☀️☕️ A Venti Latte with an Extra Shot (of Extra Virgin Olive Oil), Please

Happy Thursday!

Market Roundup 📊 23-Feb-23

US large-cap S&P 500 closed 0.16% DOWN 🔻
Tech-heavy Nasdaq Composite closed 0.13% UP ▲
Pan European STOXX Europe 600 closed 0.33% DOWN 🔻
HK’s Hang Seng Index closed 0.51% DOWN 🔻
Japan’s Nikkei 225 closed 1.34% DOWN 🔻

— The MoneyFitt Morning (@MoneyFitt)
Feb 23, 2023

📝 Focus

Venti Latte with an Extra Shot (of Extra Virgin Olive Oil) ($SBUX)

📊 In the Markets

Headline: Experts Making Headlines!

Toyota’s 20-year high wage hike

📖 MoneyFitt Explains

🎓️ Jerome Hayden “Jay” Powell

📝 Focus

Venti Latte with an Extra Shot (of Extra Virgin Olive Oil)

Legendary Starbucks boss Howard Schultz travelled to Italy for the first time in 1983 and fell in love with the “the romance and theatre of coffee,” according to official company lore. He tried to convince his then bosses at Starbucks to change their strategy but failed, so he bought out their retail ops for under US$4 million (with an M.) Current market cap is US$120bn (with a B.)

And now, after a trip to Sicily last year, during which he reportedly had the brainwave to combine the regional custom of taking a spoonful of olive oil every day with his usual morning cup of coffee by pouring it in, Starbucks is launching olive oil infused lattes and iced espressos in Italy. Olive oil and coffee is “alchemy”, he says. (Actually, it’s infusing extra virgin olive oil by steaming or shaking it with oat milk that’s added to the coffee.)

“I was absolutely stunned at the unique flavor and texture created when the Partanna extra virgin olive oil was infused into Starbucks coffee… an unexpected, velvety, buttery flavor that enhanced the coffee and lingers beautifully on the palate.”

Howard Schultz, twice former, now interim and soon outgoing CEO of Starbucks

Extra shot of olive oil? – Image credit: Tenor

It actually seems supremely unlikely that anything like that ever happened and that “the Oleato” came from anywhere other than the Starbucks R&D labs and extensive secret focus groups. Olive oil drinks have been trending on TikTok and Bulletproof coffee with MCT (or extra virgin coconut) oils have been a thing for years, while the purported health benefits of EVOO have been recognised for even longer. And in many parts of the world, black coffee with a stick of unsalted butter or margarine has been a staple of “uncles” for generations.

But we can give Schultz credit for spreading the concept around the world with the Oleato as his third round as CEO of the coffee giant comes to an end in April.

📊 In the Markets

So, after all that waiting, we’ve learned from the Federal Reserve’s 31-Jan to 1–Feb meeting minutes that “almost all” Fed officials agreed to slow the pace of increases in interest rates to 0.25% (though a few still preferred another 0.50% increase,) that the risk of high inflation remained a “key factor” and that further rate hikes would be necessary until it was controlled. We knew all this both from the press conference held right afterwards by Fed chief Jay Powell 🎓 and from almost every member of the FOMC out on the speaking circuit since then. And anyway, that meeting was followed by the unexpectedly strong new jobs (non-farm payrolls) report for January and robust consumer spending data, so it could be considered a bit outdated.

But there was also much heated discussion about potential vulnerabilities in commercial real estate and non-bank financials and in the functioning of the US Treasury bond market, the backbone of the global credit system. This included the risk of US Congressional politicking and the impending debt ceiling. “A number of participants stressed that a drawn-out period of negotiations to raise the federal debt limit could pose significant risks to the financial system and the broader economy,” the minutes said.

In commodity markets, Brent Crude, the global benchmark for oil, registered a 3% drop as traders fretted that recent stronger-than-expected economic data (jobs, consumer demand, producer prices and orders, etc.) will prompt more aggressive interest rate increases by central banks, thereby putting negative pressure economic growth and therefore fuel demand. That’s market logic, not Bing AI.

Image Credit: Tenor

And in China, the price of Lithium, a key battery component, has dropped 29% since November on weaker demand in the world’s largest market for electric vehicles, ending a two-year rally for the soft, silvery metal. It is still eight times where it was two years ago and well above the cost of production. There are concerns over the impact on EV sales of reduced new energy vehicle subsidies in China and elsewhere, like Germany — particularly after the slow start in China this year with a 6.3% year-on-year drop in January (though the traditionally quieter Chinese New Year fell in that month.)

Headline: Experts Making Headlines!

Not to pick on any one economist or strategist, since their jobs are almost impossible to do with great (or any) accuracy, but those working for investment banks seem to be under extra pressure to make headlines and create “buzz” on the likes of CNBC, BloombergTV and other places their clients and bonus-paying bosses can see them.

With UK inflation having peaked and a recession avoided by the skin of its teeth (so far), the next big media push should come when inflation finally drops below double digits (CPI was 10.1% in January, down from 10.5% last December.)

Now streaming: Your bonus – Image credit: Tenor

One economist isn’t waiting, though. Citi’s chief UK economist says CPI will likely fall to just above the Bank of England’s 2% target as soon as November. This is the same guy who in August 2022 said inflation was “entering the stratosphere” and predicted it would hit 18.6% in the first quarter of 2023 (i.e. right now,) which was way higher than every other expert’s forecast at the time, while expecting the BoE to raise interest rates to 7% (they are now at 4%.) To be fair, the BoE at the same time was expecting 13.3% inflation as soon as October.

This brings us to #9 of the Ten Market Rules To Remember from Wall Street legend, the late Bob Farrell: “Be Mindful of Experts and Forecasts” (more fully: “When all the experts and forecasts agree, something else is going to happen.”)

Toyota’s 20-year high wage hike

Toyota has given 68,000 unionised workers the highest monthly pay rise in 20 years, following pressure from both labour unions and the government given that Japanese core inflation (which excludes volatile fresh food prices) hit 4% in December, the fastest pace in 41 years. Within hours of the announcement, rival Honda said it had agreed to a 5 per cent pay increase, the biggest jump since at least 1990.

“The core of a virtuous economic cycle lies in wage growth, and must be realized at all costs. Companies must generate profits and then properly distribute them to workers”

PM Kishida of Japan in January

Uniqlo parent Fast Retailing, gaming company Nintendo and brewer Suntory have all recently raised domestic wages, following Prime Minister Fumio Kishida’s campaign for wage increases to address domestic cost of living pressures.

This contrasts sharply with governments elsewhere, which are trying to avoid the dreaded wage-price spiral in which higher prices push workers to demand higher wages, raising producer costs, which are passed on in higher prices and on and on. In fact, the “on and on” part is what Japan has been yearning for after years of battling deflationary pressures leading to one and then many lost decades since the spectacular speculative bubble of the 1980s. Wages have stagnated for most of the past 30 years.

Koji Sato, who will take over as Toyota’s CEO in April, basically agreed with the union on Day One of a usually tortuous, weeks-long marathon of negotiations. He also agreed to the union’s request for a one-off bonus of 6.7 months of wages, prompting union leaders to declare “Oh, what a feeling!

📖 MoneyFitt Explains

🎓️ Jerome Powell

The chairman of the US central bank, the Federal Reserve, is a political appointee even though the Fed itself is independent and is not supposed to be politically motivated. (The 7 governors are also political appointees, but the 12 regional Fed presidents are not.)

​​The current chair is Jerome “Jay” Powell (“J.Pow”), a former lawyer and partner in private equity giant Carlyle, who is a Republican. He was appointed to the Federal Reserve board of governors by Obama (a Democrat) but made chairman by Trump (a Republican.)

The main thing to remember is that, unlike most independent central banks around the world, the Fed has a “dual mandate”, meaning that not only does it have to keep inflation under control through all means necessary (target is 2%, not zero), it also has to seek “maximum sustainable employment”… not meaning zero unemployment, but a level that is neither a boom nor a bust rate of (un)employment. (Most economists believe inflation and unemployment work in opposing directions in an economy.)

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