Sep 19, 2019

Axios Markets

By Dion Rabouin
Dion Rabouin

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Situational awareness:

  • The OECD cut its global growth outlook to 2.9% this year — down from its 3.2% projection 4 months ago, and the slowest since the financial crisis. (Bloomberg)
  • AT&T is considering a split with DirecTV and probing possible options just 4 years after paying $49 billion to acquire the company. (WSJ)
  • Apple’s head of public relations Steve Dowling announced he's leaving the company, making him the third top executive to leave Apple this year. (Recode)
1 big thing: The divided Fed is losing investors' faith

Illustration: Aïda Amer/Axios

The Fed is doing its best to prop up the U.S. economy in the face of possible economic turbulence, but it's beginning to look like a rudderless ship and it's fast losing the confidence of investors.

Driving the news: The Fed's rate-setting committee cut U.S. interest rates 25 basis points as expected on Wednesday, but did so with 3 dissenting votes for the first time since 2016.

  • The central bank's projections for future policy showed even more discord — 7 members of the 17-member committee said they expect to cut rates again this year, while 5 expect rates to remain at their current level and 5 see rates rising again later in the year.
  • It was a "forceful pushback" against the rate cut, Goldman Sachs economists Jan Hatzius and David Mericle said in a note to clients, and could portend a tougher road for policy action in the future.
  • "[T]he internal inconsistency ... is a reflection of the current divisions within the Fed," said Joseph Brusuelas, chief economist at RSM.

Between the lines: The Fed's more esoteric announcements were even more disappointing and confounding, investors said.

  • The rate cut — typically a sign of economic turmoil — was accompanied by expectations for higher GDP growth this year in the summary of economic projections.
  • Measures intended to stabilize the repo market by lowering key reserve rates were almost universally criticized by economists and money managers, many of whom called it a "Band-Aid" that failed to address the festering problems in the structurally important market.
  • To wit, the New York Fed announced it would need to inject up to $75 billion into the repo market today after losing control of its own interest rate and needing $128 billion of liquidity injections Tuesday and Wednesday.

The big picture: President Trump's trade war, constant criticism and demands for low interest rates have put the Fed in a bind, but Fed chair Jerome Powell and co. are not helping their cause either.

  • This is the latest example of the Fed surrendering global leadership on monetary policy.

The last word: "The Committee missed an opportunity for a bolder stance that might have provided greater insurance against international risks to the economy," Rick Rieder, CIO of global fixed income at BlackRock, said in a note.

Bonus: Central banks remain in focus

Both the Fed and ECB lowered interest rates at their policy meetings this month but 3 other major central banks will announce decisions today with no cuts expected.

  • The Bank of Japan made no changes to interest rates at its meeting overnight, and no changes are expected from the Swiss National Bank or the Bank of England at their respective meetings, despite the general easing trend among central banks around the globe.

What they're saying: "Central bank meetings will remain in focus for the next 24 hours with three additional monetary policy announcements on the calendar," Kathy Lien, managing director of FX strategy at BK Asset Management, said in a note to clients.

  • "Recent stability in the financial markets will relieve some of the pressure on policymakers."
2. Microsoft eyes all-time high after $40B buyback announcement
Expand chart
Data:; Chart: Axios Visuals

Microsoft plans to buy back as much as $40 billion in stock and raise its dividend to 51 cents a share, the company said Wednesday. It's the third time Microsoft has authorized a package that large, following $40 billion buybacks in 2013 and in 2016.

  • Microsoft stock rose 1% in after-hours trading following the announcement, edging back towards its all-time high of $141.68.

The big picture: S&P 500 companies are again picking up the pace of buybacks after a major lull in the second quarter, with tech companies leading the way.

  • Cumulative year-to-date buybacks are now up 18% year over year, according to data from Bank of America Merrill Lynch.
  • The rate of buybacks in Q2 was around 14% lower than the same quarter in 2018, and experts had been expecting the pace to continue to slow through the year.
3. FedEx stock sees biggest drop since 2008
Expand chart
Data:; Chart: Axios Visuals

FedEx shares fell by the most in a decade after chairman and CEO Fred Smith expressed extreme pessimism about the global economy and the delivery giant’s future during his investor call.

What's happening: "The Memphis, Tenn.-based delivery giant on Tuesday cut its earnings guidance for the fiscal year citing lower revenue projections in its Express unit, which ferries packages and cargo by planes around the world," WSJ reports.

  • "With weaker macroeconomic conditions and uncertainty stemming from trade disputes across the globe, FedEx foresees fewer shipments moving across borders."

Shares fell 13%, the most since December 2008, wiping out almost $6 billion in market cap and sending the company's stock near its lowest level in 5 years.

What they're saying: “I think there is a lot of whistling past the graveyard about the U.S. consumer and the United States economy versus what’s going on globally,” Smith said during the call.

  • CNBC’s Jim Cramer called it “the most dispiriting call about the economy I’ve heard in a very long time."
4. CFPB investigates BofA for fake accounts

The Consumer Financial Protection Bureau has opened an investigation into whether Bank of America violated federal law by opening unauthorized credit card accounts, American Banker reported Wednesday.

Background: The civil investigation came about because of the CFPB's investigation of Wells Fargo's account fraud scandal and was uncovered Tuesday when the bureau posted documents online that detail its back-and-forth with BofA.

Details: In one document, a lawyer for Bank of America acknowledges the bank found specific instances of “potentially unauthorized credit card accounts,” American Banker reports, noting the lawyer said that the number of such accounts that had been identified was “vanishingly small.”

Flashback: Wells Fargo faced hundreds of millions of dollars in penalties, and ultimately criminal and civil lawsuits in the case reached $2.7 billion by the end of 2018.

5. Consumers are happy, CEOs are scared

Axios' Courtenay Brown writes: The Business Roundtable on Wednesday announced that CEO confidence fell to the lowest level in 3 years — a doom-and-gloom indicator that contrasts the high levels of consumer optimism.

Driving the news: The Business Roundtable's closely watched index of CEO confidence declined sharply from the prior quarter's reading, reflecting the biggest quarter-over-quarter decline since 2012. The lobbying group said increased geopolitical tensions, and specifically the trade war, were to blame.

  • JPMorgan CEO Jamie Dimon: "You look at the business community — they are looking right now at Iran, North Korea, India, Pakistan, Hong Kong, China and trade. All these [are] things that you have to incorporate into thinking about how you manage your global risks."
  • Beth Ford, CEO of Land O' Lakes Butter, said the lack of clarity around the fate of the trade agreement among the U.S., Canada and Mexico is causing uncertainty for business owners her company knows well: farmers.

But consumers aren't focused on these problems and haven't pulled back on spending. Indeed, consumers are expected to deliver a blockbuster holiday shopping season, even stronger than last year.

  • "It's not that the consumer doesn't know [about these risks] ... they have jobs, their wages are going up — that's pretty good for them," Dimon said.
  • Delta CEO Ed Bastian told Fox Business on Wednesday that "gangbusters" consumer spending will benefit the airline by way of strong travel demand this holiday season.

The bottom line: The Fed's willingness to step in and trim borrowing costs amid these increased risks — as it did for the 2nd consecutive time on Wednesday — may comfort the CEOs who have been climbing a wall of worry.

  • While the rate cut is great for many consumers (borrowers, not savers), it may not fend off the pain businesses are feeling from the trade war.
Dion Rabouin