Investors Look Past Surprise U.S. Inflation Reports

Investors Look Past Surprise U.S. Inflation Reports By James Christie

Good day. Last week's U.S. consumer-price index and producer-price index reports both showed a surprising jump in monthly inflation in January following a stretch of cooling price pressures. Some analysts have picked apart the data, suggesting it reflects quirks rather than a warning. Such arguments have been eagerly accepted by investors rooting for growth strong enough to avoid a recession but mild enough to allow the Federal Reserve to cut interest rates-a seemingly narrow path, with inflation running above the Fed's 2% target.

Now on to today's news and analysis.

Top News Data Show the Economy Is Booming. Wall Street Thinks Otherwise.

Data suggesting the U.S. economy is too hot for comfort are getting a cool reception in some corners of Wall Street .

A handful of high-profile economic reports, covering the big topics of inflation, economic growth and the labor market, have leaned decidedly on the too-warm side. But many economists have minimized these surprises, pointing to other data that are less alarming and measurement challenges that are unique to the start of the year.

U.S. Economy $1 Trillion Conundrum: The U.S. Government's Mounting Debt Bill

Interest costs are on pace to surpass defense this year as one of the largest U.S. government expenses in the budget. Only Social Security and Medicare are forecast to be bigger burdens in the coming years.

Can Americans Without College Degrees Solve the Labor Shortage?

A push by some companies to eliminate degree requirements has opened the door to more candidates. Yet the share of jobs that went to those candidates barely budged after the requirement was lifted.

America's Oil Power Might Be Near Its Peak

U.S. crude oil output is expected to increase by just 170,000 barrels a day in 2024 from last year, down from a jump of 1 million barrels a day in 2023. That is the smallest annual increase since 2016, not counting the pandemic.

Billions Start Flowing to Chip Makers for New U.S. Factories

The U.S. government is giving chip maker GlobalFoundries $1.5 billion in grants to build and expand facilities in New York and Vermont, the first major award in a program that aims to reinvigorate domestic chip production.

How War in Europe Boosts the U.S. Economy

In the two years since Russia invaded Ukraine, the U.S. defense industry has experienced a boom in orders for weapons and munitions , with business coming from European allies as well as from the Pentagon.

Key Developments Around the World RBA Not Ruling Out Further Increases

The Reserve Bank of Australia debated the possibility of raising interest rates further at its policy meeting , but ultimately decided to leave policy settings unchanged given recent signs that inflation had moderated further.

Chinese Banks Slash a Key Lending Rate as Economy Falters

China's economic malaise has pushed policymakers and state-owned banks to attempt an escalating series of remedies. Their latest attempt: A surprisingly aggressive cut to a key lending rate .

China's New Securities Chief Meets With Market Participants Megaprojects in the Desert Sap Saudi Arabia's Cash

Saudi Arabia has been a conveyor belt of flashy spending plans over the past year: a $48 billion property development; a global airline; a merger with the PGA Tour; a $100 billion investment in chips and electronics. It is getting expensive .

Financial Regulation Roundup Capital One Is Buying Discover Financial

Capital One is buying Discover Financial Services in a deal that would marry two of the largest credit-card companies in the U.S. and would vastly increase the power of Capital One in the payments ecosystem .

Realtors Are in Crisis-and Home Buyers Could Be the Winners

Brokerage executives are pressuring the National Association of Realtors to settle legal claims nationwide, worried that more large verdicts could push residential firms and local real-estate associations into bankruptcy.

An Executive Bought a Rival's Stock. SEC Says Its Insider Trading.

Biotech executive Matthew Panuwat bought options on another drug company's stock-and earned a windfall of $120,000. The Securities and Exchange Commission now says he committed insider trading .

Forward Guidance Tuesday (all times ET)

8:30 a.m.: Canada consumer-price index for January; Philadelphia Fed Nonmanufacturing Survey

10 a.m.: The Conference Board Leading Economic Index

Wednesday

8 a.m.: Atlanta Fed's Bostic speaks to Airports Council International CFO Summit in Atlanta

10 a.m.: EU FCCI Flash Consumer Confidence Indicator for February; Atlanta Fed Business Inflation Expectations

2 p.m.: FOMC minutes of Jan. 30-31 meeting

Research German Recession Risk Rises, IMK Says

The likelihood that Germany will slide into a recession in the next three months has grown in recent weeks from an already high level, according to the Macroeconomic Policy Institute, or IMK, economic-research organization. The IMK's indicator shows that for the period from February to April, a recession is now at a 61.7% probability, up from 56.8% in January for the following three months. The rise is driven by the continued manufacturing slump in Germany, after production data slid again in the latest December data. However, despite the lack of hard economic data showing an upswing so far, with declining inflation and expected interest-rate cuts, consumption should improve over the course of 2024, IMK economist Thomas Theobald says.

-Ed Frankl

Basis Points China's direct investment liabilities, a broad measure of foreign direct investment that includes foreign companies' retained earnings in the country, rose by $33 billion in 2023, down 81.7% from 2022 , according to data from the State Administration of Foreign Exchange released Sunday. More Chinese travelers hit the road during the Lunar New Year holiday than ever before, but in a sign of postpandemic caution, many restricted themselves to shoestring budgets -a mixed signal as the world's second-largest economy struggles to regain momentum. China's economic slowdown is wreaking havoc on Hong Kong's luxury property market, as the most expensive homes in the city are changing hands at steep discounts to what they were worth just a few years ago. Producer prices in Canada ticked down in January for the fourth month in a row, as food and energy prices fell, while Canadian companies paid less for raw materials. Statistics Canada's industrial product price index declined 0.1% in January from the month before. On a 12-month basis, the producer-price index fell 2.9%. (Dow Jones Newswires) Israel's economy contracted by almost a fifth in the fourth quarter of 2023, bruised by the effects of the Hamas attacks on Oct. 7 and the ensuing war in Gaza. Gross domestic product shrank at an annualized rate of 19.4% on quarter in October to December, Israel's central bureau of statistics said Monday. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

Send us your tips, suggestions and feedback. Write to:

James Christie , Perry Cleveland-Peck [mailto:[e-mail]], Nihad Ahmed , Michael Maloney

This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

02-20-24 0715ET