If the Federal Reserve follows through on strong hints that it will be cutting interest rates in late July, it will do so in the face of a powerful consumer, a record-breaking stock market and an increasingly difficult case to make for easier monetary policy.
Justifying a policy easing against that kind of a backdrop might be tricky for the Fed, even though markets fully expect a cut this month plus perhaps two more before the end of the year. The central bank is not normally in the business of easing into an economy that is showing few signs of a recession, generally holding fire until more pronounced signs of a slowdown are in view.
But this is not a normal time in the world of monetary policy, and the Fed is likely to follow though despite the solid economic signals.
“It just doesn’t smell right given the strength of the economic data,” said Chris Rupkey, chief financial economist at MUFG Union Bank. “The consumer is back in a big way. You really have to ask yourself why they are going to cut rates.”
Indeed, the latest data points to solid consumers, who accounted for 67.4% of economic activity in the first quarter.
Retail sales rose 0.4% in June, according to Commerce Department figures that easily topped the 0.1% expected gain. On a year-over-year basis, sales increased 3.4%.
“This really takes the cake in terms of just how strong the consumer is,” Rupkey said. “The Fed has their story and they’re sticking to it. So despite the data, despite the strong jobs numbers, they believe this is an insurance cut. A risk management cut is necessary for two factors: one is the slowing global economy, and No. 2 is the fact that inflation has been below the 2% target for so long. Given those two factors, I expect them to go. If not, you’re going to hear a whole lot of ruckus out of the White House.”
Fed Chairman Jerome Powell, in a speech Tuesday, outlined a laundry list of factors concerning officials.
Along with the usual suspects — the slowing global economy and the back-and-forth trade battle between the U.S. and China — he also cited debt ceiling negotiations in Congress, a potentially messy Brexit and the Fed’s nagging inability to bring inflation up to the 2% target level it feels is healthy in a growing economy.
Fed speakers pointing to cut
The chairman repeated his intention to “act as appropriate to sustain the expansion,” a phrase seen in the markets as code for an impending rate cut.
His comments were echoed by other officials.
Chicago Fed President Charles Evans, in a CNBC interview Tuesday, cited inflation as his overriding concern that makes him open to “a couple” rate cuts before the end of the year that he said still may not be enough for the central bank to achieve its objectives. Dallas President Robert Kaplan told The Wall Street Journal that falling government bond yields are sending a market signal to the Fed that its funds rate, currently pegged in a range between 2.25% and 2.5%, may be too high.
So while a 25 basis point cut at the end of the month seems baked in the cake at this point, an aggressive easing cycle ahead would run counter to Fed officials’ assessment of an otherwise strong economy led by a resilient consumer.
At the June Federal Open Market Committee policy meeting, members repeatedly cited “solid” prospects for personal consumption expenditures, according to minutes released last week. The key for markets, though, was a passage in the meeting summary that said officials “agreed that risks and uncertainties surrounding the economic outlook had intensified and many judged that additional policy accommodation would be warranted if they continued to weigh on the economic outlook.”
While the market sees sharply lower rates ahead, economists remain divided.
- Curt Long, chief economist at the National Association of Federally-Insured Credit Unions, said consumers are “resilient,” and while a quarter-point cut seems inevitable, “there is not yet a compelling case for further easing this year.”
- Citigroup economist Veronica Clark said the most recent spate of economic data indicates “fewer downside risks to the outlook than even just a month ago” making “a modest” quarter-point cut “the most likely scenario.”
- Andrew Hunter, senior U.S. economist at Capital Economics, remains of the outlook that the Fed ultimately will have to ease aggressively, but thinks expectations for a half-point cut in July “look well wide of the mark.”
Still, the Fed is going to continue to get pressure, both from the markets and from an increasingly impatient White House, where the preference for a weaker dollar is in line with the Fed’s renewed emphasis on sparking inflation expectations.
Joe LaVorgna, chief Americas economist at Natixis, said there’s actually a good case for a half-point cut this month, based solely on the Fed needing to fix an inverted yield curve, meaning that short-term rates are now higher than long-term rates.
The average inversion between the fed funds rate and the 10-year Treasury was 31 basis points in June, meaning “the Fed must do more to rectify the current inversion,” LaVorgna said in a note.
“If the Fed does surprise, it will be in the direction of more easing rather than none,” he added.
Santander Q4 2019 earnings
Spanish Santander Bank executive chairperson Ana Botin.
JAVIER SORIANO | AFP | Getty Images
Santander posted a 35% year-on-year increase in net income for the fourth quarter of 2019, beating market expectations, supported by a rise in its customer base and capital gains.
The Spanish bank posted a net profit of 2.78 billion euros ($3.06 billion) in the last quarter of the year. For the whole of 2019, the bank’s net income dropped by around 16%.
Here are some of the highlights for the fourth quarter:
- Total income hit 12.5 billion euros — slightly lower than the fourth quarter of 2018.
- CET 1 capital ratio stood at 11.65%, compared to 11.30% at the end of 2018.
- The total dividend proposal is 0.23 euros per share.
Santander also reported a 9% increase in the number of its “loyal” customers over the last year — meaning those that use the Spanish lender as their primary bank. “Our focus on customer loyalty, geographic diversification and scale drove strong operating performance across all regions,” Ana Botin, the chair of Banco Santander, said in a statement.
Speaking to CNBC’s Geoff Cutmore, Botin said she felt “very good” about the latest results. “We have delivered on all our strategic priorities,” she said, “We have created a lot of capital this year.”
The Spanish bank also recorded some charges in 2019 as well as restructuring costs in several markets. These amounted to about 1.7 million euros. Nonetheless, their impact was somewhat offset by a 693 million euro business transaction.
“Our South American business continued to generate healthy growth; we maintained strong momentum in North America, with the U.S. delivering among the fastest growing underlying profit of all markets; and in Europe we achieved a 10% return on tangible equity, despite a challenging interest rate environment,” Botin added in her statement.
Santander’s stock rose 4% in early deals on Wednesday.
UK market still under pressure
In the U.K., Santander reported a lower underlying profit due to “ongoing competitive pressures,” Botin told CNBC that the U.K. has experienced a “very important transformation program.”
“You’re only just beginning to see the results, so U.K. costs actually came down and costs will come down more next year but not at expense of service,” she said.
Costs dropped by 3% in real terms for its U.K. business. The total number of branches has fallen by more than 18% in annual terms to 616, and the number of employees has also dropped by about 4% in the same period.
Pru, Acqua, Suay, Wagyu, Anise
The image of Phuket as a cut-price destination for backpackers and budget-conscious retirees is long out of date.
Phuket has now become a favorite vacation destination for the world’s wealthiest individuals, many of them arriving on super-yachts.
Yachts are becoming a common sight in Phuket.
It started when the Amanpuri resort opened and spearheaded the island’s upmarket transformation. Anthony Lark was the founding general manager at Amanpuri, before setting off in 2004 to create Trisara, one of the poshest resorts on the island.
Over the past 16 years at Trisara, Lark has taken care of a host of bold-faced names — Kate Moss, Roger Federer, Tom Jones, Kylie Minogue, members of U2 and Maroon 5. And he has watched Phuket evolve to cater to a choosier clientele.
“The changing culinary scene has been driven by supply and demand,” Lark said. “When I first got here, it was all pad Thai noodles, green curry and grilled fish on the beach. There were a few good Italian restaurants but absolutely no demand for fine dining, so that category simply didn’t exist.”
Pru’s jampa salad, which includes 15 different ingredients grown on the restaurant’s farm, is topped with a passion fruit vinaigrette.
Courtesy of Pru
Phuket wasn’t on super-yacht owners’ radar 20 years ago, said Lark, whereas today, five marinas have been built to cater to them.
“There were maybe a dozen million dollar holiday homes on Phuket,” said Lark of the 1980s. “Now, there are 150 villas worth in excess of that sum.”
“That’s brought a customer with higher, more exacting demands.”
Phuket earns its first Michelin star
In 2016, Trisara opened Pru — a restaurant specifically aimed at catering to the tastes of nomadic foodies and wealthy travelers.
An acronym for “plant, raise, understand,” Pru is a creative farm-to-table establishment that sources many ingredients from its own 96-hectare organic farm.
Black kingfish, sourced from the Andaman Sea, is paired with organic beetroot sorbet and house-made mulberry vinegar.
Courtesy of Pru
Young chef Jimmy Ophorst, who came to Phuket from the Netherlands nearly eight years ago, was rewarded for his efforts when Pru won a Michelin star — the first to be awarded to a restaurant on Phuket — on the inaugural 2019 Thailand list. Retaining the accolade in 2020, Pru remains the only Michelin-starred restaurant on the island.
“It’s unbelievable the impact winning a Michelin star has had on me as a chef, and on this restaurant,” Ophorst said.
Duck egg, charred eggplant, locally-sourced abalone and wild herbs.
Courtesy of Pru
“I’ve never worked in a Michelin-starred restaurant before in my life,” he said. “From the moment we won it, the restaurant has been full — many people tell me they’ve come to the island just to dine with us.”
Ophorst said when Pru was opened, a key goal was to make Phuket the second-best dining destination in Thailand, after Bangkok. He said the level of cuisine has grown a lot since Michelin started looking at restaurants on Phuket.
“There are so many good chefs here, I’m sure we can get plenty more stars on the island.”
A decade of decadence
Ten years ago, there was little in the way of upscale dining outside the big hotels. Now, there are many independent restaurants doing brisk business.
Sardinian chef Alessandro Frau’s modern-Mediterranean Acqua Restaurant is the bookmakers’ favorite to be the next Phuket spot to secure a star.
Acqua’s smoked Sardinian eel and pickled vegetables in a white balsamic vinegar sauce.
Courtesy of Acqua.
But an array of others is quietly vying for the attention of Phuket’s discerning gourmands. For example, Suay Restaurant in the upscale northwest neighborhood of Cherngtalay serves creative, modern Thai.
Suay Restaurant earned a spot in the Michelin Guide 2020.
Courtesy of Suay Restaurant
British-run Bampot specializes in contemporary European cuisine, alongside excellent cocktails. Exquisite Italian is served at the lilliputian (just six tables) La Gaetana. Carnivores are catered for at Twin Palms’ new Wagyu Steakhouse — unimaginative name, but unbelievable meat.
High-end southern Thai food at Anise.
Courtesy of Anise
Despite Phuket’s increasingly upmarket positioning, it’s still possible to enjoy an incredible meal here for a humble sum. Even Lark has deviated from his traditional high-luxury lane to launch a new value-focused restaurant, Anise. Its proposition: simple, beautiful, authentic Thai food served in an elegant space at affordable prices.
“Phuket’s culinary scene has now done what Bali did in the 1990s,” said Lark. “It’s grown up.”
Bollywood’s Deepika Padukone’s battle with mental illness, depression
Bollywood star Deepika Padukone has spoken out about her battle with depression, calling for greater public discussion to help tackle the mental health crisis.
Padukone, who is one of India’s highest-paid actresses, said her experience during a seeming “professional high” revealed the illness’ indiscriminatory nature and inspired her to campaign for other sufferers.
“Mental illness crept up on me when I least expected it,” Padukone said last week.
“The perception and the general understanding was that I was at a professional high,” she said last Tuesday at the World Economic Forum in Davos, Switzerland. “But what I was also experiencing was this hollow, empty, pittish feeling … I would just cry out of nowhere.”
Padukone was diagnosed with depression in 2014.
The 34-year-old celebrity, who has over 30 movies to her name, said she considered herself lucky that her mother had spotted her symptoms and urged her to seek medical help.
However, she noted that stigma and lack of awareness surrounding mental illness can make it difficult for sufferers to reach out. In India alone, an estimated 7.5% of the population suffers from some kind of mental illness, according to the World Health Organization, yet provisions remain scarce.
That inspired Padukone to set up the Live, Love, Laugh Foundation in 2015 to support other sufferers. The charity aims to spread awareness of mental health issues, having launched India’s first national campaign, as well as working to help people reach diagnoses.
Learning to understand what she was experiencing was the first step to recovery, Padukone said. She encouraged potential sufferers and the people around them to look out for telltale signs of depression, such as prolonged feelings of sadness, sleeping and eating irregularities, as well as suicidal thoughts.
“The toughest part in the journey for me was not understanding what I was feeling,” said Padukone. “Just having the diagnoses in itself felt like a massive relief.”
Padukone was speaking at the WEF meeting — a gathering of global business leaders and policymakers — where she was honored with the 2020 Crystal Award for her contributions to mental health awareness.
In 2018, she was named as one of Time magazine’s 100 most influential people of the year.
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