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Falling free cash flow isn’t enough to pressure dividends and stock buybacks….yet. The four-quarter moving average of free cash flow for the S&P 500 dropped 12.5% in the first quarter from a year earlier, primarily due to cost pressures, and though it hasn’t had a material impact on capital- deployment trends so far, the decline may slow the pace of growth in spending in coming quarters.
Important differences in underlying inflation trends call for different policy outlooks among the world’s top central banks. The Federal Reserve will have to go well into restrictive territory, the Bank of England may go a little above neutral and the European Central Bank might not even get that far. The US’s red-hot labor market make services an outsized driver of price growth, and that’s the kind of inflation which doesn’t disappear on its own, forcing Fed action.
Source: Bloomberg, Eurostat, ONS, BLS
Emerging market stocks are on track for their worst first-half performance since Russia’s financial crisis in 1998. The MSCI EM Index slumped 17% in the year through Monday, a steeper decline than during the global financial crisis and the Federal Reserve tapering of 2013.
Developing-nation shares have been selling off as central banks around the world turn hawkish, fueling expectations of a global recession while soaring inflation and the war in Ukraine dim the outlook even further.
Microsoft Corp.’s massive cash pile could let it skip debt financing for its $88 billion in all-cash acquisitions.
It has plenty of flexibility, with $49 billion in cash net of debt before its Activision Blizzard Inc. purchase and $76 billion in free cash flow anticipated in 2023. Yet the company could realize a more efficient capital structure by issuing more bonds, similar to what cash-rich Apple Inc. has done. Microsoft hasn’t accessed the new-issue markets since 2017.
Source: Bloomberg, Bloomberg Credit
A sharp decline in commodity prices over the past month — with the Bloomberg Commodity Index down 13% from a peak in June — highlights a shift in investor focus from inflation to concerns about an economic downturn.
Commodities from energy to food and metals soared in the first five months of the year as a favored hedge against inflation. Now, with recession fears hitting prices, equity markets with heavy exposure to commodities, such as the UK, as well as sectors most exposed in a downturn, such as banks and carmakers, may suffer.