Fed Needs to Hike Rates to Kill This Job Market. Why It’s Stumped.

There’s a disconnect between the markets and the Fed when it comes to how high interest rates will go, and for how long they will stay elevated. However, on Thursday that gap closed a little as investors began to reluctantly accept the need for further tightening after a raft of strong jobs data, including private payrolls that nearly doubled expectations. The Dow and the S&P 500 had their worst days since May.

But with robust economic data, particularly of the labor variety, becoming a regular occurrence, there’s a chance the Fed could also be underplaying how much more hiking is needed.

The central bank signaled two more increases in 2023. It’s unlikely to stop hiking if the economy remains strong, although next week’s consumer price index reading will give an important update on its battle with inflation.

But investors hoping the rate hikes will end when inflation reaches the target rate need to look at what happened across the pond. Switzerland’s inflation fell below the
Swiss National Bank’s
2% target in June but the central bank believes more tightening is needed to sustain that.

Strong labor data cast doubt on the Fed’s forecast for a recession later in 2023, but it’s ultimately bad for stocks given the implications for rates.

Unless the data begin to markedly shift, the odds of a September hike will only increase in the weeks ahead.

—Callum Keown

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Yellen Criticizes China Over Chip Measures on Beijing Trip

Treasury Secretary Janet Yellen raised concerns about action taken by China against U.S. businesses Friday as she began her relationship-building visit to Beijing. She will take the concerns of the U.S. business community directly to her Chinese counterparts, she said, on a trip designed to “deepen our communications with China.”

• In a roundtable discussion with U.S. business leaders operating in China she said “I’ve been particularly troubled by punitive actions that have been taken against U.S. firms in recent months.”

• The tit-for-tat dispute between the world’s two largest economies escalated this week in the buildup to Yellen’s visit. China announced Monday new export controls on metals, targeting gallium and germanium—which are key to the production of semiconductors.

• Despite this, President Xi Jinping, shortly after China’s export controls were announced, made comments calling on countries to avoid decoupling and closing off global supply chains.

What’s Next: Yellen has a difficult job in the coming days, balancing the desire to stand up for U.S. business interests with the need to improve relations with China, rather than damaging them further. Both sides are saying the right things, but their actions are only intensifying the tech cold war.

—Callum Keown

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Uber, DoorDash Fight New York’s Minimum Wage Rules

The app-based delivery platforms
DoorDash,
Uber Eats’
Uber Technologies,
and Grubhubsued New York City to block a first-of-its-kind law setting minimum wages for app-based food-delivery workers. The law would require the companies to pay delivery people a minimum of $17.96 an hour starting July 12.

• The law requires paying workers either 50 cents for every minute on a trip or the hourly rate for time spent active on the app, which works out to around 30 cents a minute. Both exclude tips. Pay increases to $19.96 an hour in 2025.

• More than 60,000 delivery people in the city get $7.09 an hour on average. “Delivery workers, like all workers, deserve fair pay for their labor, and we are disappointed” that the app platforms disagree, said New York City’s Department of Consumer and Worker Protection.

• Uber said in its lawsuit the law “will cause immediate and irreparable harm to Uber in the form of lost goodwill with couriers and customers and in the form of nonrecoverable costs.” The app platforms say it could make trips more expensive and limit hiring.

• The delivery platforms say so-called gig workers are typically active on multiple apps simultaneously, so they could be paying workers for the same hours. DoorDash and Grubhub’s joint lawsuit also warned of higher prices and unrecoverable monetary damages.

What’s Next: Uber, DoorDash, and Grubhub have also sued New York City over a limit on commissions they can collect from restaurants that use their platforms, and separately sued to fight a rule that requires companies to share customer data with restaurants. Both those legal matters are ongoing.

—Janet H. Cho

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FDA Gives Biogen’s Alzheimer’s Drug Full Approval

The U.S. Food and Drug Administration has granted full approval to the Alzheimer’s drug Leqembi, developed by Japan-based
Eisai
with U.S.-based
Biogen.
The move clears the way for millions of patients to receive the medicine that has been proven to slow the disease’s progression.

• Federal approval marks a major step forward in accessibility for the $26,500 annual cost of the treatment. Medicare will cover it now it has full approval, providing access to enrollees who qualify and agree to report data to a registry, The Wall Street Journal reported.

• Most of the six million people in the U.S. with Alzheimer’s are eligible for Medicare. The drug could reach $7 billion in global sales by 2030, Eisai has said. The drug is administered twice monthly as an intravenous infusion.

• Clinical trials for Leqembi showed it could slow the rate of Alzheimer’s progression, but can’t stop the disease or reverse it. The drug slowed memory declines by about 27% after 18 months of treatment and reduced the presence of sticky beta-amyloid plaques in the brain.

• The full approval is also progress in the partnership between Eisai and Biogen. Aduhelm, another anti-amyloid treatment from the two pharma companies, was conditionally approved by the FDA in 2021. But Medicare wouldn’t offer routine coverage of it.

What’s Next: How Medicare covers Leqembi could guide how private insurers cover the drug. Aetna said Thursday that it would consider the FDA’s updated labeling for Leqembi before deciding about coverage, the Journal reported.

—Hannah Ziegler and Liz Moyer

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Retailers Prepare to Battle Amazon With Their Own Sales

The back-to-school shopping season for retailers, which gives economists more insight into consumer spending, has been pushed up to the week after July Fourth.
Amazon.com’s
annual Prime Day is largely responsible for that, forcing other retailers to put on sales of their own.

• Prime Day is set for July 11 and 12.
  Walmart
  has scheduled its Walmart Plus Week for July 10 through 13;
  Target’s
  Circle Week is July 9 through 15; and
  Best Buy’s
  Black Friday in July is July 10 through 12. Retailers are escalating their discounts to attract shoppers.

• Retail earnings reports found shoppers were avoiding or delaying some discretionary purchases, particularly pricey ones that might require financing at higher interest rates. Even after some improvement in recent weeks, persistently high inflation has been constricting the finances of many consumers who are struggling to make ends meet.

• Analytics firm Placer.ai found that although weekly visits to major retail chains so far this year lagged behind last year’s and prepandemic figures, the number of shoppers has been approaching previous levels after big drop-offs at the start of the year.

• Beauty and self-care was the only category out of nine sectors recording positive growth in visits in the past seven weeks, while traffic to pet stores, office supplies, and home-improvement retailers has been stuck around 8% below 2022 numbers, Placer.ai said.

What’s Next: Of Amazon’s major rivals, Best Buy might have the biggest boost next week, Placer.ai said, noting that higher traffic during its Father’s Day sale shows that shoppers are receptive to its promotions. Walmart’s recent traffic has also been strong, while Target’s growth has been “more muted.”

—Teresa Rivas and Janet H. Cho

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Rare Rembrandt Portraits Auctioned for $14.3 Million

A pair of rare, small, and previously unknown Rembrandt portraits sold for a higher-than-expected $14.3 million, with fees, at a Christie’s Old Masters auction in London.

• The pair of portraits, each only about eight inches tall, were bust-length oil-on-panel depictions of Jan Willemsz. van der Pluym, a wealthy plumber, and his wife, Jaapgen Carels. Relatives of Rembrandt Harmenszoon van Rijn, the artist painted them in 1635.

• The oval works had been held by a U.K. family’s private collection since 1824, but weren’t known as having been painted by the Dutch master until an investigation and scientific analysis at the Netherlands’ Rijksmuseum confirmed their authenticity. They are among the smallest portraits he ever painted.

• Christie’s sales of Old Masters generated nearly $68.8 million and notched three artist records, but only 70% of 40 lots found buyers. The Artist’s Studio with a Seamstress, a previously unknown oil painting by 17th-century Flemish artist Michael Sweerts, sold for $16.1 million, more than quadruple estimates.

• In a separate auction held by Sotheby’s on Wednesday, Saint Sebastian tended by two angels, which was only recently identified through research and X-ray analysis as painted by Peter Paul Rubens, sold for $6.2 million. William Hogarth’s satirical Taste in High Life (or Taste à-la-Mode) sold for a record $3 million.

What’s Next: Christie’s summer auction season continues in London with a sale of rare books and manuscripts next week, which features a copy of influential 13th century philosopher and theologian Thomas Aquinas’ Summa theologica, Prima secundae.

—Janet H. Cho, Patrick O’Donnell, and Penta

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Do you remember this week’s news? Take our quiz below to test your knowledge. Tell us how you did in an email to [email protected].

1.
Meta Platforms,
the parent of Facebook and Instagram, released a microblogging app intended to compete with Twitter. The app was released on Wednesday night and gathered tens of millions of users in a matter of hours. What is the app called?

a. PartyLine

b. Quitter

c. Threads

d. MySpace

2. Walt Disney’s Indiana Jones and the Dial of Destiny, the latest in the action/adventure series starring Harrison Ford, was the top movie at the box office in its debut over the holiday weekend. How much did it bring in domestically?

a. $82 million

b. $86 million

c. $90 million

d. $94 million

3. Treasury Secretary Janet Yellen is in China this weekend to meet with counterparts from the People’s Republic amid rising tensions between the U.S. and China. What latest moves have the U.S. and China made that could be a focus of discussion?

a. A pending White House executive order limiting American companies from investing in China’s chips, artificial intelligence, and quantum computing.

b. The U.S. has limited transfers of chips, computing products, and computing services to Chinese companies, while China has banned Chinese companies from buying products from American memory chip maker
Micron Technology.

c. Beijing is slapping export controls on metals gallium and germanium, critical to the semiconductor industry, starting Aug. 1.

d. All of the above

4.
JetBlue
has ended a partnership with American Airlines in the Northeast after a federal judge ordered the two to end it. Now JetBlue says it will focus on its acquisition of which of the following:

a. Republic Airways

b.
Frontier Airlines

c.
Spirit Airlines

d. Alaska Airlines

5.
Tesla,
the electric vehicle maker run by Elon Musk, beat expectations for deliveries in the second quarter, reporting a record number of vehicles sold. How many did it deliver?

a. 446,140

b. 466,140

c. 486,140

d. 506,140

Answers: 1(c); 2(a); 3(d); 4(c); 5(b)

—Barron’s Staff

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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner