Compared to one year ago, the CPI hit 9.1% in June, jumping from the 8.6% year-on-year rise seen the month before. The increase maintains the highest inflation seen in four decades for the US economy.
Wall Street analysts had predicted a month-on-month increase of 1.1% and an annual increase of 8.8%.
June’s rise was heavily influenced by higher fuel and food costs. The price of petrol increased 11.2% from May while energy prices rose 60% over the past year. Food prices were up 1% from May and 10.4% over the previous 12 months.
Last month, Federal Reserve Chair Jerome Powell vowed that policymakers would not allow inflation to overcome the US economy in the long term:“The risk is that because of the multiplicity of shocks you start to transition to a higher inflation regime. Our job is literally to prevent that from happening, and we will prevent that from happening,” Powell said.
“We will not allow a transition from a low-inflation environment into a high-inflation environment.”
But we’re now seeing a divergence among banking behemoths. No longer is Wall Street a united front in corporate American culture. They’re each carving out their own protocols as to when and where work must get done. Citigroup and UBS have taken a hybrid approach, citing the distinct benefits of being together in person while also recognising that working remotely has benefits and creates flexibility for employees. Meanwhile, Goldman Sachs and Morgan Stanley have pushed for employees to return to the office five days a week, saying that everything else stifles innovation, training and mentoring.
Many of these large financial institutions have invested enormous resources into office space. Goldman’s headquarters at 200 West Street cost $2 billion to build more than a decade ago and this spring, JP Morgan unveiled plans for 2.5 million square feet of office space in midtown Manhattan. It’s hard to imagine they’d leave these spaces largely empty, particularly when they think there are plenty of people who would be willing to come in and work for them. After all, big banks remain highly desirable workplaces, garnering thousands of job applicants per year only to accept, in Goldman’s case, less than 2% of them – making the institution more selective than Harvard.
No longer is Wall Street a united front in corporate American culture.
Of course, the past year has been a grand experiment with different work practices. Wall Street’s banks now have four options:
From our perspective, we think there’s an important insight that decision-makers are missing. For the first two options, being in the office gives managers the ability (or so they think) to see exactly what their employees are working on when they clock in and out, and who is meeting with whom, raising their sense of certainty. It also gives them a sense of control by dictating when and how work happens. These two actions – raising their sense of certainty and control – may make a manager feel better, but they aren’t accurately calculating how much worse it could make their teams.
According to our research, a majority of employees across a variety of sectors – 54% – don’t want to be back in the office at all and 40% want hybrid options. Only 6% of respondents want to “always or mostly” work in the office. Having to return to the office can threaten people’s sense of status, or their sense of value. They feel untrusted and treated like children. Second, it can affect their sense of autonomy, or our sense of control over a situation, which researchers have found is strongly tied to job satisfaction. Finally, returning to the office also triggers fairness threats, particularly since both the quality of people’s lives and their work performance may diminish when forced back.
The real challenge is that returning to the office isn’t a zero-sum game. A manager feeling more in control turns out to be less of an issue than an employee who feels less in control. The reason? In the brain, a drop in certainty or autonomy turns out to be significantly stronger than an increase in the same experience. Our brains are built to pay far more attention to negative experiences than positive ones, perhaps for good reason: if you miss a reward you may miss lunch, but if you miss a threat you might be lunch. The result is that managers may not notice that they feel slightly better, but their teams feel dramatically worse.
The big question that no one can answer yet, is the true cost of these different options. When you add in the emotional rawness we all still have from the roller coaster of the past two years – the net effects of offering choice in work environments may outweigh the upsides of mandating people be back in their office swivel chairs. If you require everyone back in and use the real estate, what percentage of employees will you actually lose and what does it cost to replace them? Will that cost matter if others want to come in? Similarly, we know that only 3% of Black professionals want to return to the office full-time and that women prefer working remotely compared to men. Will requiring office time then impact your diversity, if the majority of people who are happy to work nine to five in a city office come from similar demographics? Further, what is the net drop in productivity of making people return to the office, given that working from home is about 25% more productive than working in the office?
When viewed from that perspective, it may be best to consider the net effect of all these considerations, compared to the benefits of being together all week. When much of the work can be done virtually, getting together feels special; people are excited to see one another and be productive together. They feel respected and appreciated, instead of being treated like employee No. 749. They’re eager to come to the office for a few days each month for a working session and then grab drinks after. And that, ultimately, may be the best return on an investment you can make right now.
The US central bank increased its policy rate by 75 basis points on Wednesday to a range of 1.5% to 1.75% as officials increased their fight against stubborn inflation.
Wells Fargo & Co now expects a “mild recession” for the end of 2022 and into early 2023.
“The Federal Reserve is going to hike interest rates until policymakers break inflation, but the risk is that they also break the economy,” Ryan Sweet, Moody’s Analytics head of monetary policy research, said. “Growth is slowing and the effect of the tightening in financial market conditions and removal of monetary policy have yet to hit the economy.”
A recession is generally defined as a downturn in overall economic activity that is broad and lasts for more than a few months. The United States has only just emerged from the economic slump that was triggered by the Covid-19 pandemic.
Gensler’s plan would require trading companies to compete directly to execute trades from retail investors, thus increasing competition.
The SEC plans to scrutinise the controversial payment for order flow practice which sees some brokers paid by wholesale market makers for orders.
Gensler said the new rules would push market makers to disclose more data on how much these companies receive in fees as well as the timing of trades in favour of investors.
“I asked staff to take a holistic, cross-market view of how we could update our rules and drive greater efficiencies in our equity markets, particularly for retail investors,” Gensler told an industry audience on Wednesday.
The announcement by the SEC is one of the largest shake-ups of US equity market rules in recent times. It will probably lead to formal proposals in the Autumn, with the public given the opportunity to consider them before a vote by the SEC takes place.
Netflix’s share price initially dropped close to 20% on the news that it had lost 200,000 subscribers globally during the first quarter. Wall Street had predicted the company would gain 2.5 million subscribers over the period. In the current quarter, Netflix believes it will lose 2 million global subscribers.
Netflix has blamed its sudden drop in subscribers on a range of factors, including increased competition, the cost of living crisis which is leaving households with less disposable income, and the ongoing conflict in Ukraine.
In a statement to investors, the streaming giant said: “Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally. However, our relatively high household penetration – when including the large number of households sharing accounts – combined with competition, is creating revenue growth headwinds.”
In 2021, the average payout for New York securities workers was $257,500 as deal-making and trading activity by big banks hit record levels amid surging global stock markets.
New York State Comptroller Thomas DiNapoli called the higher than expected figures “welcome news.”
In 2021, Wall Street contributed approximately 18% of all the taxes collected in New York. This is expected to help New York City trump its projections for income tax revenue.
"We have an April 1 budget deadline for the state, and this is welcome news,” DiNapoli said. “It gives them a little bit more breathing room.”
Several factors are expected to impact Wall Street bonuses this year, including record-high inflation, ongoing post-pandemic recovery, and the economic fallout from Russia’s attack on Ukraine. Presently, New York City and state are estimating that incentive compensation packages for securities industry workers in 2022 will drop by an average of 16%.
The US bank’s latest move makes it the first major Wall Street institution to follow through with a strict Covid-19 vaccine mandate, having announced intentions to do so back in October.
Citigroup’s decision comes as the financial industry struggles with how to return employees to offices safely amid rapidly rising cases of the Omicron variant of the virus. Other major Wall Street banks, including JPMorgan Chase & Co, Morgan Stanley, and Goldman Sachs & Co, have told unvaccinated staff to work remotely, but have not yet gone as far as firing employees.
So far, over 90% of Citigroup employees have complied with the mandate. While Citigroup is the first Wall Street bank to enforce such a strict vaccine mandate, other major US companies, such as Google and United Airlines, have also introduced “no jab, no job” policies.
Several Wall Street banks and investment firms, including Citigroup, Jefferies Financial Group, and Bank of America, have reversed efforts to get staff back to the office as the Omicron variant of the virus spreads across the Northeast.
Deutsche Bank has encouraged its New York staff to work remotely for the last two weeks of the year and are likely to continue working remotely for several weeks into 2022. Meanwhile, Wells Fargo has also delayed its return-to-office plans. In a statement, the bank said, “Given the changing external environment, we are delaying our return-to-office plans.”
“We are continuing to closely monitor the environment with the health and wellbeing of our employees as our priority,” Wells said. “We look forward to fully returning our teams back to the office.”
New York City is being hit hard by Omicron. Last week, cases rose by around 60%.
Speaking to Reuters, Neal Mills, chief medical officer for the professional services firm Aon said that, while employers are targeting February as a date to make the return, the situation is changing fast. As such, employers “are reluctant to do any communications”, Mills said.
Robinhood’s third quarter revenue jumped 35% to $364.9 million compared with $270 million in the third quarter of 2020. However, the trading platform still missed Wall Street estimates of $423.9 million.
Average Revenues Per User (ARPU) was down 36% to $65, compared with $102 in the third quarter of 2020. Robinhood’s annual revenue forecast of almost $1.8 billion missed Wall Street estimates of $2.03 billion. Following the results, Robinhood shares sank by around 8%.
The company says crypto activity "declined from record highs in the prior quarter, leading to considerably fewer new funded accounts, a slight decline in Net Cumulative Funded Accounts, and lower revenue in the third quarter of 2021 compared with the second quarter of 2021."
Robinhood had been previously warned of “season headwinds” as the industry moved into the second half of the year, which could lead to lower revenues and significantly fewer new funded accounts.
There were 332,000 new initial claims for unemployment support in the week to 11 September, according to the US Labour Department. This figure is up from 312,000 in the previous seven days. Economists had been expecting 320,000 claims, accounting for a delay in filings following Hurricane Ida.
However, the four-week moving average was the lowest seen since the beginning of the covid-19 pandemic in March 2020. 335,750 claims were seen at this time.
On the back of the news, US markets ticked lower while European stock markets continued to perform well. The S&P 500 dipped 0.6%, Dow Jones was down 0.5% and Nasdaq dropped by close to 0.7%.
Last month, US retail sales unexpectedly rose 0.7%, significantly ahead of the predicted 0.8% fall. This followed a 1.8% decline in July, implying that demand was more resilient than initially predicted, despite August’s hiring slowdown.
The Commerce Department said that, with the exception of motor vehicle parts and petrol sales, underlying retail sales were 2% stronger throughout August. Home furnishing sales rose by 3.7%, while food and drink spending increased by 1.8% and general merchandise jumped by 3.5%.
Two days after announcing a cybersecurity review of DiDi, China’s Cyberspace Administration ordered Chinese app stores to remove DiDi from the platforms entirely, claiming the company has severely violated regulations surrounding personal data. Regulators also requested that DiDi rectify all existing problems in line with national standards to protect personal data of DiDi’s many users.
On Friday, DiDi said it would fully cooperate with the government’s review. Aside from the suspension of new DiDi users, the company has insisted there will be no service interruptions for those already using the app. DiDi is not the only company to face tough crackdowns by Chinese regulators. Tencent, Alibaba, and JD.com are amongst others who have also been targeted. Action by the regulators aims to curb risk and prevent unfair labour practices.
The regulatory scrutiny surrounding DiDi follows its Wall Street debut, where the company raised $4.4 billion from investors in one of the biggest IPOs in recent memory. DiDi’s first day on the New York Stock Exchange drew to a close with a market capitalisation of approximately $75 billion, making the company’s president a new billionaire.
But around thirty years later, it became apparent that GameStop had missed a trick. They may have been tech-savvy in the 80s, but they hadn’t envisioned a future where sales of certain goods were more common online than in old-fashioned brick-and-mortar stores. Their sales fell while overheads rose and investors started to unload their holdings, sending the stock price down from just under $60 in November 2013 to around $3 in the summer of 2019. Stores then took another hit thanks to the coronavirus pandemic. Little did they know that they were about to take centre stage in such a major global story - sure to have far-reaching effects in the trading world going forward.
A bunch of Wall Street players were looking for companies they thought would go bust due to outdated business models. They decided to speed up the process and make a bit of money by ‘shorting’ the stock of companies like GameStop. The aim was to drive down the price (preferably to zero), so when GameStop went out of business, they could buy back the now-worthless shares and pocket the difference.
But while their hypothesis seemed solid, the real world stuck a spanner in the works. There were traders prepared to take the other side of this bet. Some were Wall Street players, while plenty of others weren’t. They did their homework the old-fashioned way and studied the company’s accounts. Between August 2019 and August 2020, the share price of GameStop hovered between $3 and $6. To the bulls, this looked irresistibly cheap given the company’s assets. Buyers came in and the stock broke out of this range, spending the next few months butting up against resistance around $20, where most of the short-selling took place.
But those on the bullish side believed that even at $20, shares in GameStop were undervalued. They were convinced the company could be worth three times as much. One of these traders was a prominent contributor to the ‘WallStreetBets’ subreddit. The GameStop bulls also noticed the large short interest in the stock, created by Wall Street firms hoping the business would go bust. There was little doubt that GameStop was vulnerable given their miserable online business and the ravages inflicted by the coronavirus pandemic. But short-sellers also have weaknesses that can be exploited. After all, a stock can only fall to zero, while in theory there’s no limit to its upside. Incredible as it sounds, the overall short position on GameStop was larger, thanks to derivative trades, than the shares in existence. That meant further instability. Should a pack of determined buyers get together to take advantage of this fact, all hell could break loose. A catalyst was all they needed, and that’s exactly what they got.
In early January, GameStop announced the appointment of three new executives to its board — Ryan Cohen, the founder and former CEO of an e-commerce business called Chewy Inc., and two of his colleagues. Their involvement raised hopes that GameStop was serious in boosting its online presence and the stock jumped from around $20 to just below $40 in a single day. But it didn’t stop there. More Reddit buyers poured in, bulled up by the opportunity to give hedge funds a bloody nose. Less than a fortnight later the stock broke above $100. Three days later it traded at $482 per share, helped on its way by a cryptic tweet from Tesla founder, Elon Musk. It subsequently fell, ending that day below $200 before doubling the next day.
It now looks as if we’re past peak GameStop as the shares hover around $50. Of course, that’s not a bad return if you were buying at $20. It’s also close to what many early investors believed the real value of the company was. But for those who came late to the game, it has proven expensive. Imagine paying about $493 for a share that’s now worth $50. On the other hand, whoever sold up should be pleased. But other aspects are making this event so unusual. There was anger when Robinhood and other trading apps brought in restrictions, such as preventing their customers from opening new positions in GameStop stock. This may have been perfectly legal and done in response to funding shortages, but the perception was that such apps were helping Wall Street by punishing the little guys.
This wild trading wasn’t confined to GameStop either. Suddenly, hunting out and buying the stock of companies with large short interest became the only game in town. It didn’t take long before similar stocks began to skyrocket, with AMC Entertainment, Eastman Kodak, Bed, Bath & Beyond, Blackberry, Virgin Galactic and Nokia all seeing their shares soar as buyers rushed to take on the evil short-sellers of Wall Street. Even silver, a commodity commonly thought to be artificially suppressed by major financial institutions, came into the sights of the Reddit crowd focused on one single factor – short interest.
There have been calls for the regulators to get involved. Not to address short-selling (as Elon Musk is calling for) but to investigate social media platforms like Reddit and trading apps like Robinhood over claims that users were colluding to manipulate markets. For a time, it seemed like regulators were prepared to sit this one out, just as they should. But now it looks as if the Department of Justice, the Securities and Investment Commission, and the Commodity Futures Trading Commission are all after their pound of flesh.
However, there’s no obvious evidence that anyone did anything untoward. Reddit users did less combined than many Wall Street players do daily, while the market functioned properly throughout, with trading limits kicking in when the share price hit pre-set levels. As to Robinhood and other brokers imposing trading restrictions, I do not doubt that it’s all covered in their terms and conditions. To those customers hurt by this, then it’s probably best to find another broker. I have to say with immense pride, that our customers at Trade Nation were able to trade GameStop without restriction throughout this period.
So, where does this all leave us? Well, short-sellers have been caught out before — just look up a chart of Volkswagen from October 2008. However, people do have short memories, so it may be a few years before we experience such an egregious example of a short squeeze. After all, everyone is now on the lookout for another GameStop.
Ultimately, the market is a two-way thing requiring buyers and sellers. There’s one key thing the two sides must agree on and that’s the price at which they make the exchange. This is usually a straightforward process, but sometimes things can get out of hand. So, I have little doubt there will be other unusual money-making, and money-losing, market events. The trouble is working out where they will happen next. If you find one, make sure you let me know.