AFP via Getty Images
Text size
Central bankers from around the world are gathering in Sintra, Portugal this week to discuss the state of the world economy. So far, the consensus seems to be that it’s not good.
Federal Reserve Chairman Jerome Powell speaks on Wednesday, a few days before the next PCE inflation data are released on Friday. European Central Bank President Christine Lagarde reiterated on Tuesday that the battle with inflation isn’t over. The ECB can’t afford to waver, she said.
The International Monetary Fund made a somewhat controversial contribution to the debate. Deputy Head Gita Gopinath told the conference that raising rates quickly to get inflation under control could trigger financial instability. She calls it an “uncomfortable truth.”
It’s certainly a message no one wants to hear. Powell boldly pressed ahead with interest-rate increases when regional banks faced turmoil in March. Lagarde firmly declared earlier this year that there is no trade-off between fighting inflation and financial stability.
That seems a bit cavalier for Lagarde, given that only slightly higher interest rates nearly pushed Greece out of the European currency bloc a decade ago.
Central bankers, at the start of the hiking cycle, seem to have spent too much time worrying about the nasty impact of interest-rate increases. Much time was wasted talking about inflation being transitory and rate hikes started too small. It’s now a concern that the bankers’ are swinging in the opposite direction, spending too little time worrying about the implications.
Gopinath also pointed out that inflation is taking too long to slow back to target, and that getting it there will probably require some damage to the economy. While that’s something with which central bankers probably agree, it’s not a great look to have it verbalized in brutal terms.
The IMF concludes that Powell and Lagarde will probably have to tolerate too-high inflation for longer than they would like. That’s a message investors would do well to absorb.
—Brian Swint
*** Join Barron’s managing editor Daren Fonda today at noon when he talks with David Kelly, chief global strategist at J.P. Morgan Asset Management, about the impact of the Fed’s latest moves. Sign up here.
Try your hand at this morning’s Barron’s Daily crossword puzzle and sudoku games. For all games, including a digital jigsaw based on the week’s cover story, click here.
***
Lordstown Files for Bankruptcy Blaming Apple Supplier Foxconn
Lordstown Motors, the electric-truck start-up, has filed for bankruptcy after a partnership with Apple supplier Foxconn Technology went sour. Both stocks fell, with Taiwan-listed Hon Hai Precision Industry, better known as Foxconn, closing 3.1% down Tuesday, and Lordstown falling in the early premarket.
- Lordstown said it was filing for Chapter 11 bankruptcy protection and had filed litigation against Foxconn for fraud and breach of contract after an agreement that it would purchase $170 million in shares of the EV start-up fell through. Lordstown said this had the effect of destroying the business.
- Foxconn said it has been keeping a “positive attitude” in talks with Lordstown, but that the car maker “continuously attempted to mislead the public and has been reluctant to perform the investment agreement between the two parties in accordance with its terms.” Foxconn said Lordstown has made “false comments and malicious attacks” and that it may pursue legal action itself.
- The EV start-up bought an Ohio factory from General Motors to gear up for production, which it then sold to Foxconn as part of an agreement to cooperate on a series of new vehicles. But production never really got off the ground, and the company’s market value has plunged to less than $50 million from as much as $5 billion in 2021.
- Lordstown had previously disclosed that Foxconn sent the company a letter in late April saying Lordstown was in breach of an investment agreement because it had received a notice from the Nasdaq Stock Market that Lordstown shares didn’t meet the minimum $1 bid requirement to avoid delisting of the stock from the exchange.
What’s Next: Lordstown said in its press release it will now seek a buyer but didn’t respond to a request for additional comment. Foxconn didn’t immediately respond to a request for comment. The high-interest-rate environment, combined with the heavy costs involved scaling EV start-ups, mean the future is only going to get tougher for small vehicle makers.
—Brian Swint
***
Weight-Loss Drugs Take Center Stage With Lilly Test Results
Eli Lilly
reported the first results of a weight-loss drug at the annual science meeting of the American Diabetes Association, saying patients averaged a loss of more than 24% of their body weight after 11 months of weekly injections of its drug called retatrutide.
- Lilly’s reported trial results beat the 21% weight loss averaged by its other drug, Mounjaro, which is so far approved only for patients with Type 2 diabetes. Lilly’s stock has taken off in response to the possibility that its Mounjaro shot for diabetes and obesity might become a sales megablockbuster.
-
Pfizer
is moving ahead with a twice-daily weight-loss pill and dropping development of its once-daily pill, though it says it is pursuing a once-daily version as drugmakers battle to get a piece of the obesity drug market. -
Novo Nordisk
,
maker of popular semaglutide once-weekly injectable drugs Ozempic and Wegovy, is also developing a once-daily high-dose weight loss pill, and biotech firmStructure Therapeutics
also is testing a once-daily drug. - Novo’s Wegovy is the only one currently approved as a weight-loss drug. But insurance coverage has been spotty. Data are due next month that might persuade more insurers—and even Medicare—to cover treatment for non-diabetic obesity.
What’s Next: Novo’s results will come from a 17,600 patient study called Select, which examined whether weight loss from Wegovy helped patients avoid major cardiac events such as a stroke or heart attack. Guggenheim analyst Seamus Fernandez said Select could show a better than 10% reduction in such cardiac events.
—Bill Alpert and Josh Nathan-Kazis
***
Carnival Beats Expectations Amid High Hopes for July 4th Travel
Carnival
reported a narrower-than-expected second-quarter loss and beat Wall Street’s forecast for revenue as travel continues to rebound from the pandemic, but the shares closed 7.6% lower after the third-quarter outlook was weaker than expected.
- Carnival’s stock has gained 84% this year. Quarterly revenue more than doubled from the same time last year, to $4.9 billion. The company raised full-year 2023 adjusted profit expectations to between $4.1 billion and $4.25 billion, up $175 million at the midpoint from its forecast in March.
- Carnival CEO Josh Weinstein said bookings and customer deposits were at record highs and stressed the company is gaining momentum as demand accelerates with favorable pricing trends.
- AAA forecast that more than 50 million Americans will travel 50 or more miles from their homes for this year’s July 4th holiday. That figure could break the prepandemic record for Independence Day travel—set in 2019 when 49 million Americans took long weekend excursions.
- AAA expects most Americans will travel by car (43.2 million) and plane (4.17 million) for the holiday weekend. But more than three million people are expected to travel by bus, cruise, or train for July Fourth. That’s a 24% increase from 2022 levels.
What’s Next:
Delta Air Lines
is hosting its 2023 Investor Day today. The carrier’s stock recently went on a 15-day winning streak built on high hopes for the summer travel season.
—Emily Dattilo and Hannah Ziegler
***
Biden Administration Announces Funding for High-Speed Internet
President Joe Biden announced more than $40 billion in funding to expand high-speed internet access nationwide. The program is the largest-ever investment in improving connectivity for Americans who lack broadband access, the White House said.
- The grants were initially authorized as part of the president’s $1 trillion infrastructure law passed in 2021. The initiative is part of the Biden administration’s larger effort to deliver reliable internet access to every American by 2030.
- Roughly 8.5 million Americans lack access to high-speed internet, according to the Federal Communications Commission. The government plans to distribute funding to states over the next two years. Some projects could see expansion of internet service as soon as mid-2024, The Wall Street Journal reported.
- Texas will receive the most grant funding, with $3.3 billion allocated to connect the state’s roughly 780,000 households and businesses that lack broadband service. Rural states such as Alaska, Montana, and West Virginia, as well as populous states such as California, will also get large amounts of funding.
- Biden, who is running for reelection in 2024, is trying to convince Americans they will see long-term improvement in the country’s infrastructure as a result of the 2021 infrastructure law. Biden has a 33% approval rating for his handling of the economy, according to a recent Associated Press poll.
What’s Next: Biden is set to deliver an address in Chicago on Wednesday highlighting his administration’s economic achievements. The speech is part of a three-week tour, when administration officials will visit 20 states to tout infrastructure investments.
—Hannah Ziegler
***
Uncredited
Be sure to join this month’s Barron’s Daily virtual stock exchange challenge and show us your stuff.
Each month, we’ll start a new challenge and invite newsletter readers—you!—to build a portfolio using virtual money and compete against the Barron’s and MarketWatch community.
Everyone will start with the same amount and can trade as often or as little as they choose. We’ll track the leaders and at the end of the challenge the winner whose portfolio has the most value will be announced in The Barron’s Daily newsletter.
Are you ready to compete? Join the challenge and pick your stocks here.
***
—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner
