| | | | | | | | | | | Axios Markets | | By Matt Phillips and Emily Peck · Aug 18, 2022 | | How about that! It's Thursday already. - Here's your Markets newsletter, fresh and totally organic, edited by Kate Marino, and clocking in at 1,149 words, 4.5 minutes.
🚨 And on the menu later today... - Weekly jobless claims numbers, at 8:30am ET.
- Existing home sales — and home prices — at 10am.
| | | | | | 1 big thing: A new anti-ESG attack on BlackRock |  | | | Illustration: Sarah Grillo/Axios | | | | A conservative pressure group is spending millions of dollars to raise awareness of BlackRock's ESG efforts — the asset manager's attempts to prioritize the environmental, social and governance aspects of investing money, Axios' Alayna Treene writes with Felix Salmon. - The idea is to turn conservatives against BlackRock — but the campaign could also end up reassuring more mainstream investors that BlackRock's green credentials are more than just a marketing campaign.
Why it matters: Attacking ESG investing as "woke capitalism" has become something of an article of faith among Republicans. But most of BlackRock's institutional investors have explicit carbon or climate goals as part of their investment mandates, and what they worry about is not that BlackRock is too environmentally active, but rather that it isn't environmentally active enough. Driving the news: The new campaign, from Consumers' Research, attacks BlackRock and its CEO Larry Fink for "weaponizing" retirement funds by pushing an ESG agenda. Between the lines: The campaign foreshadows the posture of House Republicans next year, who are increasingly latching onto this issue and plan to make it a central part of their legislative and investigative agenda if they take back the majority. - Key GOP committees are already planning to haul in CEOs of investment firms, including BlackRock, for public eviscerations if they're in power come January, Hill Republicans tell Axios.
What they're saying: "BlackRock is using money that doesn't belong to them to push an extreme agenda," Consumers' Research executive director Will Hild tells Axios. - Be smart: BlackRock's ESG agenda is not extreme. In fact, it's entirely in line with international benchmarks set by the Glasgow Financial Alliance for Net Zero and others. Indeed, BlackRock is not extreme enough for the Sierra Club, other environmental groups, and politicians like New York City Comptroller Brad Lander.
- Mainstream Republican voters are often surprisingly well-disposed toward ESG. While the party leadership has coalesced around attacking "woke capitalism," voters — even Republican voters — don't seem to be particularly upset about it.
State of play: BlackRock's individual U.S. investors — and their financial advisers — tend to be older, whiter, and richer than the population as a whole. Which is to say, more likely to lean Republican. 💭 Felix's thought bubble: Being attacked by climate-change deniers is not going to change BlackRock's stated position that climate risk is investment risk. But now, when he's attacked by environmentalists, Fink can point to the Consumers' Research campaign and claim to be treading a middle ground where he's attacked by both sides. The bottom line: BlackRock invests money for the whole world, not just Americans. Republican Party politics is not going to change its big-picture strategy. Read more. |     | | | | | | 2. Catch up quick | | 🇹🇼 U.S. and Taiwan to hold talks on a sweeping trade treaty. (Axios) 📉 China's largest property group warns of 70% plunge in profit. (FT) | | | | | | | | 3. Despite drought, crop prices keep crumbling |  Data: FactSet; Chart: Axios Visuals Grain prices keep dropping, even though more than half of the Lower 48 states remain in a drought. That's good news for inflation, Matt writes. Why it matters: If sustained, the decline in wheat, corn and soybean prices could ease the rise in food costs and help policymakers knock inflation down a bit. Driving the news: Over the last three months, prices for wheat, corn and soybeans are down about 35%, 25% and 17%, respectively. - That's a remarkable turnaround from the soaring prices seen earlier this year.
What's happening: a few things. Yes, but: The U.S. drought still matters, especially to farmers in the deep South and West. What we're watching: The weather, with few signs of relief on the horizon. | | | | | | | | A message from Axios | | How to make work emails 40% shorter | | |  | | | | We're living in a world with way too many words —and it's getting harder to find essential details in the urgent moments we need them. Smart Brevity® is how we break through. It's a communication style built on brain science. This two-minute video explains how it works. | | | | | | 4. Reader mailbag: The long and short of interest rates |  | | | Illustration: Sarah Grillo/Axios | | | | Axios Markets reader Tim Juliani of Alexandria, Virginia, writes: It's disappointing to see yet another story, particularly from Axios, that directly correlates the Fed raising rates and mortgage rates. Mortgages track the 10-year Treasury bond. Reading the press these days you'd think that every time the Fed raises rates by .75, mortgage rates go up by a similar amount. Tim is right! Mortgage rates are based on long-term interest rates — you can think of that as the yield on the 10-year Treasury note — not the Fed funds rate, which is what the Fed moves up and down when it makes a monetary policy move, Matt and Felix write. - Tim is also right(!) that the Fed's short-term and long-term rates do not move in lockstep. In other words, a half-point interest rate increase from the Fed doesn't directly raise mortgage rates by a half point.
The intrigue: So, why did Matt write, "Fed rate hikes have helped push mortgage rates sharply higher, making purchasing a new home much more expensive."? - Because as the Fed began its rate hiking campaign, long-term interest rates started to shoot sharply higher, dragging mortgage rates with them.
How it works: Financial markets by their nature are mysterious. But the prevailing wisdom among financial academics is that long-term rates should equal the expected return from keeping money overnight for that period, plus a mystery meat ingredient known as the "term premium." (That's a whole other can of worms you can geek out on.) - For over a decade after the financial crisis of 2008-09, the Fed tried very hard to signal that overnight interest rates would be very close to zero for many, many years. That helped bring long-term rates down.
- The sudden and large rate hike, with the promise of many more to come, forced markets to radically recalibrate where they expected overnight rates to be over the next ten years or so, and long-term rates spiked.
The bottom line: When the Fed wants to slow down the economy, it raises short-term rates with the hope that it will cause long-term rates — including mortgage rates — to rise. - While there certainly isn't a 1-to-1 correlation between the Fed funds rate and mortgage rates, the idea behind raising the former is very much to raise the latter.
- And this time at least, it seems to have worked.
| | | | | | | | A message from Axios | | How to make work emails 40% shorter | | | | | | | | We're living in a world with way too many words —and it's getting harder to find essential details in the urgent moments we need them. Smart Brevity® is how we break through. It's a communication style built on brain science. This two-minute video explains how it works. | | | | 1 📚 thing Matt loves: reader suggestions! We got loads of 'em in response to my request for Markets-worthy book recommendations. Here's a smattering of what you all would vouch for, in no particular order. - "Reinventing the Bazaar: A Natural History of Markets," by John McMillan
- "Liar's Poker," by Michael Lewis
- "Kleptopia," by Tom Burgis
- "Big Mistakes: The Best Investors and Their Worst Investments," by Michael Batnick
- "The Psychology of Money," by Morgan Housel
- "Reminiscences of a Stock Operator," by Edwin Lefèvre
- "Adaptive Markets," by Andrew Lo
- "Shutdown," by Adam Tooze
- "The Most Important Thing," by Howard Marks
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