The Washington Post - USA (2022-05-28)

SATURDAY, MAY 28 , 2022. THE WASHINGTON POST EZ RE A

Economy & Business

INTERNATIONAL

U.S. trade deficit

drops amid China

lockdown

The U.S. merchandise-trade
deficit shrank in April by the
most since 2009 as imports fell
amid lockdowns in China while
exports increased to a record.
The shortfall narrowed by
15.9 percent to $105.9 billion
last month, following a record
level in March, Commerce
Department data showed Friday.
The figures, which aren’t
adjusted for inflation, compared
with a median estimate for a
gap of $114.9 billion in a
Bloomberg survey of
economists.
Aggressive lockdowns by the
Chinese government to curb the
spread of covid-19 have
complicated the near-term trade
picture, with the measures —
coupled with Russia’s war in
Ukraine — straining already-
tenuous global supply chains.
While the volume of products
arriving at the biggest U.S. ports
in April was near records, a
worldwide acceleration in
inflation is testing goods trade,
with the World Trade

Organization cutting its forecast

for growth in global

merchandise volumes this year.

In the first quarter, the

widening of the trade deficit

largely explains the economy’s

worst performance since the

pandemic recovery began, with

gross domestic product

shrinking at a 1.5 percent

annual pace. That’s because the

value of products American

businesses and consumers

bought from overseas outpaced

purchases of U.S. goods and

services by other economies.

U.S. merchandise imports

decreased 5 percent from the

prior month to $279.9 billion,

reflecting declines in industrial

supplies, capital goods and

consumer merchandise.

Exports rose 3.1 percent to a

record $173.9 billion in April,

driven by foods, capital goods

and industrial supplies.

— Bloomberg News

RESTAURANT INDUSTRY

McDonald’s investors

back civil rights audit

McDonald’s investors voted in

favor of a proposal calling for an

independent civil rights audit,

going against the company’s

recommendation, according to

preliminary vote totals viewed

by Bloomberg News.

The fast-food chain joins the

ranks of other large businesses

facing a wave of shareholder

scrutiny regarding their

environmental, social and

governance stances. The civil

rights audit was the only

shareholder proposal to gain the

backing of a majority of votes

cast at McDonald’s annual

meeting. Votes that failed

included a request for a report

on lobbying activities and

spending.

The vote was a close one and

one of several contentious issues

on the ballot at the virtual

stockholders meeting Thursday,

with 52 percent of votes cast in

favor of the proposal, 47 percent

against and the remainder

abstaining. McDonald’s didn’t

allow media to listen to the

meeting.

While the vote is nonbinding,

failing to follow through

wouldn’t look good, according

to Nell Minow, who advises

companies about corporate

governance as vice chair at

ValueEdge Advisors. Even

before the vote, large

shareholders including Norges

Bank and the State Board of

Administration of Florida

voiced their support for an

audit.

The company’s second-

biggest shareholder, BlackRock,

voted against the proposal even

though it’s undergoing its own

racial-equity audit, according to

people familiar with the matter.

McDonald’s declined to

comment on the audit vote.

— Bloomberg News

ALSO IN BUSINESS

A record volume of Russian oil

is on board tankers, with

unprecedented amounts

heading to India and China as

other nations restrict imports

because of the war in Ukraine.

Between 74 million and 79

million barrels from the OPEC-

plus producer were in transit

and floating storage over the

past week, more than double the

27 million barrels just before the

February invasion of Ukraine,

according to commodities

analyst Kpler. Asia overtook

Europe as the largest buyer for

the first time last month, and

that gap is set to widen in May,

according to the data and

analytics company.

Lawyers for Robinhood

Markets said they had reached

an agreement in principle to

resolve litigation by some

investors who were blocked

from trading shares in

highflying stocks during an

outage in March 2020. No

details were disclosed. Multiple

investors sued Robinhood in

several states, mostly alleging

restrictions by the trading

platform that amounted to a

breach of contract, court records

show. Cases in California were

consolidated with a federal

judge in San Francisco.

— From news services

DIGEST

ARIF ALI/AGENCE FRANCE-PRESSE/GETTY IMAGES

Members of an auto-rickshaw drivers union protest the rise in gas

prices on Friday in Lahore, Pakistan. The government raised fuel

prices by about 20 percent — or about 15 cents a liter.

BY ANDREW JEONG

Britain’s Conservative govern-
ment announced Thursday a
25 percent windfall tax on the
profits of oil and gas firms that
would be used to support $19 bil-
lion in assistance for low-income
households struggling with a
sharp spike in the cost of living.
Chancellor Rishi Sunak said
that the levy would be placed on
energy companies that were
making “extraordinary profits”
due to the spike in commodity
prices following the reopening of
the global economy as covid
restrictions eased and Russia’s
invasion of Ukraine. The profits
did not arise because of “changes
to risk-taking, innovation or effi-
ciency,” said Sunak, Britain’s top
finance official. “And for that
reason, I am sympathetic to the
argument to tax those profits
fairly.”
The additional taxes will help
pay for at least $1,500 in finan-
cial support to almost all 8 mil-
lion of Britain’s “most vulner-
able” households, the govern-
ment said. There are tax deduc-
tions for companies that invest
their profits, including by spend-
ing on oil and gas extraction
projects in Britain.
Britain’s energy regulator re-

cently said rising costs mean

U.K. households may see up to a

$1,000 annual increase in their

energy bills as soon as October.

Sunak’s plan was welcomed by

the left-of-center opposition La-

bour Party. But Rachel Reeves, a

lawmaker who speaks for Labour

on finance issues, said in Parlia-

ment that her party had pro-

posed the same taxes five months

ago. The Conservatives had pre-

viously rejected a windfall tax on

energy firms.

“Today it feels like the chancel-

lor has finally realized the prob-

lems that the country is facing,”

she said. “We welcome the fact

that the government is finally

acting on our calls to introduce a

windfall tax.”

Reeves — and some British

political analysts — also suggest-

ed that the government was

supporting windfall taxes “be-

cause they needed a new head-

line.”

She was referring to this

week’s long-awaited release of an

internal investigation into boozy

parties held by Prime Minister

Boris Johnson and members of

his government during coronavi-

rus lockdowns in 2020 and 2021.

The report said senior leaders

bore responsibility for the

events. Johnson, his wife and

colleagues indulged in parties

while ordinary citizens and even

Queen Elizabeth II faced strict

restrictions that limited mixing

with other households, visiting

loved ones at nursing homes and

attending funerals.

Johnson has apologized for

U.K. imposes windfall

tax on oil, gas profits

Money will go to help

low-income families

struggling with inflation

○

DOW 33,212.

UP 575.77, 1.8% ○

NASDAQ 12,131.

UP 390.48, 3.3% ○

S&P 500 4,158.

UP 100.40, 2.5% ○

GOLD $1,857.

UP $3.40, 0.2% ○

CRUDE OIL $115.

UP $0.98, 0.9% ○

10-YEAR TREASURY YIELD 2.74%

DOWN 0.3%

CURRENCIES

$1=127.12 Y EN, 0.93 EUROS

attending at least one party at his

residence.

The levy, which takes place

immediately, is expected to bring

in over $6 billion in the next year,

the government said. The wind-

fall tax will stop at the end of

2025 or when prices return to

more normal levels.

Energy companies around the

world have reported large profits

in recent months. London-based

energy giant Shell said in May it

had earned a record $9.1 billion

in adjusted earnings during the

first three months of the year.

Britain’s BP also reported under-

lying replacement cost profits of

$6.2 billion during that period,

up from $3.3 billion during the

same quarter last year.

BP said in a statement it would

review the multiyear tax propos-

al’s effect on its ongoing invest-

ment projects in the North Sea.

Shell didn’t immediately re-

spond to a request for comment,

but the company has said “a

stable environment for long-

term investment” was needed for

it to spend money in Britain,

according to U.K. media reports.

The British initiative comes as

prices have risen to 40-year

highs in Britain and the United

States.

The U.K. consumer price in-

dex, a measure of the prices of

goods and services, rose by 9 per-

cent in April compared with the

year before, government statis-

tics show. In the United States,

prices were up 8.3 percent in

April compared with a year ago.

CHRIS RATCLIFFE/BLOOMBERG NEWS

Vehicles refuel at a BP station near Chelmsford, England. BP reported underlying replacement cost profits of $6.2 billion during the first

three months of the year, up from $3.3 billion during the same quarter last year.

BY AARON GREGG

AND HAMZA SHABAN

Wall Street finished the week in
positive territory for the first time
in nearly two months, with the
three major U.S. indexes flashing
solidly green to end a losing
streak that some feared was a
prelude to recession.
Tech stocks led the gainers,
sending the Nasdaq up 3.
p ercent, or 390.48 points, to close
at 12,131.13. The S&P 500 jumped
2.5 percent, or 100.40 points, to
end at 4,158.24, while the Dow
Jones industrial average climbed
1.8 percent, or 575.77 points, to
land at 33,212.96 to kick off the
holiday weekend.
U.S. markets have had a mostly
lousy year as soaring inflation,
rising interest rates, war in
Ukraine and the coronavirus pan-
demic have rattled investors and
weighed on corporate profits. Un-
til Friday’s close, the Dow had
fallen for eight consecutive
weeks, while the broader S&P 500
index and Nasdaq had declined
for seven straight.
The downturn on Wall Street
marks a brutal reversal from the
exuberance that powered the
market through the first two
years of the coronavirus pandem-

ic. Investors now face a more

dispirited economic environment

without robust government sup-

port. And while market observers

appear less focused on monitor-

ing covid-19 infections, they have

turned their attention to other

metrics, like inflation data and

consumer spending, which are

difficult to predict but can fuel

abrupt swings in share prices and

sour sentiment.

The markets are now on an

upswing, with the S&P 500 up 6.

percent for the week, the Dow up

6.2 percent and the Nasdaq 6.

percent. The gains also head off

immediate worries the S&P 500

will take on the bear market label

— defined as a 20 percent drop

from the most recent high. The

broad index has close in recent

sessions, and even briefly found

itself there in intraday trading

last week.

Wall Street continues to scruti-

nize the actions of the Federal

Reserve, which is expected to

raise interest rates several more

times this year to ease inflation.

“The Fed is walking a tight rope as

it looks to increase interest rates

enough to cool down the economy

and achieve price stability, but

not so aggressively that it pushes

the economy into a recession,”

said Nicole Tanenbaum of Che-

quers Financial Management.

“The jury is still out as to whether

it will be able to achieve this so

called soft landing and investors

broadly are pricing in a less rosy

scenario.”

The past week has had all the

hallmark signs of a bounce-back

rally, according to Wayne Wicker

of MissionSquare Retirement.

Some of the worst performing

stocks of the past 12 months have

been among the best performers

the past two days, and by a wide

margin, he says.

Corporate earnings were a

mixed bag Friday. Computer giant

Dell Technologies saw its shares

jump almost 13 percent after re-

leasing first-quarter sales results

that exceeded analysts’ expecta-

tions.

Retailers specifically have

seized Wall Street’s attention as

analysts look for signs that con-

sumer spending may be flagging.

Walmart and Target posted disap-

pointing quarterly results last

week, both citing rising costs and

supply chain challenges biting

into profits. Retailers’ financial

results also may herald red flags

for the economy, especially if they

show consumers are changing

their habits to offset higher gaso-

line and grocery prices.

Gap initially plunged 6.

p ercent after the apparel compa-

ny posted a revenue decline but

finished up 4.3 percent for the

day. Costco, which reported

d ouble-digit revenue growth after

the markets closed Thursday,

edged up 1.2 percent Friday. While

the warehouse club also reported

heightened freight and labor

costs and said it would raise pric-

es on some foods, it also said its

customers for the most part are

not reaching for cheaper versions

of the goods they prefer.

Consumer spending accounts

for more than two-thirds of the

economic activity in the United

States.

Analysts see positive news in

recent inflation data. The core

personal expenditures index, the

Fed’s favored gauge of inflation,

rose 4.9 percent from a year ago in

April, reflecting a deceleration

from March.

“Inflation is finally slowing, but

it’s a little early for high fives,” said

Comerica Bank chief economist

Bill Adams, who noted that gas

and food prices continued to rise

in May. There is also the threat of

continued oil market disruption

from the war in Ukraine, or more

supply chain shocks due to Chi-

na’s efforts to fight covid. “Rising

prices will probably continue to

be a big problem for the U.S.

economy for at least the rest of the

year,” Adams said.

FWDBonds chief economist

Chris Rupkey says consumers ap-

pear to be dipping into their sav-

ings to weather the effects of infla-

tion, he said, but it remains to be

seen how long they can do so.

“The economy can always turn

on a dime, but at this point in the

economic cycle, consumers are

still spending their hearts out,

keeping the recessionary winds at

bay,” Rupkey said in an email.

Oil prices have settled just

above $115 per gallon, as mea-

sured by West Texas Intermediate

crude, the U.S. benchmark. Fuel

prices are near record highs; the

average price of a gallon of un-

leaded gas in the United States

stood at $4.59 per gallon Friday,

according to AAA.

Markets will be closed Monday

in observance of Memorial Day.

Big day helps Wall Street snap a seven-week losing streak

ANGELA WEISS/AGENCE FRANCE-PRESSE/GETTY IMAGES

The Nasdaq finished Friday up 3.3 percent, while the Dow Jones

jumped 575.77 points ahead of the Memorial Day weekend.