Pre-market shares: Wall Street faces $ 9 trillion problem
In a Deutsche Bank survey of 620 market professionals released this week, 39% of respondents cited a “central bank policy error” as one of the top three risks to market stability, compared with 21% the last month.
Similar fears are reflected in the survey of global fund managers released by Bank of America last week. The second risk, behind inflation, is a “taper tantrum”, referring to a scenario where central banks relax their bond purchases, increase yields and cause panic in the markets.
The big picture: Investors have become addicted to easy money from central banks like the Fed, whose decision to cut interest rates to low and buy hundreds of billions of dollars in bonds has fueled the rapid rebound of the market after the initial shock of the coronavirus.
But such policies have also given central banks enormous power to dictate market outcomes, making them harder to pivot down the line.
“There are reasons why we should see higher price levels today,” Atlanta Fed Chairman Raphael Bostic said on Monday. “The question is how long is this going to be sustainable. Right now, I don’t see it going to last.”
The European Central Bank seems a little more cautious. Last week, he warned that while “the economy still depends on political support to prevent widespread unemployment, business failures and economic contraction”, financial markets have “shown remarkable exuberance.”
El-Erian thinks investors “should encourage the Fed to pivot rather than just focusing on the continued joy of riding the wave of liquidity.” But breaking an addiction is easier said than done, although the potential for negative complications adds up.
Apple and Epic Games await successful verdict
After spending days presenting heaps of dueling economic analysis and documentary evidence, the two sides landed on Monday where they started: arguing over how Judge Yvonne Gonzalez Rogers should play Apple’s role. in a sprawling digital economy, report my colleagues at CNN Business Brian Fung and Rishi Iyengar. .
Remember: the result of this analysis could reshape how digital app stores operate or maintain Apple’s leading position in its app ecosystem.
What Comes Next: Gonzalez Rogers is about to decide whether Apple is an agile innovator who has only reaped the rewards for building a popular apps business, or whether it is, as Epic claims, a monopolist who uses his control over the iOS App Store to illegally harm competition, restrict innovation and keep prices high.
The judge said on Monday she intended to issue an opinion by mid-August, although it could take longer given the thousands of pages generated by the case.
Reading the tea leaves: Gonzalez Rogers has posed critical questions to both sides. She challenged Apple over the fees it charges developers and at times hinted that she was open to finding Apple broke the law. But she also pushed hard against Epic on Monday, suggesting that what the company was asking her to do was “change the business model” of Apple.
Investor insight: Nick Rodelli, head of Legal Edge Research at CFRA, told clients he thinks Epic “has a slight advantage in winning the Apple litigation.” This could be a blow to Apple’s stock, given that the App Store’s practices contribute a significant portion of its pre-tax income.
Congress is skeptical of PSPC boom
Are ordinary investors being fooled by PSPCs, one of Wall Street’s hottest trends over the past year?
Read the mood: “I am deeply concerned about the lack of transparency and accountability that characterizes the PSPC process,” said Representative Maxine Waters, Chair of the House Financial Services Committee, in her opening statement.
One fear: PSPCs have more leeway to make ambitious projections for future growth – and retail investors “are buying into that kind of hype,” said Andrew Park, senior policy analyst at Americans for Financial Reform.
“While in an IPO, issuers and underwriters are responsible for making false and misleading forward-looking statements, PSPCs are not subject to this same standard,” Park said. “This has encouraged many pre-income companies in highly speculative industries such as EVs, cryptocurrency, and space exploration to make what one might generously call very optimistic projections.”
Also today: New US home sales for April and consumer confidence data for May are released at 10 a.m. ET.