As Inflation Eases, Americans Keep Spending; Spain's Election Is a Test of Inflation Frustration

As Inflation Eases, Americans Keep Spending; Spain's Election Is a Test of Inflation Frustration By James Christie

Good day. The strong U.S. labor market continues to fuel shopping by American consumers, who have been spending at a steady pace this year despite interest-rate increases by the Federal Reserve, as the latest retail-sales report from the Commerce Department showed. Another reason for the spending: Consumers have experienced a reprieve from inflation after a recent peak last summer. Price pressures also are easing in Spain, where the annual rate of inflation fell below the European Central Bank's 2% target in June. At 1.6%, it was well below the 5.5% pace of price rises recorded in the eurozone as a whole and the 3% registered in the U.S. How that registers with Spanish voters in Sunday's election could provide insight into whether voters perceive the worst of the recent inflation is behind them.

Now on to today's news and analysis.

Top News Retail Sales Rose in June as Inflation Eased

Americans boosted their retail spending in June for the third straight month, a sign of consumers' continued resilience amid easing inflation and a strong labor market. Retail sales-a measure of spending at stores, online and in restaurants- rose a seasonally adjusted 0.2% last month from the month before, the Commerce Department said Tuesday.

U.S. Economy The Biggest Holdouts on the Five-Day Office Week: Bosses

As the corporate push to get workers back to the office widens, new research from McKinsey shows that an influential group of senior employees strongly prefers the option of working from home at least part of the time.

America Is Becoming a Nation of Early Birds Iranian Oil Is Stuck Off Coast of Texas, but U.S. Firms Won't Touch It

U.S. federal prosecutors can't auction off 800,000 barrels of seized Iranian oil sitting in a Greek tanker off the coast of Texas because U.S. companies are reluctant to unload it , according to people familiar with the matter.

Key Developments Around the World How Long Does Inflation Anger Linger? Spain May Have the Answer

Spain has had notable success in tamping down inflation , but for voters, the benefits will take a while to register-probably too long to make a difference at Sunday's election to decide the shape of the next government.

Europe Tries to Bridge Its Migration Divide

Europe is trying again to resolve its most divisive issue: migration. After years of bad blood and legal fights, the EU is edging toward a tough new set of migration and asylum policies, including steps to ease turning people away .

Best of Frenemies: Saudi Crown Prince Clashes With U.A.E. President

Saudi Crown Prince Mohammed bin Salman gathered local journalists for an off-the-record briefing in December and delivered a stunning message. An ally of decades, the United Arab Emirates, had " stabbed us in the back , " he said.

U.S. Rate Rises Have Hit Yen Hard, but Now It's Staging a Comeback

The yen has been one of the worst performing major currencies for much of this year, falling nearly 5% against the U.S. dollar and more against the euro and the pound. But it has sharply reversed course in the past two weeks.

Markets Cheer U.K. Inflation Slowdown but Pain Remains

The pace of inflation in the U.K. slowed more than expected last month, providing a glimmer of hope for Britons who still face a bigger squeeze on their spending power than consumers in most other advanced economies.

Investors Slash Bets on Bank of England's Peak Rate After Inflation Data Financial Regulation Roundup 7 Financial Crimes That Rocked the U.S.: Sign Up for WSJ's Newsletter

We dug through The Wall Street Journal's archives to let you relive some of the most scandalous corporate misdeeds of the past 100+ years through articles that also offer a window into the history of financial regulation in the U.S. In this seven-week email series, you'll receive one email a week describing all the juicy details of a specific crime, with highlights from the Journal's coverage. Ready to dive in? Sign up for From the WSJ Archives: 7 Financial Crimes That Rocked the U.S.

Wall Street Can't Shake Off Investment-Banking Slump

Morgan Stanley said Tuesday that second-quarter profit fell 13% from a year ago, driven by a 22% decline in trading revenue. Investment-banking fees were about flat after falling sharply in recent quarters.

Senators to Propose Ban on U.S. Lawmakers Owning Stock

Two U.S. senators are set this week to introduce bipartisan legislation to bar members of the federal executive branch and lawmakers from owning stock in individual companies , as polling shows broad public support for such a measure.

Antitrust Enforcers Issue Blueprint for Challenging More Mergers

U.S. antitrust authorities on Wednesday issued new guidelines spelling out how they will police proposed mergers , in a move that could provide fresh legal support for the government's efforts to block deals.

Jailed Crypto Tycoon Do Kwon's Company Appoints New CEO

Terraform Labs has named a new chief executive officer to run the crypto company while its co-founder Do Kwon faces fraud charges stemming from the $40 billion collapse of the TerraUSD and Luna cryptocurrencies.

Forward Guidance Wednesday (all times ET)

8:30 a.m.: U.S. housing starts for June

Thursday

8:30 a.m.: U.S. weekly jobless claims; Philadelphia Fed Manufacturing Survey

10 a.m.: The Conference Board Leading Index for June; U.S. existing home sales for June; EU FCCI Flash Consumer Confidence Indicator for July

Research ECB Seen Raising Rates by 25 Basis Points, Unlikely to Pause Yet

A 25 basis-point interest-rate rise by the European Central Bank this month seems almost certain, and the big question is whether there is any strong signal of rate rises beyond that, according to economists at HSBC Global Research. Anything other than a 25 basis-point increase on July 27 would be a big surprise, and "this is despite some softening in activity data and a downside surprise to inflation since the June meeting," they write in a note. However, they add that with the labor market still tight and unit costs high and rising, "we don't think the ECB will be pausing yet."

-Emese Bartha

Switzerland Could Cut Interest Rates as Early as March 2024

Switzerland's central bank could start cutting interest rates next year, earlier than markets anticipate, Capital Economics Europe economist Adrian Prettejohn writes in a note. Swiss inflation has fallen sharply this year to 1.7% in June, and 1.8% for core inflation, leaving both within the Swiss National Bank's 0%-2% target. But policy makers have stressed the risks of second-round effects and signaled they will raise rates at their next meeting, Prettejohn writes. However, with business surveys suggesting input price pressures have eased, the franc having appreciated this year and conditions in the labor market cooling, there is evidence to suggest inflation will remain low, he writes. Inflation should stay at current levels before falling to around 1% in March 2024, when the SNB will first cut its policy rate, he expects.

-Ed Frankl

Commentary Retailers' Problems Get Real

Retailers face labor costs that continue to rise, in part because they must compete for workers with industries where labor is in high demand, which could make lower prices more painful , Justin Lahart writes.

Basis Points Global trade flows fell sharply for the second straight month in May, a sign the global economy is slowing as a long series of interest-rate increases by central banks weighs on demand for goods. An indicator of goods trade flows developed by The Wall Street Journal and published Tuesday points to a 3.4% decline from April, adjusted for the seasonal ups and downs of exports of goods between countries. (Dow Jones Newswires) U.S. industrial production fell 0.5% in June, with declines in most market groups, the Federal Reserve reported Tuesday. Production fell a revised 0.5% in May, revised down from the initial estimate of a 0.2% decline. Capacity utilization dropped to 78.9% in June from a revised 79.4% in May. (MarketWatch) U.S. business inventories increased in May, a sign consumer spending remained strong as inflation started to decline. Inventories rose by an adjusted 0.2% in May after increasing 0.1% in April, data from the U.S. Commerce Department showed Tuesday. April's reading was revised from an initially estimated 0.2% increase. (DJN) High mortgage rates in the U.S. are dissuading sellers in, leaving new construction the only game in town . Inflation in Canada continued to recede in June, easing into the Bank of Canada's target range for the first time in more than two years despite some signs underlying inflation pressures remain stubborn. The consumer-price index climbed 2.8% in June from a year earlier, Statistics Canada said Tuesday, sharply lower than last summer's peak of 8.1% and cooler than an expected 3% advance. (DJN) New Zealand consumer price inflation cooled in the second quarter as fuel costs continued to ease, but the pace of price gains across the economy is still enough to keep the Reserve Bank of New Zealand vigilant for some time yet. (DJN) New car registrations in Europe rose in June compared with a year ago and battery-electric vehicles took a bigger market share, overtaking diesel-fueled vehicles for the first time, the European Automobile Manufacturers' Association said Wednesday. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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07-19-23 0719ET