters: It's another sign that investors aren't that concerned about an upcoming recession.

How it works: The cost of debt like mortgages and corporate bonds is benchmarked to the 10-year Treasury.

Investors expect to get paid more for taking on the higher risk of lending to, say, a homeowner, rather than chilling in the so-called risk-free trade of lending to the U.S. government.

That gap, or risk premium, is expressed as a spread over Treasuries. If the perception of risk in the market is going up, the spread gets bigger — if risk is going down, the spread gets smaller.

For example: Spreads blew out in the immediate aftermath of Silicon Valley Bank's failure. 

Meanwhile, if the 10-year yield increases, the total cost of borrowing that's pegged to it would go up by a similar amount, if spreads remain around the same level. 

What's happening: These last few months, the 10-year yield shot up by over a point. Likewise, the average cost of a 30-year mortgage is also up by about a point — to an eye-popping 7.23%. 

But in the corporate bond market, where large companies borrow trillions of dollars, the risk premium has actually shrunk, as the chart above shows.

For high-yield (HY) bonds, the average all-in yield — think of that as the 10-year Treasury rate plus the spread — is about the same as it was 4 months ago, per the BofA ICE index. 

And for investment-grade bonds, the cost to borrow is higher, but only by a tad — spreads have gotten smaller there, too, offsetting the impact of the rising benchmark.

What they're saying: "The market definitely came into the year broadly with some expectation of a recession ... But the consumer, and the economy globally, has held up much better than people expected. So that is certainly playing an overarching role," Christopher Miller, senior multi-sector credit portfolio manager at Neuberger Berman, tells Axios. 

The recent movement in spreads reflects expectations for "a relatively benign credit cycle," says Bill Zox, high-yield portfolio manager at Brandywine Global.

The bottom line: There are a myriad of technical factors behind spreads and yields, of course — and things could change on a dime. But if credit investors were prepping for a damaging recession, spreads wouldn't be shrinking so forcefully. 

The recent surge in rates isn't hitting corporate bonds

It's another sign that investors aren't that concerned about an upcoming recession.

Bonds

The benchmark Treasury yield&#x27;s <a class="gtmContentClick" data-vars-link-text="rapid climb higher" data-vars-click-url="https://www.axios.com/2023/08/18/us10y-bond-us-treasury-yield-economy" data-vars-content-id="a3a55885-b08d-41f1-8a9a-a61ea8707cbb" data-vars-headline="The recent surge in rates isn&#x27;t hitting corporate bonds" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2023/08/18/us10y-bond-us-treasury-yield-economy" target="_self">rapid climb higher</a> these last few months has sent shivers up the spines of those who might need to borrow money soon. But something unusual is happening in the corporate bond market — borrowing costs haven&#x27;t really gone up.Why it matters: It&#x27;s another sign that investors aren&#x27;t that concerned about an upcoming recession.

Kate Marino

Stories

Rising deficits draw attention as government spending needs pile up

Companies race to tap the bond market ahead of rates volatility

The recent surge in rates isn't hitting corporate bonds

Nike's shares crater as sneaker inventory piles up post-pandemic

Big layoffs in higher-paying jobs may be in the rearview mirror

Newsletter editions

Podcast: Putin's Invasion

🚨 Businesses' top threat

The Fed and inequality

🌎 Pandemic’s “permanent scar”

📈 Europe's latest energy crisis