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June 3, 2021
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ICYMI: How the Pandemic Changed the Inverse Relationship Between Gas Prices and Consumer Sentiment

In a lot of ways, the past year has changed many of our basic assumptions about the economy. Downtowns aren’t the same, housing prices skyrocketed during an economic downturn and travel all but ground to a halt. 

Another big thing that changed: America’s reliance on cars and on what fuels them. No longer needed for many to get to work, cars idled in driveways across the country, set aside as consumers isolated in their homes. That means that gas prices started to have less bearing on average consumers’ everyday finances. 

Senior energy reporter Lisa Martine Jenkins and I collaborated to understand this shift. Read our data dive here: The Pandemic Upended the Long-Standing Inverse Relationship Between Consumer Sentiment and Gas Prices

 

Top Stories

  • The Federal Reserve announced that it will start selling off its direct bond holdings and exchange traded fund investments acquired via an emergency lending facility amid the coronavirus pandemic, a process that a Fed official said should be finished by the end of this year. The Fed said the unwinding of this program will be “gradual and orderly,” and will take “into account daily liquidity and trading conditions for exchange traded funds and corporate bonds.” (The New York Times
  • President Joe Biden and Sen. Shelley Moore Capito (R-V-W.Va.) met at the White House to discuss an infrastructure package, and afterward Capito briefed the other five Republicans who are also part of the negotiations, saying that Biden wants $1 trillion in new spending and is insistent on corporate tax hikes being included, according to three people familiar with the matter. The Republicans could put up another counteroffer when Capito and Biden speak again tomorrow on the phone. (Politico
  • Half of states, all of which are led by Republican governors, are ending the $300-a-week additional unemployment benefits from the federal government before they expire in September, with Maryland being the 25th state to announce such a move this week. Some Republicans and business groups have argued that the unemployment benefits are causing people to turn down jobs, leading to a labor shortage and causing businesses to delay reopening, while Democrats and labor activists contend that several other factors, such as health concerns, are to blame. (Reuters
  • AMC Entertainment Holdings Inc. shares rose in early morning trading today after gaining 95 percent to a record high in the last session as Reddit’s retail-trading army focused on the stock, similar to the GameStop Corp. trading frenzy in January. (Bloomberg) However, AMC shares erased those gains and fell in premarket trading after the company said early this morning that it would sell more than 11 million shares and warned investors against buying its stock. (CNBC
 

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Events Calendar (All Times Local)

 

What Else You Need to Know

General
 

‘Kind of crazy’: how the booming US used car market is driving inflation

James Politi and Colby Smith, Financial Times

Supply constraints and soaring demand make vehicle prices a key number to watch for the Fed. 

 

U.S. to Levy Tariffs Over Digital-Service Tax, but Suspend Implementation

Yuka Hayashi and Paul Hannon, The Wall Street Journal

The U.S. said Wednesday it will impose tariffs on the U.K. and five other countries in response to their taxes on U.S. technology companies, but will suspend the levies for six months as it seeks to negotiate an international resolution. U.S. trade representative Katherine Tai said investigations determined that tariffs were justified because of digital-services taxes imposed on U.S. companies by the U.K., Austria, India, Italy, Spain and Turkey.

 

Biden to Amend Trump’s China Blacklist, Target Key Industries

Jenny Leonard et al., Bloomberg

President Joe Biden plans to amend a U.S. ban on investments in companies linked to China’s military this week, after the Trump-era policy was challenged in court and left investors confused about the extent of its reach to subsidiary firms, people familiar with the matter said. Under Biden’s amended order, the Treasury Department will create a list of companies that could face financial penalties for their connection to China’s defense and surveillance technology sectors, the people said. 

 

Persistence of Donald Trump’s China tariffs frustrates US business

Aime Williams, Financial Times

Policy under Biden is closer to his predecessor’s approach than experts had expected.

 
Fiscal Policy
 

Yellen Aims to Win Support for Global Tax Deal

Alan Rappeport and Liz Alderman, The New York Times

Treasury Secretary Janet L. Yellen will try to secure international support this week for a broad agreement that aims to put an end to global tax havens when she makes her first trip as President Biden’s top economic diplomat to the Group of 7 finance ministers summit in Britain. Such a pact has been elusive for years, as countries like Ireland sought to keep taxes as low as possible in order to attract global investment.

 
Economy and Monetary Policy
 

Labor Shortage Draws Attention of U.S. Lawmakers

Kate Davidson, The Wall Street Journal

With millions of Americans still out of work and job openings at a record high, policy makers are dealing with an unexpected problem: How to coax people back into the labor force. Congressional lawmakers from both parties are considering incentives such as providing federal funding to pay for hiring bonuses for workers and expanded tax credits for employers.

 

A ‘tsunami’ of cash is driving rates ever lower. What will the Fed do?

Jonnelle Marte, Reuters

Banks have too much cash on their hands – and they’re running out of places to put it. Nowhere is this more evident than in the rising popularity of a Federal Reserve program that lets firms stash their cash overnight with the U.S. central bank in exchange for at best a small return.

 

U.S. Economic Activity Picked Up in Spring, Fed Beige Book Says

David Harrison, The Wall Street Journal

The U.S. economy continued to pick up speed in the spring, as consumers, many of them newly vaccinated and flush with federal stimulus cash, returned to restaurants, hotels and retail stores, the Federal Reserve said Wednesday. But businesses told the Fed that ongoing supply-chain disruptions and an acute labor shortage have made it difficult for them to meet demand and have caused them to raise prices.

 

The Economic Recovery Is Here. It’s Unlike Anything You’ve Seen.

Gwynn Guilford and Sarah Chaney Cambon, The Wall Street Journal

The U.S. economic recovery is unlike any in recent history, powered by consumers with trillions in extra savings, businesses eager to hire and enormous policy support. Businesses and workers are poised to emerge from the downturn with far less permanent damage than occurred after recent recessions, particularly the 2007-09 downturn. 

 

Inflation in Rich Countries Hit a 12-Year High in April

Paul Hannon, The Wall Street Journal

Consumer prices across the rich world rose at the fastest pace in more than 12 years during April, as central bankers try to figure out whether shortages that have emerged as the global economy reopens will prove transitory or have long-lasting consequences. The Organization for Economic Cooperation and Development Wednesday said consumer prices in its 36 members, which are mostly rich countries, were 3.3% higher than in April 2020. That was the largest increase since October 2008.

 

Jobless Claims Expected to Drop to Another Pandemic Low

Gwynn Guilford, The Wall Street Journal

Worker filings for unemployment benefits likely fell again last week, adding to signs of a healing labor market as the U.S. economy ramps up. Economists surveyed by The Wall Street Journal forecast that weekly unemployment claims, a proxy for layoffs, declined below 400,000 last week from 406,000 the prior week.

 
Banking
 

Climate change risks will affect U.S. bank capital in long-run – official

Pete Schroeder, Reuters

U.S. regulators will “eventually” have to factor climate change risks into bank capital rules, but it is still too soon to say when that would become necessary, a top official told Reuters. Acting Comptroller of the Currency Michael Hsu said in an interview that regulators were still exploring the best way to incorporate climate change risks such as extreme weather events or major policy shifts into bank supervision and oversight.

 

JPMorgan applies to take full control of China securities venture

Thomas Hale, Financial Times

Wall Street banks are bulking up in world’s second-biggest economy.

 

Deutsche Bank Is Returning U.S. Investment Bankers to Office

Jennifer Surane, Bloomberg

Deutsche Bank AG told U.S. investment bankers that it expects them back in the company’s offices by early September. “We are encouraged to see the rapid increase of in-person client meetings and that so many of you have resumed working from a DB office some or all of the working week,” Drew Goldman, head of investment banking coverage and advisory, and James Davies, head of the international client group and U.S. investment bank, said Wednesday in a memo seen by Bloomberg News. 

 
Financial Products and Investments
 

SEC Is Running Out of Options to Rein In Elon Musk

Dave Michaels and Rebecca Elliot, The Wall Street Journal

The Securities and Exchange Commission has tried for several years to get Elon Musk to behave more like a typical corporate leader. It hasn’t worked. 

 
Housing and GSEs
 

Housing boom may be cooling as weekly mortgage demand drops again

Diana Olick, CNBC

High prices and low supply are finally taking some of the heat out of the housing market. Even with interest rates falling slightly, mortgage application volume fell 4% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

 
Financial Technology
 

DeFi Is Helping to Fuel the Crypto Market Boom—and Its Recent Volatility

Paul Vigna, The Wall Street Journal

Dogecoin and NFTs have captured the public’s imagination, but money is also flooding into another hot, and risky, corner of the cryptocurrency market: DeFi. Short for decentralized finance, DeFi is an umbrella term for financial services offered on public blockchains. 

 

Coinbase rival Kraken launches mobile app in U.S. to capitalize on crypto surge

MacKenzie Sigalos, CNBC

Less than two months after Coinbase’s stock market debut, rival crypto exchange Kraken is bringing its mobile app to the U.S. as retail investors flock to digital currencies. Starting Wednesday, the new Kraken App will allow many users across the U.S. to securely buy and sell more than 50 crypto tokens from their mobile phones.

 

Biden Targets Crypto Tax Evaders in Global Data-Sharing Pitch

Allyson Versprille, Bloomberg

The Biden administration has proposed requiring the collection of data on foreign cryptocurrency investors active in the U.S., aiming to bolster international cooperation to help in a broader crackdown on tax evasion. The Treasury Department, in its “Greenbook” of revenue proposals released last Friday, proposed a requirement for cryptocurrency brokers, such as exchanges and hosted-wallet providers, to provide information to the IRS on foreign individuals indirectly holding accounts with them.

 
Opinions, Editorials and Perspectives
 

AMC and GameStop Frenzy Goes Beyond Casino Mentality

Mohamed A. El-Erian, Bloomberg

It has only been a few months since Reddit-enabled retail investors, or what some unflatteringly refer to as the “retail mob,” embraced GameStop Corp. and drove its valuation to the moon only to be frustrated by a sudden change against them in the rules of the game. Today, it’s all about AMC Entertainment Holdings Inc., whose skyrocketing value this week has already overcome what would normally curtail investor enthusiasm.  

 

Americans Don’t Want to Return to Low Wage Jobs

Daniel Alpert, The New York Times

The hopes for a booming pandemic recovery — growth led by jobs gains in the millions every month — were dealt a blow in recent weeks by a disappointing April jobs report. Perhaps we will see better when results for May are released this week, on Friday.

 

Why we shouldn’t worry about falling birthrates

Leslie Root, The Washington Post

Birthrates have been causing a lot of angst lately. With data suggesting that covid-19 will probably result in a drop of births in the United States, experts have renewed their warnings about Social Security shortfalls; sluggish economic growth; markets bereft of innovation, as fewer young minds are around to bring in fresh ideas; and even a world led by China rather than the United States.

 

Biden’s Budget Signal to the Fed

The Editorial Board, The Wall Street Journal

A President’s budget is the clearest signal of his priorities, and we keep finding gems buried in the White House document released under holiday weekend cover on Friday. Well, maybe gems isn’t the right word, but consider the budget’s not-so-subtle message to the Federal Reserve about interest rates.

 






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