🎙️ The Price Is Right

Great news: Inflation, as measured by the Consumer Price Index (CPI), continues to decelerate for the 12th straight month. In June, the CPI rose only 3% year-over-year.

Progress! 👏🏻

The Fed wants to see that number at 2%. And economists prefer a slightly different inflation metric called Core CPI, which strips out food and energy prices. On that front, things are less good. Core CPI is cooling more slowly, rising at 4.8% year-over-year last month.

💭 The U.S. economy isn’t a monolith, either. Prices aren’t increasing evenly across the country. For example, in the northeast, prices are rising annually at much closer to 2%.

Our chart(s) of the day illustrates both.

— Shawn & Matthew

Here’s the rundown:

Today, we'll discuss the three biggest stories in markets:

• The fight against Big Tech & mergers

• China hits back at Goldman

• How JPMorgan is leveraging SVB’s downfall

All this, and more, in just 5 minutes to read.

CHART OF THE DAY

IN THE NEWS

🤕 The (Losing) Fight Against Big Tech (WSJ)

Federal Trade Commission (FTC) Chair Lina Khan is taking on the world’s biggest technology companies. Mostly, it’s been a losing battle.

Khan failed this week in her latest effort to block the big-tech deal between Microsoft and video game publisher Activision Blizzard. A federal judge denied her agency’s bid to block Microsoft’s deal, only months after the FTC failed to thwart a deal between Meta Platforms’ purchase of a virtual reality gaming company.

• If this feels familiar, it is: Microsoft and Activision first struck the deal 18 months ago. And just this week, U.S. District Judge Jacqueline Scott Corley denied the FTC’s request for an injunction.
  

• “The FTC has not shown it is likely to succeed on its assertion the combined firm will probably pull Call of Duty from Sony PlayStation, or that its ownership of Activision content will substantially lessen competition in the video game library subscription and cloud gaming markets,” the ruling read.

Khan, the FTC chair, rose as an Amazon critic and vowed to implement stricter antitrust enforcement. She has noted that past enforcers were too cautious and failed to confront the rise of companies such as Facebook, which gained enormous power over the past 15 years.

• “I’m certainly not someone who thinks success is marked by a 100% court record,” Khan said last year. “If you just never bring those hard cases, I think there is severe cost to that, that can lead to stagnation and stasis.”

What’s different about Microsoft and Activision: They aren’t head-to-head competitors, so the case heavily depends on the FTC’s prediction that the combined company would abuse its power to hurt competition in the future.

The bottom line: Microsoft can close its $75 billion deal to acquire Activision Blizzard. The ruling means there’s no U.S. obstacle to the two companies merging.

Why it matters:

The FTC and Justice Department are ramping up. They challenged 10 mergers in court last year, up from six in 2021 and eight in 2020. This year, they’ve sued to block or undo four deals involving Amgen, JetBlue, Intercontinental Exchange, and a Louisiana hospital system.

• It’s a push led by Khan, the FTC chair, who wants the law to prevent big mergers that lead to higher consumer prices and other problems, including lower wages, less innovation, and reduced quality.
  

• The FTC hopes it can find better luck in preventing future mergers. They know they need to win some cases before the Biden administration’s term ends, or companies will likely begin to tune out their warnings.

On the clock: “There has been progress, but there has also been these losses,” said an advocate of stricter antitrust enforcement. “The clock is ticking.”

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🤬 China Hits Back at Goldman Sachs (Bloomberg)

Who says the financial world is absent of petty drama?

It’s not every day you see a government denounce an investment bank for its research reports, but official efforts to ward off negative investment sentiments are ramping up in China.

Last week, Goldman Sachs issued a pessimistic report on Chinese banks, notably pushing Merchants Bank’s stock down 12% in the time since.

• Merchants Bank responded by calling the report “illogical,” arguing that Goldman’s assumptions have “misled some investors.”

• A state-owned Chinese newspaper chimed in, issuing a rebuttal of Goldman’s research, suggesting the firm had misinterpreted the facts.

Valid worries? Goldman, however, was raising concerns about Chinese banks’ exposure to local government debt, which has become increasingly risky as local governments face difficult financial challenges with a downturn in the country’s property markets (many local governments in China rely heavily on land sales for revenue.)

Intolerance of negative financial commentary doesn’t end there, though. A prominent financial writer and two of his peers were suspended from a Chinese social media platform — Weibo — for spreading “negative and harmful information” about the nation’s floundering stock market.

• Weibo’s statement added that they had “attacked and undermined” Chinese policy and hurt the stock market’s development.

And last year, JPMorgan’s reports calling Chinese internet stocks “uninvestable” cost the firm a primary role in underwriting a stock listing for Kingsoft Cloud Holdings.

At the end of June, Bloomberg also reported that China’s central bank was stepping up support for the country’s slumping currency and intervening in markets after the Yuan hit a seven-month low.

Why it matters:

A mix of positive and negative opinions is essential to how financial markets function, allowing all facts and perspectives to be considered and factored into asset pricing.

• Limiting negative views only distorts the effectiveness of markets.

It’s something investors will watch keenly in China as the central government shows a greater willingness to, directly and indirectly, punish honest skepticism at a time when the country’s economy is weakening: Youth unemployment (those aged between 16 and 24) in the country surged to almost 21% in May.

No easy choice: As global banks continue operating in China, they must navigate a tricky balance between providing honest research for investors and corporate decision-makers, a pillar of their brand reputation, and not jeopardizing business interests there by displeasing government officials.

MORE HEADLINES

🤑 The Fed wants to make money transfers a whole lot faster

🍊 Farmers Insurance becomes the latest insurer to pull out of Florida

🙌 America’s least-expensive states to live in 2023

 🏦 JPMorgan Hires Dozens of Bankers To Serve Start-ups (FT)

Wanted: bankers.

JPMorgan is recruiting bankers who specialize in serving start-ups and venture capital-backed companies. It’s a strategic move to capitalize on Silicon Valley Bank’s (SVB) downfall — a firm that, if the name doesn’t give it a way, specialized in banking emerging tech companies.

• JPMorgan bolstered its commercial bank team by adding about 20 bankers in the UK, along with 10 in Israel. JPMorgan has appointed John China, a former longstanding executive of SVB, as the co-head of its innovation economy business in the U.S.

One big game: In banking, as in life, there are winners and losers. This year SVB fell into the ladder category while JPMorgan remains firmly in the former, using crisis to its advantage.

• JPMorgan’s customer base has grown since SVB's collapse in March, promptly acquiring new start-up and venture capital clients suddenly left unbanked.
  

• That week the banking titan received an influx of calls, pushing JPMorgan's onboarding team to max capacity.

The bank’s sheer size provides a lot of advantages. With average domestic deposits of over $2 trillion in 2022, JPMorgan is the largest bank in the U.S. It can weather storms others can’t, reaping the benefits once the tides calm.

Another example: After First Republic Bank also failed earlier this year, regulators allowed JPMorgan to buy the distressed bank at a compelling discount.

Why it matters:

Instead of outright buying SVB, as it did with First Republic, JPMorgan is taking a narrower approach, poaching former bankers and SVB clients.

• One analyst commented, “Between the two of them…JPM got one crown jewel for a steal and the other for free.” Adding that, “They dodged a bullet [by passing on SVB] and got the benefits of having all the top SVB people.”

This plays into the mega bank’s strategy since 2019, aiming to expand its commercial banking presence in foreign markets to cater to medium-sized companies on an international scale.

• “This is about being relevant to the world’s best companies earlier in their life cycle,” a JPMorgan executive said.

See you next time!

That's it for today on We Study Markets!

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