by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EDT] | PDF

Our Comment today opens with news that the coup leaders who seized power in Niger have announced an embargo on sending uranium and gold to France—a move that’s entirely consistent with the type of behavior we’ve been warning about from the China/Russia bloc.  We next review a wide range of other international and U.S. developments with the potential to affect the financial markets today, including modest new economic stimulus measures in China and more political pressure to clamp down on U.S. investment into Chinese companies.

Niger-France-Russia:  The junta that seized power in a coup late last week accused France of plotting a military attack to return democratically-elected President Bazoum to power.  The coup leaders also said they will immediately ban all exports of uranium and gold to France.

• Because of strong anti-Western sentiment in parts of Africa, we believe France (and the U.S.) would be reluctant to launch military action in Niger. The coup leaders’ statement is more likely just an effort to ward off French interference, and their uranium embargo probably aims to inflict pain on Niger’s former colonial master.  Uranium from Niger reportedly provides 75% of the fuel for France’s nuclear reactors.
• Some reports suggest the coup leaders had help from Russian mercenaries. Whether or not that’s true, cutting France off from Niger’s uranium is consistent with the behavior we’ve been warning about from members of the China/Russia geopolitical bloc.  Since members of the China/Russia bloc, including Niger, control so much of the world’s key mineral resources, we think they are likely to cut off those supplies to exert pressure against the U.S. and the rest of its bloc, exactly as Russia has done in its war with Ukraine.

Russia-Ukraine War:  For the second time in three days, Ukrainian drones have apparently struck Moscow’s premier IQ-Quarter skyscraper, which houses several big government ministries and key Russian companies.  The repeat attack suggests the Ukrainians are trying to bring the war home to the Russian elites and perhaps force the deployment of more air defense assets to the capital region.  Meanwhile, Russian forces last night staged their own missile attacks against residential areas of Kharkiv, and combat remained intense on parts of the front line running from eastern to southern Ukraine.

Chinese Economy:  The government yesterday published a long list of measures it said it would implement to encourage more consumer spending and help boost economic growth.  However, the measures were generally vague and seemed quite modest.  For example, people who trade in older automobiles for newer ones would receive a subsidy, as would people who buy insulation and other goods to cut home energy use.  The announcement also suggested that the central government would leave it up to the cash-strapped provincial and local governments to pay for the programs.

• The modest measures show how the central government has become reluctant to rely on the big, dramatic, debt-fueled fiscal programs of the past, which have helped create a serious problem with excess debt among companies and provincial and local governments.
• In sum, the modest measures are unlikely to provide a significant boost to Chinese economic growth, which is likely to remain in the doldrums for the time being, although the positive side of that is that weaker Chinese demand will probably help bring down global inflation.

Chinese Armed Forces:  President Xi has apparently purged the top two commanders of the People’s Liberation Army Rocket Forces, which are responsible for the country’s conventional and strategic nuclear missiles.  The little press reporting available suggests the two commanders were sacked for “corruption,” possibly related to selling military secrets.  The firing comes fast on the heels of the sacking of former Foreign Minister Qin Gang.  It also comes shortly after CIA Director Burns said his agency is making progress on rebuilding its spy network in China.

Eurozone:  The region’s June unemployment rate fell to 6.4%, and revisions showed the jobless rate was also at that level in each of the previous two months.  The jobless rate was not only better than anticipated, but it also marked a record low for the eurozone.  The figures will raise hopes that strong labor demand and firm wages will help the region’s economy rebound in the coming months but falling vacancies in Germany and France suggest the labor market could soften from here.

European Union-China:  On a visit to the Philippines today, European Commission President von der Leyen rebuked China for offering tacit support to Russia in its invasion of Ukraine, rather than supporting the principle of territorial integrity.  She also warned that China’s own territorial aggressiveness in the South China Sea could have “global repercussions.”  The speech illustrates von der Leyen’s effort to align more closely with the U.S. in its approach to China, even though many other European politicians continue to resist any de-coupling.

United States-China:  Yesterday, the House Select Committee on the Chinese Communist Party notified giant investment manager BlackRock (BLK, $738.85) and index provider MSCI that they are being investigated for facilitating investment in Chinese companies that the U.S. government has accused of bolstering China’s military and violating human rights.  The investment activities already studied aren’t illegal, but the committee said they are “exacerbating an already significant national-security threat and undermining American values.”

• Reporting so far suggests the HSCCCP is focusing on international or global index funds that channel a portion of assets into Chinese companies.
• To reiterate, the HSCCCP hasn’t accused the firms of illegal activity. Indeed, the point here is the growing U.S. political pressure against economic ties with China.  As we have warned repeatedly, the strengthening bipartisan trend toward clamping down on China presents risks for investors, who could face new investment restrictions suddenly and unexpectedly.

U.S. Stock Market:  Some of the nation’s top active fund managers say they’re having trouble attracting money from large investors, given that those investors today can enjoy such high yields in money market funds without taking much risk.  Indeed, some fund managers are suffering net outflows from their funds as large, sophisticated investors pull back from equities.  All the same, we also think the enormous amounts in money market funds represent future fuel for equities, especially if the stock market rally broadens and/or the Fed eventually starts to cut interest rates.

Global Gold Market:  Data from the World Gold Council shows second-quarter demand for the yellow metal totaled 1,255 tons, up 7.0% year-over-year.  In contrast with recent trends, buying by central banks fell to 103 tons, but that was mainly because of net sales by Turkey’s central bank due to that country’s unique economic turmoil.  Central bank buying in the entire first half of the year hit a record 387 tons.  We continue to believe that geopolitical tensions and the longer-term uptrend in central bank purchases will help boost gold prices over time.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EDT] | PDF

Our Comment today opens with several reports touching on China’s economy and foreign relations.  We next review a wide range of other international and U.S. developments with the potential to affect the financial markets today, including a modest acceleration in eurozone economic growth and news of an important bankruptcy in the U.S. trucking industry.

China:  Financial data provider Preqin reported that China-focused venture capital funds raised just $2.7 billion in the second quarter, down 54.2% from the first quarter.  Separately, a Beijing think tank on Friday said total investments in China’s internet sector during the second quarter were down 69.8% from the same period one year earlier.  The figures illustrate how global investors, especially those from the U.S., are channeling capital away from China in response to its slowing economic growth, increased government interference in the economy, dire demographics, and increasing geopolitical tensions with the West.

• Separately, the official July purchasing managers index for manufacturing rose slightly to 49.3, beating expectations that it would remain at its June reading of 49.0. Nevertheless, the July reading marks the fourth straight month in which the index was below the level of 50 that points to expanding activity.
• The July nonmanufacturing index fell to 51.5 from 53.2 in June, suggesting that growth in that sector is now at its weakest all year.

China-United States:  U.S. military, intelligence, and national security officials now believe the Chinese malware discovered in May within the telecommunications systems on Guam was only the tip of the iceberg.  The officials now believe Chinese hackers have inserted well-hidden malware in networks controlling power grids, communications systems, and water supplies that feed military bases in the U.S. and around the world, with the goal of disrupting or slowing U.S. military deployments and resupply operations in a future conflict.  If activated, the malware would probably also disrupt civilian communications and economic activity.

• The reports say U.S. officials have been working to hunt down and eradicate the malware, although it isn’t clear how successful they’ve been.
• Even though Western business elites continue to resist “de-risking” or “de-coupling” with China, based largely on their own economic interests, we still think increased Chinese military threats will prompt Western leaders to clamp down further on trade, investment, technology, and personnel flows with the China/Russia bloc over time, raising risks for investors with exposure to China or to companies that are highly dependent on China.

United States-Australia:  Over the weekend, the U.S. and Australia struck a deal in which Australian manufacturers, in partnership with U.S. defense firms, will produce missiles and potentially other ammunition for the U.S. military beginning in 2025.  The officials also agreed on a further expansion of U.S. military rotations through Australia to help build a bulwark against Chinese geopolitical aggressiveness in the region.

• Among the Western allies, the large U.S. defense industry still has the bulk of the arms production capability. All the same, replenishing equipment and ammunition sent to Ukraine to help it in its defense against Russia’s invasion and rebuilding the U.S. military to deal with the Chinese threat have stretched the weapon makers’ capacity.
• S. defense budgets are rising, but we see increasing evidence that the country will need to rely on innovative new schemes to increase its stockpile of weapons and ammunition in the near term. Relying more on allied producers is clearly one part of that.
• We’ve been arguing that re-industrialization is already becoming apparent in the U.S., and that an increased defense effort will feed into it. We therefore think U.S. industrial stocks are poised for good growth, as are U.S. defense stocks in particular.  If the U.S. continues to buy more weapons and other material from allied countries, despite the obvious supply-chain security risks, it suggests there could also be good opportunities in foreign industrials and defense industry stocks.

United States-Japan-South Korea:  The White House announced that President Biden will host Japanese Prime Minister Kishida and South Korean President Yoon for a trilateral summit at Camp David on August 18.  The meeting will focus on further steps to increase the three nations’ security against the growing threats from North Korea and the rest of the China/Russia bloc in the Indo-Pacific region.  The announcement came just as new reports suggest Russia has been buying North Korean missiles and using them in its invasion against Ukraine.

Japan:  As global investors continue to digest last week’s move by the Bank of Japan to loosen its yield curve control and allow longer-term bond yields to rise, the yield on 10-year government bonds today rose to a nine-year high of 0.607% before falling back to 0.590% after the BOJ announced unscheduled purchases of 300 billion JPY in five- to 10-year government bonds.  Higher bond yields are expected to draw funds back to Japan, driving up the JPY, and the currency so far today is up 0.7% to 142.10 per dollar.

Eurozone:  New data today shows second-quarter gross domestic product grew at an annualized rate of 1.1%, still very weak but better than the tiny 0.1% growth rate in the first quarter and a modest decline in the fourth quarter of 2022.  The region’s economy continues to struggle with weakening exports to China, high interest rates, and high price inflation.

Chile:  On Friday, the central bank slashed its benchmark short-term interest rate by 100 basis points to 10.25%, citing reduced inflation pressure and prospects for weaker economic growth in developed countries.  Some major Latin American central banks were among the first to hike interest rates in the current global cycle, helping support their currencies.  Responding to the Friday rate cut, the Chilean peso (CLP) so far this morning has weakened 0.9%, trading at 834.77 per dollar.

Niger:  Responding to last week’s coup, the Economic Community of West African States warned that if the coup leaders don’t restore Niger’s democratically-elected government to power within one week, the bloc will launch military action to do so.  The statement follows calls by the U.S. and France for President Mohamed Bazoum to be restored to power.  The coup leaders have rejected those calls, portending a likely period of instability ahead.

U.S. Labor Market:  Over the weekend, debt-ridden trucking firm Yellow (YELL, $0.7069) said it has shut down operations and will file for bankruptcy.  The move will throw as many as 30,000 employees out of work, including 22,000 members of the Teamsters union.  The firm clearly had its own issues, so its failure doesn’t necessarily say anything about the health of the overall economy or the recession that we still think is likely to arrive in the coming months.  All the same, the failure may help to soften the labor market slightly.

U.S. Commercial Real Estate Market:  Blackstone Real Estate Income Trust, a unit of Blackstone (BX, $105.05) that is also known as BREIT, has reportedly sold some $10 billion in assets since last autumn, allowing it to return $8 billion to investors and raise cash for new investments related to artificial intelligence, such as data centers.  The move marks a big turnaround from last autumn, when BREIT’s decision to limit withdrawals helped spark fears of commercial real estate calamity.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EDT] | PDF

Good morning! Today’s Comment begins with a discussion about the Bank of Japan’s latest policy decision. Next, we will provide an in-depth analysis of the GDP report, including why we believe that the warm weather may hurt economic growth in the third quarter. Finally, we end with our thoughts about the underlying tensions within the Western bloc.

New Day for BOJ: The Bank of Japan has left its policy rate unchanged but made a tweak to its yield control

• The Bank of Japan (BOJ) has made a surprise move to relax its yield curve control policy, allowing 10-year Japanese government bond yields to rise to 1.0%. The BOJ had previously capped yields at 0.5%, but it now says that the limit will no longer be rigid but rather a reference rate. This signals that the BOJ is planning to get less involved in anchoring the yield curve. The move comes after reports showed that consumer prices excluding fresh food rose 3% in Tokyo in June, well above the BOJ’s 2% target.
• Traders viewed the Bank of Japan’s (BOJ) decision to relax its yield curve control policy as a sign that the central bank was moving away from its ultra-accommodative monetary policy. Yesterday’s reports that the BOJ was considering such a move led to a drop in all major indexes in the U.S., with the S&P 500 falling 0.62%, the NASDAQ slipping 0.64%, and the Dow Jones Industrial Average dropping 0.67%. The dollar also slipped against the yen (JPY), from 144 per dollar to 139. The move is a sign that the BOJ is preparing to normalize monetary policy.

• The BOJ’s decision to relax its yield curve control policy marks a significant shift in financial markets, particularly in the yen carry trade. The trading strategy involves borrowing JPY at low-interest rates and investing in assets that offer higher yields. Low rates and a weak currency have made the JPY an attractive funding currency for this strategy. However, if interest rates in Japan rise, the yen carry trade will become less profitable and hurt traders who will have to repay loans with a stronger currency. Additionally, the move will cause investors to reassess their risk appetite, especially as the global economy shows signs of slowing.

Keep on Surprising: Strong GDP growth in the second quarter of 2023 has bolstered hopes that the U.S. economy may be able to skirt a recession, but we have doubts.

• The American economy expanded at a faster-than-expected pace in the second quarter of 2023, according to the Bureau of Economic Analysis (BEA). GDP grew at an annualized pace of 2.4% from April to June, up from a revised 2.0% in the first quarter. The figure was also above the consensus estimate of 1.8%. A rebound in investment spending boosted the growth, as it offset deceleration in both government spending and consumption. Although it is unclear whether we are out of the woods, the report does provide reassurances that the economy is more resilient than many suspected.
• A deeper dive into the investment GDP numbers shows that much of the increase came from private investment, particularly in transportation. Purchases of transportation equipment accounted for more than half of the growth in fixed investment and more than a fifth of the rise in overall growth. Although it is unclear where the rise has come from, there is speculation that it may have something to do with the government infrastructure bill passed in 2021. Additionally, steps made toward reshoring manufacturing may have also played a role. If this is true, it suggests that investment may be able to support a longer expansion.

• That said, hotter-than-normal temperatures and El Niño conditions could lead to an unexpected drop in growth in the third quarter. These factors could make it harder for workers to perform outside jobs and deter consumers from engaging in outdoor activities. There are signs that the heat is leading to a decline in consumer spending and business investment. On Thursday, President Biden instructed the Department of Labor to ramp up enforcement of on-the-job heat hazards. At the same time, theme parks such as Disney World have experienced a sharp decline in attendance. The extent of the economic impact of high temperatures on economic activity is unclear, but it is likely to weigh on GDP.

Let’s Be Friends: NATO allies are vying for support in the Oceania region as geopolitical tensions in the Indo-Pacific heat up.

• As geopolitical tensions rise in the Indo-Pacific, Western leaders have traveled to Oceania to build ties with countries in the region. French President Emmanuel Macron is currently on a week-long tour of the Polynesian islands, where he warned of a “new imperialism” threatening the sovereignty of numerous states in the South Pacific. On the same day, U.S. Defense Secretary Lloyd Austin gave a speech in Papua New Guinea, reassuring government officials that the U.S. was not planning to set up a permanent base in the country, and the U.S. Secretary of State Antony Blinken invited New Zealand to join AUKUS.
• Western overtures in Oceania are part of a strategic pivot toward Asia to counter China’s growing influence in the region. In April 2022, the Solomon Islands authorized the Chinese navy to make routine port visits, raising concerns that Beijing could establish a permanent military base in the region. In response, the United States and European countries have increased their engagement with Oceania. This year, the U.S. has signed defense agreements and reopened embassies after decades of closure. France has also sought to improve ties with Australia and position itself as an alternative to China and the United States in the Oceania region.

• Along with security agreements, the U.S. is also looking to increase trade ties with Australia
• While the West agrees on the need to stand up to China in the Indo-Pacific, there are signs that the two sides are not completely aligned. Europe’s focus on strategic autonomy is one example of this, as it suggests that the bloc is seeking to avoid putting all of its eggs in the U.S. basket. France has been particularly vocal in this regard, with President Macron stating that he wants to maintain a “constructive relationship” with China, despite U.S. calls for de-risking. Although we do not expect the Western allies to have a major fallout over this dispute, we do foresee a less cooperative relationship, especially if the war in Ukraine ends.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EDT] | PDF

Good morning! Today’s Comment begins with a summary of the Federal Open Market Committee’s policy rate decision and our views on the path of rates going forward. Next, we provide an overview of the European Central Bank’s monetary policy decision. Finally, we give an update on the war in Ukraine.

Close to the Vest: The Federal Reserve has kept its options open on future rate hikes after lifting rates to a 22-year high but has explicitly ruled out any cuts in 2023.

• The Federal Open Market Committee (FOMC) raised its policy target range by 25 basis points to 5.25%-5.50%. In a press conference following the decision, Chair Jerome Powell said that the committee would take a data-dependent approach to future rate hikes. While the committee welcomed the recent progress in declining price pressures, Chair Powell noted that he did not believe inflation would return to its target of 2% until 2025. Last month, the overall Consumer Price Index (CPI) rose 3.0% from the previous year, while core CPI rose 4.8%.
• Markets were relatively muted following the Federal Reserve’s policy decision on Wednesday, as traders were unsure of the central bank’s future plans. The S&P 500 closed down 0.02%, while the yield on 10-year Treasuries declined by a mere 3 bps. Chair Powell’s reluctance to commit to further rate hikes weighed on the dollar, as it reaffirmed investors’ belief that the European Central Bank (ECB) and Bank of England may be more aggressive in tightening monetary policy over the next few meetings. As a result, the U.S. Dollar Index (DXY) ended the day down 0.32%.

• The Fed’s rate-hiking cycle is nearing its end. The committee has already pushed rates into restrictive territory, and it is unlikely that every member will be able to tolerate further increases in 2024. Real interest rates, which measure the interest rate after inflation has been removed, are currently at their highest level since the end of the financial crisis. According to former Richmond Fed President Jeff Lacker, a real fed funds rate between 2% and 4% is needed to bring inflation down to the Fed’s 2% target. The real fed funds rate was around 2.1% before the July FOMC meeting, which suggests that the interest rates may already be sufficiently high.

No Surprises: Similar to its American counterpart, the European Central Bank has stated that it will keep its options open when deciding further rate hikes.

• The ECB’s governing council voted to increase its benchmark interest rates for the ninth consecutive time, by 25 basis points. It has raised interest rates by 425 basis points since last July, as it seeks to bring inflation under control. The hikes have come even as the eurozone economy is showing signs of slowing, with growth expected to be around 1% in 2023. During her press conference, ECB President Christine Lagarde insisted that the bank is still dedicated to achieving its mandate of price stability, while acknowledging that the committee will be data dependent going forward.
• The European Central Bank faces a difficult balancing act as it tries to raise interest rates to combat inflation without tipping the eurozone into recession. The region narrowly avoided a technical recession in the previous quarter, and there are signs that tightening credit conditions are already having an impact on consumption. According to the ECB bank lending survey, demand for loans by firms and households slowed in the second quarter of 2023. Additionally, manufacturing activity has stagnated showing no signs of improving, and the energy outlook continues to look uncertain. El Niño weather conditions are expected to bring more extreme weather events as well as lower temperatures in the winter months, which should hurt household budgets.

• As the chart above shows, there has clearly been a shift in sentiment regarding European assets. Expectations of slower economic growth and higher inflation in the eurozone have contributed to the outperformance of U.S. equities relative to European assets. Given the uncertainty regarding the state of the global economy as well as the possibility of a weaker dollar, it is still unclear whether this trend will continue throughout the year. The current environment shows that international equities still offer relative value, especially given that the recent rally in large-cap assets has pushed stock valuations to near-cycle highs.

Next Stage: Ukraine forces are switching tactics, while Moscow is doubling down on its war efforts.

• Ukraine is in the midst of its much-vaunted counter-offensive, but so far it has not been as successful as officials had hoped. The group has already lost almost a fifth of the NATO kit provided to help the operation. The Ukrainian forces have made much needed changes to improve military efficiency, such as focusing on attacking using heavy artillery fire instead of crossing Russian minefields. However, it is still too soon to tell whether these changes will be enough to break through enemy lines. Western officials are closely watching the situation, and they may decide to send more weapons to Ukraine to help its war effort.
• Meanwhile, Moscow is still looking for new recruits as it seeks to protect its hard-fought gains. The government has introduced a bill that would raise the age of conscription eligibility from 27 to 30. This change, which would not take effect until January 2024, could potentially increase the pool of conscripts by more than 2 million. Russian President Vladimir Putin’s push for more recruits is a sign that he is not ready to give up the war in Ukraine, and it also highlights the growing manpower challenges that Russia is facing.

• All signs point to a protracted war in Ukraine, as both sides battle for leverage. Despite a few setbacks, Kyiv has shown that it is capable of winning this war with the continued support of Western allies. Moscow, on the other hand, has shown that it is willing to continue sacrificing its own people in the hopes of wearing down its opponent. It is likely that it will take an outside power, such as China or the West, to bring this war to an end. As a result, the conflict will continue to present a risk to commodity prices.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EDT] | PDF

Our Comment today opens with news that China is making new progress toward developing a network of naval facilities in the waters of the Indo-Pacific region.  We next review a range of other international and U.S. developments with the potential to affect the financial markets today, including continued political unrest in Israel and a discussion of today’s upcoming decision on U.S. interest rates from the Federal Reserve.

China-Cambodia:  New commercial satellite imagery shows China has made considerable progress in its construction of naval facilities at Cambodia’s Ream Naval Base.  The imagery shows the Chinese have now nearly completed a pier that is strikingly similar in size and design to one the Chinese military already uses at its only official overseas naval base in Djibouti.  Importantly, both piers are big enough to berth Chinese aircraft carriers.

• The report provides more evidence of China’s large-scale, if secret, effort to build a network of dual civilian-military port facilities it could access in time of international conflict. Other such Chinese facilities include the Port of Hambantota in Sri Lanka and the Port of Gwadar in Pakistan.
• China continues trying to hide the extent of its military build-up, including by masking the military potential of the ostensibly civilian infrastructure it is helping to build. All the same, as Western leaders increasingly appreciate the scale of the Chinese build-up, we suspect it will worsen China’s tensions with the West and make it even harder to maintain trade, investment, and technology flows.

Russia-Ukraine-European Union:  Following Russia’s pullout from the deal in which it allowed Ukraine to export grain from its southeastern ports, both Poland and Hungary are threatening to block Ukrainian shipments to the West unless the European Union extends restrictions on selling the Ukrainian products in their territory.  The actions threaten to weaken Ukraine’s economic resilience in the face of Russia’s invasion and further complicate the EU’s effort to support Ukraine.

Spain:  As expected, Alberto Núñez Feijóo and his center-right Popular Party have been left with no apparent route to forming a government after two key regional parties rejected his invitation to form a coalition.  Even though the PP won the most seats in Sunday’s elections, and even though it has the support of the controversial hard-right Vox Party, it looks like it will be unable to control parliament.  The most likely scenarios now would be for incumbent Prime Minister Sánchez and his Socialist Party to form a government with left-wing and regional parties, or for Spain to hold new elections in August.

Israel:  Protests and strikes continue to disrupt the economy and push stock prices lower following this week’s passage of a measure that would limit the supreme court’s ability to block Knesset legislation.  Ironically, the supreme court itself said today that it would hear a case challenging the constitutionality of the law.  Obviously, the optics of the court striking down a law limiting its powers would not be good, so it’s unclear whether the court would really do so.  In any case, the political and social instability in Israel looks set to continue in the near term.

U.S. Monetary Policy:  Officials at the Federal Reserve will wrap up their latest two-day policy meeting today, with their decision due to be released at 2:00 PM EDT.  Fed Chairman Powell will also hold a news conference at 2:30 PM EDT.  Along with most other analysts, we suspect that continued strong wage gains and price pressures will prompt the officials to hike their benchmark fed funds interest rate further after pausing last month.  All the same, some other analysts think recent signs of modest economic slowing could convince them to hold rates steady again and simply signal the potential for more rate hikes later.

U.S. Labor Market:  Yesterday, United Parcel Service (UPS, $184.69) and the Teamsters Union reached a tentative deal on a new contract.  If approved by the firm’s 340,000 union workers in a vote on August 3, the agreement will avert a massive strike that could have noticeably affected the economy.

• Under the deal:
  • Full-time workers will get wage increases that will bring their average top rate to $49 per hour, making them the highest-paid delivery drivers in the U.S.
  • New part-time hires would start at $21 per hour, up from $15 in the previous contract.
  • A much-hated two-tier worker classification system, where some were paid less for doing essentially the same work, will be ended.
  • For the first time, union workers would get Martin Luther King Day off as a paid holiday.
• The agreement is likely to encourage other unions to strike a hard bargain in their negotiations with employers, potentially increasing average wages across the economy and helping boost consumer price inflation.

U.S. Artificial Intelligence Market:  New reporting indicates investors are snapping up shares of small biotechnology companies that are using artificial intelligence to aid in drug discovery.  Some of those stocks have doubled or even tripled in value this year, even as the broad healthcare sector has lagged the overall market.  For investors who worry they’ve missed the initial run-up in AI stocks, this development is a reminder that specialized, proprietary AI models and tools for specific industries or uses could well be the source of huge value creation in the coming years.

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