CEO confidence at highest level in three years, new survey finds
Corporate leaders are feeling good: A measure of CEO confidence rose to its highest level in three years, per a post-inauguration survey released Thursday morning. (…)
134 CEOs from the Fortune Global 500 were surveyed from January 27 to February 10 by the Conference Board, in conjunction with The Business Council, a CEO membership group. (…)
Confidence surged 9 points to 60, the highest level since 2022 — and the first significant jump into clear positive territory in years (any number over 50 is considered positive).
There are headwinds here. The share of executives that said geopolitical instability was a high-impact risk rose to 55%, up from 52% the previous quarter.
- Fewer said they were expecting to increase the size of their workforce — only 32%, compared to 40% in the previous survey.
- Other surveys out recently are painting a less rosy vibe, as well. Small business optimism fell in January, and optimism also declined among manufacturers in a survey from the Federal Reserve Bank of New York.
Data: The Conference Board and The Business Council. Chart: Erin Davis/Axios Visuals
The NY Fed’s February Business Leaders Survey, covering service firms in New York, northern New Jersey, and southwestern Connecticut, shows the difference between current and expected activity. The index of current activity fell five points to -10.5, its lowest level in more than a year.
The business climate index fell fourteen points to -35.6, suggesting the business climate was considerably worse than normal. Employment declined modestly, and wage growth accelerated. Supply availability worsened for the first time since 2022.Input and selling price increases picked up.
Fed Minutes Reveal Little Appetite for Near-Term Rate Cuts Officials cited trade policy as a factor that could hinder inflation progress
(…) “A majority of participants observed that the current high degree of uncertainty made it appropriate for the committee to take a careful approach in considering additional adjustments to the stance of monetary policy,” said the minutes of the Jan. 28-29 policy meeting, which were published Wednesday with a customary three-week lag. (…)
After the January meeting, Fed Chair Jerome Powell said the central bank would need to see “real progress on inflation” or unexpected weakness in the labor market before considering further rate reductions. (…)
Officials pointed to strong consumer demand and changes to trade and immigration policy as potential sources that could hinder recent progress on inflation.
“Business contacts in a number of districts had indicated that firms would attempt to pass on to consumers higher input costs arising from potential tariffs,” the minutes said. (…)
The Fed’s next meeting is March 18-19.
John Authers sees something else in the minutes:
More interesting was an intent to look again at the Fed’s 2019-20 review of its monetary policy. The epic decision was taken not to try to get inflation below 2% but let the economy run hot for a while on occasion, and merely maintain 2% as an average, not a maximum. That was a big dovish move that sounded like wishful thinking at the time, and came just as the Fed was about to be blindsided by the post-pandemic surge in prices. Now the FOMC is considering fiddling with that language:
The economic consequences of the Covid–19 pandemic were largely unforeseen at the time of the 2019–20 review and the current economic environment differed greatly from the period leading up to that review, which was characterized in part by persistently low inflation and interest rates. In light of the experience of the past five years, participants assessed that it was important to consider potential revisions to the statement, with particular attention to some of the elements introduced in 2020.
As those elements were dovish, the strong implication is that the Fed wants to move in a hawkish direction. It must also contend with the enthusiasm that Trump 2.0 has engendered in the private sector, which has translated into sentiment surveys that imply higher inflation ahead:
- FOMC participants should be worried about new sources of inflation. Prices paid and received measures in the New York Fed’s regional M-PMI jumped to post-pandemic highs in February (Ed Yardeni).
- The Atlanta Fed’s survey headlines Business Inflation Expectations Relatively Stable at 2.3 Percent but 2.3% is the highest since July 2024:
Rio Tinto Has Backup Plan If U.S. Imposes Tariffs on Aluminum Imports Producer of aluminum and iron ore could be among the miners hit hardest by Trump’s tariff plan
Rio Tinto, the biggest shipper of foreign aluminum into the U.S., has contingency plans ready if President Trump imposes a 25% tariff on imports of the metal, with Europe a potential destination. (…)
“Of course, we would not be doing our job if we didn’t know our alternative,” Stausholm said of potential markets for its aluminum. Rio Tinto gets roughly 17% of its revenue from sales to the U.S. (…)
The U.S. is the world’s No. 1 importer of aluminum, which ends up in cars, trucks and cans. It imports roughly 85% of the so-called primary or not-recycled aluminum it needs, according to Goldman Sachs analysts. About 70% of that aluminum comes from Canada. (…)
Rio Tinto accounts for roughly half of Canada’s aluminum sales to the U.S., and it ships some aluminum to the U.S. from Australia, the Goldman analysts say.
Stausholm said the Anglo-Australian company has options for selling its aluminum into markets outside of the U.S., such as Europe, if needed. American buyers might need to import more aluminum from places such as China and the Middle East if Canadian metal becomes too costly, he said.
“At the end of the day, it’s the customer who pays the tariff,” he said. (…)
The U.S. faces challenges in rebuilding its domestic aluminum industry, in part because of energy prices. The CEO of aluminum maker South32, Graham Kerr, recently said it was hard to see companies developing new projects in the U.S., even if tariffs are introduced.
Stausholm didn’t rule out the possibility that Rio Tinto might one day invest in aluminum capacity in the U.S. but said a revival of America’s aluminum industry would require cheap electricity over a long period to make projects profitable.
The economic peril of pivoting to Russia
This is from Axios Felix Salmon and Neil Irwin:
As Donald Trump pivots away from Europe and toward Russia, he’s putting at risk the deepest and most important economic relationship in the world: that between the U.S. and Europe.
Why it matters: The U.S. economy has reaped enormous dividends from the way in which the U.S. government has provided a security guarantee to Europe. If that guarantee goes away, the dividends might, too.
“No two other regions in the world are as deeply integrated as the U.S. and Europe,” per AmCham EU, which collates such figures.
- More than 60% of foreign investment into the U.S. comes from Europe, and in the other direction, more than 60% of foreign investment by the U.S. goes into Europe.
- Similarly, U.S. companies employ about 5 million Europeans, while European companies employ some 5 million Americans.
- European companies are major employers in several Trump-supporting states, including BMW in South Carolina, Volkswagen in Tennessee, Airbus in Alabama, and Siemens in Texas and the Carolinas.
“Security goes hand in hand with interdependence,” Abraham Newman, a Georgetown University political scientist, tells Axios.
- “From the Marshall Plan to the creation of the EU, the U.S. made the bet that if you solved security issues it would generate huge new wealth for U.S. companies. And it did,” he says.
- Former U.S. Treasury secretary Hank Paulson tells a story of a Chinese official saying to him that “you have all the good allies.” Effectively, China has always been stymied, in terms of competition with the U.S., by the fact that America is strongly allied with Europe.
The depth of the U.S.-EU relationship dwarfs anything that Russia can offer. Even before Russia first invaded Ukraine in 2014, for instance, U.S. goods exports to Russia were a mere $11 billion, roughly one-third of U.S. exports to Belgium alone.
- Russia, per the New York Times, claims American losses due to pulling out of Russia have totaled more than $300 billion. But that doesn’t mean there’s anything close to $300 billion of opportunity in reopening Russia to U.S. business.
- Edward Fishman, a former Russia sanctions lead at the State Department, tells Axios: “The U.S. is much better at turning off economic activity than we are at turning it on.”
- Even if all U.S. sanctions on Russia were lifted tomorrow, most American companies would still be extremely wary of reentering a country led by Vladimir Putin, and would likely stay away.
If Europe no longer benefits from U.S. geostrategic protection, that in turn will affect the way American companies are viewed on the continent, per Georgetown’s Newman.
- As U.S. companies become increasingly viewed as a mask for U.S. power, he says, the rhetoric surrounding them will move from complaints about fair competition to worries that they represent a security threat.
If Europe starts seeing the U.S. as an enemy superpower, the negative consequences for the U.S. domestic economy would likely be enormous.
Confidence?
Risk appetite among US equity investors has slumped in February amid a re-evaluation of policy impact, according to the latest S&P Global’s Investment Manager Index™ (IMI™) survey. The IMI’s headline Risk Appetite Index has fallen from +15% in January to -27% in February.
The single biggest change to investors’ views on what’s driving the markets is a perceived deterioration in the political environment, which is now reported as the biggest drag on US equities barring only concerns over high valuations – albeit with concerns over the latter now at the highest since the survey began in October 2020. (…)
Concerns are focused on tariffs and the scope for escalatory trade protectionism to weaken economic growth both within the US and globally, with concerns also intensifying in relation to second-round effects, such as higher US inflation and an accompanying hawkishness from the Fed. Whereas late-2024 saw investors view central bank policy as a key driver of equity returns, Fed policy has now been viewed as a drag for two successive months.
FEAR
X Hinted at Possible Deal Trouble in Talks With Ad Giant to Increase Spending
A lawyer at advertising conglomerate Interpublic Group fielded a phone call in December from a lawyer at X. The message was clear, according to several people with knowledge of the conversation: Get your clients to spend more on Elon Musk’s social-media platform, or else.
X CEO Linda Yaccarino has made comments that seemed like similar warnings in conversations with Interpublic executives, according to people with knowledge of those talks.
Interpublic leaders interpreted the communications from X as reminders that the recently announced $13 billion deal to merge Interpublic with rival Omnicom Group could be torpedoed, or at least slowed down, by the Trump administration, given Musk’s powerful role in the federal government, some of the people said. They also had a front-row seat to Musk’s continued criticism of advertisers that ditched X since he bought it in 2022, when it was known as Twitter. (…)
X filed a federal antitrust lawsuit in August, accusing the World Federation of Advertisers, an ad trade group, and several big brands such as candy maker Mars and CVS Health, of coordinating an illegal boycott of X following Musk’s $44 billion takeover of the platform in late 2022. (…)
X upped the ante in early January by alerting the court that it planned to add more names to the lawsuit, which left advertisers fretting for weeks over whether they would be next. On Feb. 1, X added about a half-dozen more advertisers to the litigation.
“Some of the advertisers we work with have expressed that they feel there is an implied threat from X that they could be added to the lawsuit if they don’t return to X,” said Ruben Schreurs, chief executive officer of Ebiquity, a consulting firm that works with advertisers. (…)
“We now see brands returning in quite significant numbers, because the easiest route is to just spend a minimum viable amount on the platform,” said Ebiquity’s Schreurs. “Not because they want to advertise there and run their ads adjacent to the content on X, but because they are afraid of legal and political ramifications of not doing so.”