Bloomberg - Evening Briefing - Sticking point

Treasury Secretary Janet Yellen announced the department expects to be able to make payments on US debt up until June 5, four days longer than her previous estimate. While that gets the Treasury past a critical June 2 date for Social Security payments, it may also be giving those hashing out a debt limit deal incentive to make more demands despite the risk of catastrophe. That risk alone has already done damage to the US economy and may earn a national credit downgrade. On Friday, Democratic and Republican negotiators tentatively narrowed differences but were still clashing on key issues. Of note was an intensifying Republican insistence on “work requirements” for millions of America’s poorest, if they want to avail themselves of help for food or medical care. President Joe Biden has rejected the GOP condition for avoiding default. —David E. Rovella

A highly leveraged bond trade that’s become popular with hedge funds is drawing fresh scrutiny three years after it blew up in spectacular fashion. The US  Securities and Exchange Commission and the Federal Reserve are said to have questioned prime brokers about leveraged trading in government bonds by their fast-money clients. The dangers have been heightened as the game of chicken around the debt ceiling has threatened to unleash chaos in financial markets.

Meanwhile, one of the most reliable strategies in the hedge-fund world this century is faltering. The trick? Buy stocks that are entering major indexes and sell those that are exiting them. For Emmanuel Terraz, it has minted profits practically his whole career. But something is changing, and the Frenchman’s Candriam Index Arbitrage fund—which has gained in all but four of its 19 years, including through the financial crisis and Covid—posted its worst-ever performance in 2022. 

US inflation and consumer spending accelerated last month, highlighting steady price pressures and demand that might keep Federal Reserve policy makers tilted toward raising interest rates rather than pausing. The personal consumption expenditures price index and a core measure that excludes food and energy, the Fed’s preferred inflation gauges, both exceeded projections. The Commerce Department’s data also surprised with the strongest gain in household spending since the start of the year. 

Cathie Wood defended her firm’s very expensive decision to bail on Nvidia before the chipmaker’s shares surged 160%. Wood’s flagship ARK Innovation ETF cut its holding in Nvidia in January and missed out on most of the rally that added more than half a trillion dollars in market value. She told Bloomberg TV that the computer-chip industry’s boom-bust cycle poses risks. Wood says when she hears, “shortages, shortages, shortages about GPUs or anything, I begin to think about the cyclicality of a group.” 

Cathie Wood Photographer: Patrick T. Fallon/AFP

Rarely does a tech-powered stock rally come along that isn’t pilloried for the fragility of its foundation. Now, with a snowballing craze for artificial intelligence pretty much propping up the market by itself, the haters are out in force. Never has so much been owed to so few when it comes to the recent upward arc of indexes like the S&P 500 and Nasdaq 100.

South Korea’s Hyundai Motor Group and LG Energy Solution will invest 5.7 trillion won ($4.3 billion) to produce electric-car batteries in the US to comply with Biden’s clean energy tax law, which seeks to encourage domestic production and reduce reliance on Chinese suppliers. 

The world’s biggest climate finance coalition has spoken out against the increasingly aggressive political attacks on ESG, after Republican threats triggered a mass exodus from a sub-alliance for insurers. “These political attacks are now interfering with insurers’ independent efforts to price climate risk, which will harm policyholders, main street investors and local economies,” the Glasgow Financial Alliance for Net Zero said.

• Bloomberg Opinion: Should Ukraine take the war to Russia?
• Credit Suisse loses Singapore case against Georgian billionaire. 
• Europe’s economic engine may be breaking down.
• Young Americans struggle to hit “adult” milestones.
• Rolex Explorer II, Patek Nautilus lead drops in watch subdial index.
• “Last of Us” multiplayer video game faces setbacks at Sony.
• A $189 airport travel hack is no longer working very well.

Leisure travel always picks up after school lets out in the US, but the first summer without any pandemic-related restrictions worldwide is shaping up to be exceptional, likely exceeding record levels set in 2019. A confluence of post-pandemic forces means flying is likely to be crowded and expensive for at least the rest of this year. About 275 million people are expected to travel between May 25 and Sept. 4—that’s 7.4% higher than in 2019 and 19% higher than last year. 

Travelers at Hartsfield-Jackson Atlanta International Airport on May 25. Photographer: Elijah Nouvelage/Bloomberg

The Evening Briefing will return on Tuesday, May 30.

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