Inflation Data Lie in Wait as the Stock Market’s Next Nemesis

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A customer in a grocery store on Nov. 11, 2021 in Los Angeles.

Mario Tama/Getty Images

With fears over the Omicron coronavirus variant put to one side for now, at least in the minds of investors, markets have already jumped to their next major concern—inflation.

It isn’t a new worry, just one that has been shunted to the sidelines in recent weeks amid the scramble for certainty and answers when it comes to the new variant.

The three major U.S. indexes are near enough back where they were before Omicron fears set in. Now they need new instructions for where to go next.

Those instructions are likely to be around the corner in the form of Friday’s consumer-price index reading and subsequently the Federal Reserve’s meeting next week.

A faster pace of tapering is widely expected, after Fed Chair Jerome Powell said it would be discussed last week. Concluding that process by March would pave the way for interest rate increases if and when necessary. Powell’s sudden hawkish pivot was a surprise but it did at least give investors forewarning.

When it comes to inflation, economists expect a CPI print of 6.7% year-over-year. Anything much stronger than that may raise the possibility of earlier than expected interest rate increases next year, halting the market’s recent rally in its tracks.

The Fed clearly wants to fight rising inflation, shifting its policy to do so. Friday’s CPI will reveal just how much of a battle it has on its hands.

—Callum Keown

*** Join MarketWatch editor Jeremy Olshan and economist Stephanie Kelton as they talk to leaders in business, tech, finance, and government about the next phase of money’s evolution, and meet real people whose lives are being changed as these new ideas are put to the test. Listen to the Best New Ideas in Money podcast.

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More Restrictions in Europe as Vaccine Makers Fight Omicron

As parts of Europe introduced new restrictions to slow the rapid spread of the Omicron variant, vaccine makers Pfizer and BioNTech said initial lab studies found that three shots of their joint vaccine effectively warded off infection, bolstering the case for boosters.

  • U.K. Prime Minister Boris Johnson announced Plan B in England, urging people to work from home, follow indoor mask rules, and use vaccine passports as cases are doubling every 2.5 to 3 days. Denmark limited hours for restaurants and bars and said it would close schools early for the holiday.
  • The lab studies found the Omicron variant can partially evade the antibodies produced by the Pfizer-BioNTech two-dose vaccine. It “should be a three-dose vaccine” against Omicron, BioNTech CEO Dr. Ugur Sahin said.
  • Pfizer CEO Albert Bourla told CNBC that a fourth shot might be needed earlier than expected. The vaccines target the spike protein the virus uses to invade human cells. Omicron has a high number of mutations to this spike protein.
  • The Food and Drug Administration on Wednesday granted emergency-use authorization for AstraZeneca ’s antibody treatment to prevent Covid-19 in people aged 12 and older with compromised immune systems or other conditions.

What’s Next: Pfizer’s application for emergency-use approval of its antiviral pill is pending with the FDA. Bourla said the company and BioNTech can develop an Omicron-specific vaccine by March 2022, if necessary.

Janet H. Cho

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Apple Gets Reprieve in Antitrust Fight With Epic Games

Apple can delay court-ordered changes to its App Store that would have allowed third-party app developers to tell users about outside payment options for in-game purchases, according to a Ninth Circuit Court of Appeals ruling on Wednesday. The changes would have taken effect today.

  • This is part of the antitrust case between Apple and Fortnite creator Epic Games in which Epic said the iOS mobile operating system prevents users from going outside Apple’s technology. Apple countered that it handles all in-app transactions to ensure security and privacy.
  • Epic tried to bypass the 30% fees imposed by the App Store at Apple and Alphabet ’s Google Pay and was removed from both platforms, prompting its lawsuits. The case with Apple is further along.
  • The Appeals court stayed the lower court order pending appeal, saying Apple has “made a sufficient showing of irreparable harm.” This means developers can’t yet circumvent App Store fees.
  • In a statement Apple said, “our concern is these changes would have created new privacy and security risks, and disrupted the user experience customers love about the App Store.”

What’s Next: Apple’s antitrust battle with Epic hasn’t deterred investors, who have driven its shares up 32% this year to a new 52-week high and approaching a $3 trillion market value. The S&P 500, in comparison, is up 25% this year.

Liz Moyer

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Evergrande Downgraded to Default by Fitch

Fitch Ratings said Thursday that it was downgrading China Evergrande Group to “restricted default” after the embattled Chinese property developer or its subsidiaries Tianji and Hengda failed to repay bonds for $645 million and $590 million when the grace period lapsed on Dec. 6.

  • The downgrade happened nearly a week after Evergrande acknowledged in a filing that it was headed toward a restructuring of its offshore debt.
  • Fitch said it took the decision after Evergrande “didn’t respond to [its] request for confirmation” it made the payments on the coupons. “We are therefore assuming they weren’t paid,” the ratings agency added.
  • Evergrande didn’t immediately reply to an emailed request for comment. The company was widely believed to have missed several coupon payments after the 30-day grace period expired.

What’s Next: Evergrande warned last week in its filing that there was currently “no guarantee that the Group will have sufficient funds to continue to perform its financial obligations,” and announced that it was planning to “actively engage with offshore creditors to formulate a viable restructuring plan.”

Pierre Briançon

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U.S. Had 11 Million Job Openings in October

The U.S. had 11 million job openings at the end of October, the Labor Department said Wednesday. And the 6.9 million people seeking work compared with those openings is creating “unprecedented tightness in the labor market,” said Julia Pollak, the chief economist at job-hunting site ZipRecruiter .

  • Slightly fewer people quit their jobs in October, 4.2 million compared with 4.4 million in September, but that number is still significantly higher than before the pandemic, The Wall Street Journal reported. Quit rates have been near records.
  • Although the unemployment rate fell to 4.2% in November, the percentage of working-age people participating in the labor force, either by working or looking for work, was 61.8%, still lower than the 63.4% rate in January 2020, before the pandemic.
  • With 67 job seekers for every 100 jobs, workers have benefited from rising wages in lower-paid industries such as leisure and hospitality and logistics. Workers who switched jobs increased their wages an average of 5.1%, compared with 3.7% for those who didn’t, per Atlanta Fed data.
  • President Joe Biden said in Kansas City, Mo., on Wednesday that the projects in his $1 trillion infrastructure law will create millions of new jobs, including “tens of thousands of plumbers and pipe fitters” earning higher union wages and benefits without needing a college education.

What’s Next: With a labor market that favors workers, the quit rate could increase in coming months as workers look to start something new. “One of the most popular New Year’s resolutions is ‘Get a new job,’” ZipRecruiter’s Pollak said.

Janet H. Cho

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GameStop’s CEO Offers Few Details on E-Commerce Transition

Meme-stock phenomenon GameStop reported widening losses but higher-than-expected sales for the third quarter, though management wouldn’t give formal financial targets. CEO Matt Furlong said GameStop is expanding its selection, accelerating delivery speeds, and improving the customer experience.

  • Furlong said GameStop made long-term investments in infrastructure, talent, and technology, adding that revenue growth would translate into scale and market leadership, and later, “to greater free cash flows over time.”
  • GameStop wants to revitalize its business under Furlong and new CFO Mike Recupero and a new board of directors as it transitions from selling games on disks to digital downloads. Its shares fell 4.7% in after-hours trading.
  • GameStop opened offices in Seattle and Washington, calling them “technology hubs with established talent markets,” secured a $500 million asset-based lending credit facility, and ended the quarter with $1.41 billion in cash and cash equivalents and no debt.
  • GameStop’s shares soared in January after social-media users on sites such as Reddit, believing short sellers were betting on GameStop to decline, invested heavily in the stock. Its stock price fluctuated between $170 to $220 in the third quarter.

What’s Next: Furlong confirmed that GameStop is exploring opportunities in blockchain technology, nonfungible tokens, and Web 3.0 gaming, but didn’t share specifics. He also declined to take questions from analysts.

Connor Smith and Janet H. Cho

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How do reverse mortgages work, and what are the potential tax benefits?

With a reverse mortgage, the borrower doesn’t make payments to a lender to pay down the mortgage principal over time. Instead, the reverse happens. The lender makes payments to the borrower and the mortgage loan principal gets bigger over time. However, the maximum initial loan principal amount is limited to a percentage of the appraised value of the home that secures the mortgage.

As it accrues, the interest on a reverse mortgage is added to the loan principal. The borrower doesn’t have to make any interest or principal payments until required under the terms of the loan. Typically, no payment is due until the borrower dies or permanently moves out of the home. You can receive reverse mortgage proceeds as a lump sum, in installments over a period of months or years, or as line-of-credit withdrawals when you need cash. After the homeowner dies or permanently moves out, the property is sold, and the reverse mortgage balance, including the accrued interest, is paid off out of the sales proceeds.

So, with a reverse mortgage, the homeowner can keep control of the property while converting some of the equity into cash.

Read more here.

Bill Bischoff

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—Newsletter edited by Liz Moyer, Camilla Imperiali, Steve Goldstein, Rupert Steiner