It’s Amazon Prime Day. Why the Fed Should Take Notice.

This year, inflation has slowed, and interest rates are no longer going up as quickly. Analysts expect sales to jump again after consumer confidence rose to the highest in more than a year in June.

For Amazon, and for rivals such as
Walmart,
Target, and
Best Buy
holding similar events now, the resilience of consumers has been a boon. Amazon shares are up more than 50% this year.

For the Fed, consumer spending has been a bit of a mystery. Normally, shoppers would be expected to rein in spending when inflation takes off, but they haven’t this time.

Historically low unemployment is surely helping them keep going. That’s another puzzle the Fed is trying to solve and probably a big reason for why San Francisco Fed President Mary Daly said Monday that the bigger risk is doing too little to quell inflation, rather than doing too much.

To be sure, any information gleaned from Prime Day isn’t necessarily representative of the economy as a whole. It’s possible that shoppers feeling the pinch of inflation would splash out more during big sales events than they would otherwise, disguising the actual strength of demand.

But the thing about summer retailer sales is that they’re not a gauge of what shoppers say they’re going to do, but rather a measure of what they’re actually doing. It’s what economist John Maynard Keynes referred to as “animal spirits” in the marketplace.

In short, the Fed could view a strong Prime Day as pushing the scales further toward two more interest-rate increases this quarter. A weak one could encourage rate-setters to go slow.

—Brian Swint

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Fed’s Barr Seeks Higher Bank Capital Requirements

Michael Barr, the Federal Reserve’s top banking regulator, proposed tighter rules and higher capital requirements on banks holding $100 billion or more in assets. Proposed changes include adjusting risk-based requirements, stress-testing, risk-based capital buffers, and leverage requirements.

• The largest banks would be required to hold an additional two percentage points of capital—or an extra $2 of capital for every $100 in risk-weighted assets—beyond current requirements. Barr also aims to improve the “speed, agility, and force” of the Fed’s bank supervision.

• The banks say higher capital rules will cause them to hold back more funds and limit lending, which they warn will hurt the economy. Barr disagrees, saying: “Capital is what enables banks to lend to the economy,” and that building capital is aimed at building resilience.

• Changes include standardizing credit and operational risks, rather than letting banks estimate their own. Banks also would face more difficult stress tests, measuring their ability to weather a hypothetical recession, tougher executive pay restrictions, and higher liquidity requirements, Barr said.

What’s Next: Proposals are subject to a public comment period and won’t be fully effective for years, amounting to what Jaret Seiberg, a financial policy analyst with Cowen Research Group, called a “modest capital increase for the big banks.”

—Megan Cassella, Carleton English, and Janet H. Cho

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Used-Car Prices Dropped in June, Easing Key Inflation Driver

Used-car prices dropped by a record 4.2% in June from the month before, which is expected to help ease a key driver of core inflation. The used-car pricing index is now down about 17% from its peak in January 2022, but remains almost 40% higher than prepandemic levels.

• The Manheim Used Vehicle Value Index, a closely watched indicator of car prices, fell 10.3% in June from last year, the tenth consecutive month of annual declines. June’s decrease was a record for the month, according to Cox Automotive, which owns the Manheim auto auction.

• At the same time, stocks of used-car dealers have been gaining, notably
  Carvana’s
  stock, which closed up 16% on Monday. Carvana also reported that its EV unit sales increased 786% over the past five years.

• Rising interest rates and new car discounts sapped demand for used cars, weighing on prices. Dealers have also restocked after consumers went on used-car buying sprees during the Covid-19 pandemic. But falling used-car prices can lower prices for new cars, denting profits at
  Ford Motor
  and
  General Motors.

• Consumer spending on new and used vehicles and parts is still up 10% from last year, Cox said. That’s an indication the economy isn’t tipping into a recession, said Cox chief economist Jonathan Smoke. “The consumer is hanging in there.”

What’s Next: Analysts expect used-car prices to keep falling as new car production recovers, but the declines should slow. Manheim expects the used-car price index for December to show a 1.1% decline, down from a previously forecast drop of 4.2% from a year earlier.

—Al Root and Janet H. Cho

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As Twitter Traffic Falls, Musk Steps Up Zuckerberg Taunts

The rivalry between billionaire social-media owners Mark Zuckerberg and Elon Musk is just getting warmed up.
Meta Platforms
’ microblogging site Threads hit 100 million users as of Monday, while Musk has stepped up the war of words on his site, Twitter.

• Analytics firm Similarweb said Monday that in Threads’ first two full days last week, web traffic to twitter.com fell 5% compared with the same days of the previous week. Compared with one year ago, Twitter traffic was down 11% those two days, it said.

• Similarweb said even before Threads, Twitter’s traffic was down. It fell 4% in June from last year.
  Cloudflare’s
  CEO Matthew Prince shared his own data on Twitter that said Twitter’s traffic was “tanking.” Meta didn’t respond to a Barron’s request for comment. Twitter sent an automated emoji response.

• Twitter user retention also dropped in the past year. On Android, the percentage of new users who are continuing to regularly use the Twitter app after 30 days has dropped from 19% in May 2022 to 16% in May 2023, Similarweb said. New Instagram users have held steady at about 40%, it said.

• Zuckerberg noted the rapid growth in users in his own Thread post on Monday, calling it mostly organic demand because they haven’t turned on many promotions yet. “Can’t believe it’s only been 5 days!” he posted.

What’s Next: Musk, who also owns
Tesla,
SpaceX, and The Boring Company, sent a tweet mocking Zuckerberg on Sunday. The two are said to be contemplating a cage match, perhaps at a Las Vegas Ultimate Fight Club venue sometime soon.

—Liz Moyer

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SEC Votes Wednesday on New Money Market Fund Rules

The Securities and Exchange Commission will vote Wednesday to complete new rules to prevent money market funds from running short of cash during crises, such as the 2008 financial crisis or during the Covid-19 pandemic. The rules are designed to make money-market funds more resilient and transparent.

• The nearly $6 trillion industry doesn’t like some proposals, such as one requiring “swing pricing” adjustments. These adjust the net value of a fund to pass the trading costs to the investors making the transaction.

• The SEC believes swing prices could dissuade investors from rushing to cash out first during a panic, which is what happened in March 2020. The SEC would require it only for certain institutional and tax-exempt money-market funds, which together manage about $300 billion.

• The SEC also proposed increasing the daily liquid asset and weekly liquid asset minimum liquidity requirements to 25% and 50%, respectively, to provide more substantial buffers against rapid redemptions.

What’s Next: The SEC proposed the rules in December 2021, and is now voting on them after a period of gathering public comments. The final rules are likely to be different from the original proposals.

—Bill Alpert and Janet H. Cho

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Biden to Meet Ukraine’s Zelensky Amid NATO Tensions

President Joe Biden will meet Ukraine’s Volodymyr Zelensky at the NATO summit Wednesday as focus turns to the war-torn country’s future membership of the military alliance.

• President Biden said Ukraine isn’t ready to be a member of NATO in an interview with CNN Sunday—a position that pits him against several key U.S. allies. Biden warned that granting Ukraine membership while it is at war with Russia could draw the U.S. and Europe into the conflict.

• NATO’s Secretary General Jens Stoltenberg said Tuesday the alliance will send a “positive and strong message” to Ukraine over its membership hopes, as he proposed allowing the country to skip one part of the membership process.

• Sweden looks set to become the 32nd member of NATO after Turkey agreed to support the country’s bid to join the alliance, lifting its veto on the move. Sweden, along with Finland, applied to join NATO last year following Russia’s invasion of Ukraine.

What’s Next: The NATO summit in the coming days will demonstrate how much stronger the 74-year-old alliance is since Russia invaded Ukraine—and it will reveal the cracks that remain.

—Callum Keown

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Everyone will start with the same amount and can trade as often or as little as they choose. We’ll track the leaders and at the end of the challenge the winner whose portfolio has the most value will be announced in The Barron’s Daily newsletter.

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***

—Newsletter edited by Liz Moyer, Patrick O’Donnell, Callum Keown