Cheaper Eggs, Happy Fed

Plus, the Pentagon wants to get even better at selling weapons abroad ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

June 14, 2023

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TOGETHER WITH

Good morning.

Electric cars are much quieter than their fossil-fuel-guzzling relatives, which is great for most of us but boring for motorheads. Luckily for them, Toyota announced on Tuesday it’s going to actively engineer an EV model to imitate gear shifts and engine noises, to make the experience more like something a Top Gear enthusiast might enjoy.

If the geniuses figured out how to make cars smell new all the time, how hard can it be to make EVs go VROOOM?

Morning Brief

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Jerome Powell has reason to celebrate.

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US looks to speed up foreign weapons sales.

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When did auditing stop being cool?

Macroeconomics

The Fed May be Winning its War on Inflation

As the Federal Reserve knows, you have to crack a few eggs to make an omelet. And now those eggs cost less.

The consumer-price index increased just 4% in May from a year earlier, the Labor Department said Tuesday, well below the 9% peak seen last June and even lower than the 4.9% increase in April — placing the Fed’s 2% inflation white whale within eyesight at long last. Egg prices have plummeted, the stock market is soaring, and it may be time to celebrate… at least a little bit.

Deflation Nation

Progress is looking good on a more molecular level as well. Inflation rose a mild 0.1% month-to-month in May, down from a 0.4% increase seen in April. Meanwhile, core consumer prices, a metric favored by many economists that excludes volatile energy and food costs, climbed just 5.3% in May on a year-over-year basis — good for the lowest level in 15 months.

The CPI retreat likely relieved some lingering tension in the shoulders of Fed members, who began their two-day June meeting on Tuesday. The central bank was already widely expected to take a month off from its extensive rate-hiking, inflation-fighting campaign, and Tuesday’s positive figures likely cemented its decision. There may even be enough signs of progress to put a widely-expected July rate hike on hold. “This CPI report is everything the Fed needs to pause — there is deflation and/or disinflation in every category,” Jamie Cox, managing partner at Harris Financial Group, wrote in a note according to Bloomberg. “If this trajectory holds in June, the need for further tightening is behind us.”

For consumers, the disinflation has likely already been felt — or soon will be — in a handful of key categories:

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New-lease rent asking prices increased just under 2% year-over-year in May, according to data compiled by The Wall Street Journal; that’s well down from the double-digit spikes from a year ago, and good for one of the most significant year-over-year decelerations ever, WSJ reports. Data from Redfin shows asking rents in May actually declined 0.6% entirely year-over-year, which would’ve been a pre-pandemic anomaly.

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Meanwhile, gasoline prices fell almost 6% in May, and are now down roughly 20% from a year earlier (Thanks again, Putin). And though used car prices increased in May, experts say leading private sector indicators suggest they are soon due for a decline.

“We expect a more pronounced slowdown in core inflation in the coming months,” Sarah House and Michael Pugliese, two Wells Fargo economists, said in a report. “That said, directional progress should not be confused with mission accomplished.”

Tech Talk: After officially entering a new bull market last week, the tech-heavy S&P 500 rose again for the fourth consecutive day on Tuesday. The likelihood of the Fed’s rate hikes stalling out has returned Big Tech to Wall Street’s hearts. Bank of America’s most recent survey of global fund managers found investors are “exclusively long” on tech stocks — with the sector garnering its most enthusiasm since 2020. Now let’s just hope there’s no November 2021-style dropoff.

– Brian Boyle

Military

The Pentagon Wants to Play Quick Draw with its Weapon Sales

(Photo Credit: Gregwest98/Flickr)

If the US wants to remain the top weapons exporter, it needs to remember the words of marketing pioneer John Wanamaker: Customer is king.

Along with efforts to cut red tape, the Pentagon aims to train more officers to help facilitate foreign military weapons sales — a key driver of influence throughout the world — The Wall Street Journal reported Tuesday. And if getting guns to people as quickly as possible isn’t American, then we don’t know what is.

Where are My Weapons, America?

By the late 1980s, right about the time Germans were tearing down the Berlin Wall, America was solidifying its spot as the supreme weapons dealer, selling munitions to everyone from Saudi Arabia to South Korea to Israel and more. It’s remained there ever since, accounting for about 40 percent of all arms exports each year, The Intercept reported. And despite that dominant position — last year the Pentagon managed 15,000 foreign military sales cases totaling $680 billion, according to the WSJ — the process can be a real slog for buyers, which include some of America’s closest allies.

Selling weapons is certainly one way for America to nourish international relationships, but sometimes those deals get held up for years by roadblocks, red tape, and multiple levels of approval. Maybe a country’s request was too vague, or the US wanted to make sure the foreign military can properly use the equipment it’s selling to them. This all results in setbacks that give countries time to think “Oh, forget it, we’ll just call up China or Russia for our missiles”:

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One of the biggest moves to speed up the sales process is that the Pentagon plans to beef up the training for 1,400 military officers that manage these types of weapons deals at embassies around the world. However, even that plan could take a year to go into effect.

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The Pentagon also wants to expand the capacity of the defense industrial base to more quickly place weapons in the hands of allied countries, according to documents seen by the WSJ.

“The building has to get agility,” Former Secretary of the Navy Richard Spencer told the WSJ. “We are sclerotic, we are arthritic, we have to get over it.”

Can same-day delivery of F-15 fighter jets be far behind?

War in Ukraine: The US speeding up weapons sales is paramount as fighting continues to devastate Eastern Europe. This week, a report from the United Nations said that after a two-year hiatus, Russia is now once again providing North Korea with oil. The report suggested that in return for petroleum, North Korea is supplying weapons to Vladimir Putin’s war machine. Since the start of the war in 2022, the US has provided Ukraine with roughly $38 billion in military assistance.

– Griffin Kelly

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Accounting

Big Four Should Offer Young Recruits More Money, Regulator Says

Kids these days, with their skateboards, TikTok, and aversion to becoming an accountant.

In an interview with the Financial Times the UK’s top accountancy regulator Sir Jan du Plessis, head of the Financial Reporting Council, said the Big Four accounting firms — that’s Deloitte, EY, KPMG, and PwC — should plump up their starting salaries to recruit more young auditors.

Negative Feedback

The accountancy field is experiencing a drain in the US, and the UK seems to be struggling with a similar problem. In 2021, the UK chair of PwC said the sector was struggling to recruit younger auditors and laid the blame on “external negativity” coming from politicians and regulators. That “negativity” hasn’t abated in the intervening years: UK accountancy firms were hit with a record £46.5 million in fines last year and in March of this year PwC was fined £7.5 million over its audit of engineering firm Babcock.

Du Plessis told the FT that if the Big Four want to add some spit polish to their reputation with young potential recruits, they just need to reach into their pockets:

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“There has been a significant increase in profitability at all the audit firms,” Du Plessis said, adding: “They have the resources available to increase the pay levels of more junior people that they want to attract into their firms and it’s up to them whether they want to do so.”

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Although he defended naming auditors whose work has come under suspicion, he said the regulator will go easier on junior auditors in the future, so at least younglings don’t have to worry about public shamings.

Not Just The Kids: There’ll be one very big job opening at EY, if any fresh-faced graduates fancy it. CEO Carmine Di Sibio announced on Tuesday he plans to retire in June next year. This comes after Di Sibio tried and ultimately failed to break up the company by spinning out EY’s consulting business.

– Isobel Asher Hamilton

Extra Upside

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Chip off the new block: Watchout, Nvidia. AMD might sneak up on you.

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Everybody wants to be famous: YouTube lowers barriers for its monetization program.

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News flash: Year-to-date media layoffs amount to the worst rate on record, report finds.

Just For Fun

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Breach for the sky.

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