The bookies are cuing up the spreads for Jackson Hole, and investors are taking note. The annual economic symposium has increased importance this year given the current macro-driven market, as well as the cohesive swings being seen among asset classes like stocks, bonds and commodities. While tomorrow’s edition of Wall Street Breakfast will feature a full breakdown of what to look out for in Fed Chair Jay Powell’s speech, here are some analyst calls ahead of the conference and what that might mean for market movement.
Powell is no Volcker: “I think he will lay out a case, as he did in his last press conference, for slowing the pace of increases. We had two 75-basis-point moves. Our expectation would be, barring significant data surprises, that the September move is 50,” said Jan Hatzius, chief economist at Goldman Sachs. “I don’t think he will be specific about the number, but I do think he will be saying there is a risk of over-tightening, and therefore it makes sense to go a little bit more slowly than the outsized increases.”
Ain’t over yet: “It’s safe to assume one of Powell’s objectives will be to communicate that there remains work to be done to combat inflation and the hiking cycle isn’t nearing its end,” wrote Ian Lyngen, rates strategist at BMO Capital Markets.
Turbulence ahead? “Throughout this year, what we’ve seen is the volatility around the Fed-funds rate has created market volatility,” noted Michael Arone, managing director at State Street Global Advisors. “I think that all of this ‘trying to find that level’ has induced this volatility, and I think the markets are underestimating where the Fed will end up.”
Ironing itself out: “We maintain that inflation will resolve on its own as distortions fade, and likely drive a Fed pivot,” related Marko Kolanovic, chief global markets strategist at J.P. Morgan. “In Chair Powell’s remarks, we do not expect him to tip his hand on the size of the next move, which will depend on upcoming releases, but we believe he will push back against the idea that a dovish policy pivot is coming soon.” (4 comments)
California’s Air Resources Board this afternoon is expected to ban the sale of new gasoline cars by 2035, while setting interim targets to phase the vehicles off the road. The decision will have major ramifications for the auto industry given California’s massive economy, which would rank as the world’s fifth largest if it were a sovereign nation. In the past, more than a dozen other U.S. states have also opted to use stricter emission standards set by California under a federal waiver of the Clean Air Act (which was revoked by President Trump, only to be restored by President Biden).
Details: The rules would focus on sales of new models – not used vehicles – by setting interim quotas. Starting in 2026, 35% of new passenger cars, SUVs and small pickup trucks sold in California would have to be zero-emission vehicles. The measure would then increase each year, reaching 51% of all new car sales in 2028, 68% in 2030 and 100% in 2035 (only 20% of zero-emission cars sold could be plug-in hybrids).
The proposed rules come shortly after the signing of the Inflation Reduction Act, which involves tens of billions of dollars for spending on the electric vehicle transition. Provisions include new tax credits aimed at incentivizing EV sales, as well as benefits for carmakers shifting production to the U.S. to shore up the domestic supply chain. Last year, the Biden administration also issued stricter nationwide tailpipe for new vehicles and SUVs made through 2026.
Can the auto industry hack it? “Despite this positive trend, California’s EV sale mandates are still very aggressive – even in California with decades of supportive EV policies – and will be extremely challenging,” said John Bozzella, CEO of the Alliance for Automotive Innovation. “That’s just a fact.” The state’s objectives depend on many factors, such as “inflation, charging and fuel infrastructure, supply chains, labor, critical mineral availability and pricing, and the ongoing semiconductor shortage.” (2 comments)
In the latest example of how politics hits the investing sphere, Texas is conducting a counter “ESG” crackdown. It says the move is in response to top financial services firms’ targeting of the fossil fuel industry, which is big business in the Lone Star State. Wall Street has been watching the case as a bellwether for how aggressively Republican state officials will go after expanding ESG campaigns or the socially “woke” policies of big corporations.
Backdrop: In 2021, Texas passed a law that mandates state pension and local governments divest shares they hold in financial groups that “boycott energy companies.” It specifically defines the rule as “refusing to deal with, terminating business activities with, or otherwise taking any action that is intended to penalize, inflict economic harm on, or limit commercial relations with a [fossil fuel] company” that hasn’t made specific environmental promises. In order to carry out the legislation, state pension funds are required to disclose their direct and indirect holdings, or must explain their relationships if the divestments would conflict with their fiduciary responsibilities.
“The ESG movement has produced an opaque and perverse system in which some financial companies no longer make decisions in the best interest of their shareholders or their clients, but instead use their financial clout to push a social and political agenda shrouded in secrecy,” declared Texas comptroller Glenn Hegar.
In the crosshairs: BlackRock (BLK), the world’s largest money manager with $8.5T in total assets, is the most prominent financial firm to be mentioned by Texas. For its part, Blackrock says “this is not a fact-based judgment” and “investing over $100B in Texas energy companies on behalf of our clients proves that.” Other companies subject to divestment include BNP Paribas (OTCQX:BNPQF), Credit Suisse (CS) and UBS (UBS). (103 comments)
Private equity firm Blackstone (BX) is among potential buyers of Pink Floyd’s back-catalog, according to the FT, in a deal that could value the band’s music at almost a half billion dollars. The transaction would include master recordings and copyrights to the songs, which include rock classics like “Another Brick in the Wall,” “Comfortably Numb” and “Money.” KKR (KKR)-backed BMG, Warner Music (WMG), Sony Music (SONY) and Oaktree-funded Primary Wave are also vying for the catalog.
Turning up the volume: Last year, Blackstone took a majority stake in Hipgnosis Song Management, a firm founded by Elton John’s former manager Merck Mercuriadis. After the investment in HSM, the private equity firm set up Hipgnosis Songs Capital, which has already bought $341M of back catalogs from Justin Timberlake, Nile Rodgers, Leonard Cohen, Nelly Furtado and Kenny Chesney.
Any agreement would show Blackstone’s love for the industry, with the latest Pink Floyd deal worth more than all of those titles combined.
Go deeper: The music sector has attracted private equity firms and others in recent years given its consistent returns in a low interest rate environment. In 2021, Sony (SONY) acquired Bruce Springsteen’s recording masters and music publishing for a reported $500M, while Universal Music acquired Bob Dylan’s catalog in 2020. (36 comments)
Be the first to comment