Fear of a Recession Spooks the Market

Higher for longer

It seems even the most bullish on Wall Street now get the message: The Federal Reserve is prepared to raise interest rates until it feels it’s sufficiently beaten back inflation — even if those moves cool off the job market and send the economy into recession.

For a second straight day, Jay Powell will testify on the Hill. The Fed chair will appear before the House Financial Services Committee at 10 a.m. Eastern, after delivering his big message to lawmakers and the market on Tuesday — that “the ultimate level of interest rates is likely to be higher than previously anticipated.”

Powell’s higher-for-longer pronouncement — a scenario many on Wall Street had been underplaying just a few months ago — sent stocks and commodities lower, and the safe-haven dollar and bond yields higher.

This morning the markets were pricing in a 5.66 percent peak for the federal funds rate — BlackRock sees it going even higher — implying that Fed officials would raise rates by more than 1 percentage point. And the odds are increasing that the central bank will raise rates by half a point at its meeting in two weeks, a return to last year’s cycle of jumbo-size increases.

The bond markets are flashing a warning signal. Investors have dumped two-year Treasury bonds, sending the yield above 5 percent, a level it hasn’t reached since 2007. At the same time, investors have largely held onto their 30-year notes, signaling the market is worried about the economy in the near term. Each time over the past century, whenever the yield gap between the two notes has reached these levels, a recession has followed. “We are in rarefied air,” Jim Reid, head of global fundamental credit strategy at Deutsche Bank, wrote in an investor note this morning.


President Biden will unveil a plan to cut federal deficits by $2 trillion. The measures, including tax increases for companies and savings from spending cuts, will be part of the White House’s budget proposal that will be announced tomorrow. They’re meant to counter demands by House Republicans for steep budget cuts in exchange for their support for raising the debt ceiling.

U.S. intelligence suggests a pro-Ukraine group attacked the Nord Stream pipelines. American officials said they weren’t sure exactly who sabotaged the natural gas pipelines that run from Russia to Europe, and added that they had no evidence Kyiv directed the move. (Ukrainian officials denied involvement.) That intelligence could further fray Western support for Ukraine, particularly in Germany.

Howard Schultz will testify before the Senate after all. The Starbucks C.E.O. reversed course after Senator Bernie Sanders said he would seek to subpoena Schultz to appear at a hearing on unfair labor practices. Sanders has accused Starbucks of having “done everything possible to prevent” its employees from unionizing.

China revamps its financial and technology regulators. President Xi Jinping ordered the creation of a bigger financial watchdog, consolidating oversight of the industry, and established a new agency to manage the country’s data. Beijing also announced plans to bolster science and technology in the face of U.S. sanctions on sectors like semiconductors.

A political bind at Walgreens

Shares in Walgreens dropped sharply on Tuesday after Democratic officials pushed back against its decision to stop distributing the abortion pill mifepristone in 21 states where Republican officials threatened legal action against the company if it dispensed the drug.

That blowback, including the threat that Walgreens might be cut off from California government contracts, illustrates the difficult legal, political and reputational terrain that companies must navigate in the post-Roe era.

Mifepristone has become a focal point in the abortion fight, after the F.D.A. ruled in January that retail pharmacies were allowed to dispense the drug, drastically widening access. Soon after, Walgreens became the first major pharmacy chain to say it would distribute the pill in regions where it was allowed to do so.

But Republican attorneys general in 21 states — all of which have either banned abortion or are at least weighing laws to restrict access to mifepristone — threatened to sue companies for dispensing the drug. Walgreens confirmed late last week that it wouldn’t distribute the pill in those states.

Democrats are pushing back. Gov. Gavin Newsom of California tweeted that his state “won’t be doing business” with Walgreens “or any company that cowers to extremists”; an aide later said the state would review all its relationships with the chain.

J.B. Pritzker, the Democratic governor of Illinois, last week urged Walgreens’s C.E.O., Roz Brewer, to rethink her company’s stance. (Illinois’s attorney general, Kwame Raoul, has taken a more sympathetic stance than Newsom, telling Politico that Walgreens was “in a landscape where they don’t know who the next administration may be.”)

And calls by abortion rights activists to boycott the company have grown in recent days on social media.

Walgreens isn’t really changing course for now. A company spokesman told The Times that the chain would “dispense this medication wherever we legally can,” but that “at the same time we have to follow the law.” Meanwhile, its rivals — including CVS and Rite Aid, as well as retailers with big pharmacy arms — are staying quiet.

The stakes are high for these companies: Pharmacies fear losing their state operating licenses, and they worry that their staff could face physical danger from extremists.

At Twitter, how much cutting is too much?

Since taking over Twitter last fall, Elon Musk’s biggest priority has been slashing costs at the social network, notably through steep layoffs that have shrunk the company to less than 2,000 workers, down from 7,500.

That may be paying off for the company’s finances: Twitter now has a chance of having positive cash flow next quarter, Mr. Musk said on Tuesday. But all those cuts have prompted regulators to investigate whether he has gone too far.

The F.T.C. is examining whether Twitter can protect user data and privacy, The Times reports. Though the agency had been looking at a former executive’s claims about inadequate security practices pre-Musk, it ramped up its inquiry into the company after he began the mass layoffs.

Twitter is still operating under a consent decree it reached with the F.T.C. that requires the company to keep detailed logs about how it handles sensitive data. Staying in compliance had involved hundreds of people; now, the company isn’t even paying for the software it used to keep track of its work.

And the European Union wants Mr. Musk to hire more content moderators. A wide-ranging E.U. law, the Digital Services Act, will come into effect next year and require internet companies to comply with rules around disinformation and content moderation. Mr. Musk has told the E.U. that Twitter will increasingly rely on artificial intelligence — but Thierry Breton, an E.U. commissioner, responded that he expected the company to add more human moderators to comply with the act, according to The Financial Times.

In other Twitter news, Mr. Musk apologized for fighting with a disabled former executive online who asked Mr. Musk to confirm whether he had been laid off. And Endeavor, the entertainment and sports giant, invested in Twitter in January, according to Axios — though it’s unclear at what valuation.

The Kanye losses pile up for Adidas

A year ago, Adidas had big aspirations for a new line of Yeezy-branded sneakers, including a $585 boot. On Wednesday, the German sportswear giant instead reported mounting losses from its failed partnership with the boots’ designer, Kanye West.

In reporting its year-end results, Adidas gave dismal odds of finding takers for its $1.3 billion stockpile of unsold Yeezy gear.

Adidas shares fell 2.3 percent at the opening bell in Frankfurt, underperforming the wider German market. Investors seemed unimpressed with the turnaround plan of its new C.E.O., Bjorn Gulden, which involves cutting the dividend, reducing inventory and shaking up management — the heads of global brands and global sales are out.

Gulden joined Adidas from Puma in January, inheriting the fallout from a messy breakup with West. In October, Ye, as West is now known, went on an antisemitic rant, forcing Adidas to cut ties. Last month, the company issued a profit warning, saying the split with West would lower operating profit by €500 million ($527 million).

In its annual report, Adidas said it’s started arbitration proceedings against the rapper, seeking damages. It also acknowledged that West has filed counterclaims against Adidas, which it believes “will not result in any cash outflow.”

Gulden has said the company would not return to growth until 2024 at the earliest. Adam Cochrane, a Deutsche Bank analyst who has a buy rating on the stock, wrote in an investor note this morning that sales and operating profit may not meaningfully rebound until 2025.

“We are very, very close to being able to ignore Trump most nights. I truly can’t wait.”

Tucker Carlson, the Fox News host, in a text message to his staff on Jan. 4, 2021. His comments were revealed in documents released as part of Dominion Voting Systems’ defamation lawsuit against the network, accusing it of spreading conspiracy theories that the company was involved in stealing votes from President Trump in 2020.

International Women’s Day, by the numbers

Decades after the first International Women’s Day, created to celebrate the achievements of women and push for greater gender parity, the advances that have been made in recent years are looking fragile.

Women are disproportionately feeling the brunt of the cost of living crisis and the economic uncertainty it has wrought. Across the globe, they earn less than men on average, and are underrepresented in the corridors of power. They are far more likely to be called on to care for aging parents and school-age children. These and other factors threaten to keep them out of the work force.

“We now are concerned that ‘post-pandemic’ inflation is threatening to wipe out the progress women have achieved,” said Dimple Gosai, head of Bank of America’s U.S. E.S.G. strategy, and author of a report on gender issues ahead of International Women’s Day.

Here are three data points from the bank’s research:

In Corporate America, women are underrepresented on boards.

Women’s wage growth has not kept pace with men’s, or with inflation.

In Europe, the wage gap is most acute in finance and tech.



Volkswagen reportedly favors building a new battery plant in the U.S. over Eastern Europe, as it believes it can get roughly $10 billion in Inflation Reduction Act subsidies and loans. (FT)

Meanwhile, Intel wants an additional $5 billion in subsidies from the German government to build a chip plant there. (Bloomberg)

WeWork is in talks with investors to restructure more than $3 billion in debt. (NYT)


The crypto lender Silvergate is reportedly in talks with the F.D.I.C. as it tries to avoid shutting down. Meanwhile, the bankrupt Voyager Digital won court approval to sell to Binance.US, over objections by the S.E.C. (Bloomberg, CoinTelegraph)

One of the Biden administration’s nominees to the Federal Communications Commission, Gigi Sohn, withdrew after blistering opposition from lobbyists and Republicans. (NYT)

Best of the rest

How Google’s A.I. hesitations became Microsoft’s big opportunity. (WSJ)

“Sold-Out Girl Scout Cookie Flavor Hits the Resale Market” (NYT)

Could the FTX founder Sam Bankman-Fried cut a deal and flip on a politician? (Puck)

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