Bloomberg - Evening Briefing - Goldilocks scenario

Upbeat quarterly earnings reports on Friday from three of the largest US banks capped a week in which almost everything rallied in markets. Revenue soared to a record at JPMorgan, boosted by US Federal Reserve rate hikes and the bank’s First Republic purchase. Citigroup reaped gains as consumers borrowed more on credit cards. Wells Fargo’s net interest income—revenue collected from loan payments minus what depositors are paid—was up 29% from a year earlier. All three banks beat analyst expectations. Their reports added more oxygen to a rally that has investors increasingly betting on a “Goldilocks scenario,” in which the US avoids a recession as inflation eases swiftly—otherwise known as the “soft landing” so many thought impossible a short time ago. “The market,” Deutsche Bank strategist Jim Reid said, “has been partying like it’s 1999.”

Even Mohamed El-Erian, a long-time skeptic of the Fed's inflation-fighting strategy, was in an upbeat mood. “You cannot get in the way right now of the soft-landing narrative—that narrative is building momentum,” the chief economic adviser at Allianz and columnist for Bloomberg Opinion said. US inflation sharply cooled last month to 3%, down from its peak of 8.9%, and suddenly “disinflation” is the buzzword on trading desks. John Authers and Isabelle Lee, writing in Bloomberg Opinion, have concluded “the battle against inflation is now plainly being won.” Nevertheless, Fed Governor Chris Waller said late Thursday he still expects two more hikes this year. El-Erian warns that if the Fed attempts to get to its 2% inflation target too quickly, it could end up “breaking something.” And while consensus builds around a defeat for Team Recession, the chances of a downturn remain. Allison Schrager writes in Bloomberg Opinion that household balance sheets are weaker and credit-card balances have climbed, leaving the US economy exposed.  

Global warming has grilled the world to a record high, and it’s stayed above that average temperature (17C, 63F) for most of July. Drought is so extreme in Spain that virtually no aspect of daily life has been left untouched. The heat is expected to shrink China’s cotton harvest. Across America, 103 million people, or just over 30% of the population, are under excessive heat warnings. The heat is also burning investors—and they don’t even know it. 

US Secretary of State Antony Blinken met Chinese counterpart Wang Yi as the two countries look to maintain dialogue after ties were roiled anew by allegations Chinese hackers breached US officials’ email accounts. It was Blinken’s second meeting with Chinese officials in recent months and came less than a week after Treasury Secretary Janet Yellen visited Beijing, saying relations were on a “surer footing.” Meantime, China is facing pressure on trade as foreign shipments drop and domestic demand remains weak.

NATO members scrambled after President Volodymyr Zelenskiy said it was “absurd” that Ukraine wasn’t given a clear timetable for membership in the alliance during a summit in Lithuania. But Turkey dropped its opposition to Sweden’s membership and US President Joe Biden seemed optimistic after the meeting in Vilnius. He said Russia can’t sustain the economic and political cost of its war. As reports emerged that Wagner leader Yevgeny Prigozhin met with Vladimir Putin in the days after the former’s failed mutiny, Biden offered some advice to the mercenary chief: "I’d be careful what I ate.” 

Yevgeny Prigozhin Source: Anadolu Agency

Remote work risks wiping $800 billion from the value of office buildings in major cities, according to the McKinsey Global Institute. But office demand in the US is starting to show early signs of stabilizing. Manhattan residential rents eased from record highs in June, but that relief may be short lived: Late summer is traditionally peak rental season. 

For the first time in six decades, Hollywood writers and actors are on strike at the same time amid growing labor strife in the entertainment industry. Flights and hotels aren’t the only rising costs eating into summer budgets: Some travelers are spending thousands of dollars on “vacation prep” —outfits, hair, nail and beauty appointments. And the days of dainty, minimalistic jewelry are over, as collectors embrace colorful gemstones and bold designs. 

Photographer: Joanna McClure

• More US earnings, including banks, Tesla and Netflix. 
• G-20 finance ministers, central bank governors meet in India.
• China reports economic data including 2Q GDP, employment.
• UK releases inflation data ahead of Bank of England rates meeting.
• The Women’s World Cup kicks off in Australia and New Zealand.

Influential Indian-born business people are bringing the world’s second-most popular game to audiences in the US, where the sport has been growing in places with large South Asian populations. Major League Cricket has attracted Adobe Chief Executive Officer Shantanu Narayen and Microsoft CEO Satya Nadella, who has a piece of Seattle’s professional team, the Orcas. And Bollywood’s most famous actor, Shah Rukh Khan, is investing in a cricket stadium near Los Angeles. But are Americans ready for another bat-and-ball sport with long games, arcane terminology and a near-mystical reverence for playing statistics?

Microsoft CEO Satya Nadella plays cricket while visiting his former school in India. Source: Microsoft

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