Market Beats | US Consumer Spending Accelerates in May as PCE Inflation Hits Over Three-Year High; Apple Hikes Prices Across Mac, iPad, and Home Lineups; Blue Owl Capital in Advanced Talks to Buy Minority Stake in Cleveland Cavaliers; More Than 1,000 Injured in Back-to-Back Venezuela Earthquakes; Jamie Dimon Names Doug Petno and Troy Rohrbaugh Co-Presidents; Micron Profits Surge Nearly 15-Fold to Fuel $1.3tn Valuation; Microsoft Hikes Xbox Console Prices by Up to $150

—— US Consumer Spending Accelerates in May as PCE Inflation Hits Over Three-Year High; Apple Hikes Prices Across Mac, iPad, and Home Lineups; Blue Owl Capital in Advanced Talks to Buy Minority Stake in Cleveland Cavaliers; More Than 1,000 Injured in Back-to-Back Venezuela Earthquakes; Jamie Dimon Names Doug Petno and Troy Rohrbaugh Co-Presidents; Micron Profits Surge Nearly 15-Fold to Fuel $1.3tn Valuation; Microsoft Hikes Xbox Console Prices by Up to $150

1. US Consumer Spending Accelerates in May as PCE Inflation Hits Over Three-Year High

US consumer spending accelerated in May even as prices rose at the fastest pace in more than three years, suggesting Americans are powering through the fallout from the Iran war. The personal consumption expenditures price index rose 4.1% last month from a year earlier, the most since April 2023, Bureau of Economic Analysis data out Thursday showed. Excluding food and energy, prices were up 3.4% from a year earlier. Inflation-adjusted consumer spending rose 0.3% from a month earlier after stalling in April.

A separate report showed the US economy grew at an annualized 2.1% pace in the first quarter, faster than previously estimated. The inflation numbers are likely to keep pressure on the Federal Reserve to raise interest rates this year. Despite the recent peace negotiations between the US and Iran that have sent oil prices tumbling, economists expect the costs of an array of products to continue rising as the initial energy shock works its way through supply chains.

Looking ahead, the recent pullback in gasoline prices could offer consumers some reprieve, though prices at the pump are still almost $1 a gallon higher on average than before the war started.

A reaccelerating labor market and rising stock prices could also support spending, though workers across an array of sectors are seeing pay gains fail to keep up with inflation, which has many saving less or turning to credit cards to maintain consumption habits.

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2. Apple Hikes Prices Across Mac, iPad, and Home Lineups

Apple Inc. took the extreme measure of raising prices of Macs, iPads and home devices on Thursday, seeking to offset cost hikes caused by an unprecedented shortage of memory chips and storage. The company is increasing prices of the MacBook Neo, MacBook Pro, MacBook Air, iPad Air and iPad Pro, according to changes posted to its online retail store. The starting price of the MacBook Neo, its latest laptop, is rising to $699 from $599, while the MacBook Air is increasing to $1,299 from $1,099. The entry-level 14-inch MacBook Pro is moving to $1,999 from $1,699, while the 11-inch iPad Pro is increasing to $1,199 from $999.

The iPad Air, a mid-tier tablet, is now priced at $749, up from $599. The price hikes are global. The price of the standard HomePod speaker is now $349, up from $299, while the HomePod mini increased from $99 to $129. The Apple TV set-top box increased from $129 to $199. The company did not raise iPhone prices on Thursday.

An Apple spokesperson said that “the rapid expansion of AI data centers has created an extraordinary surge in demand for memory and storage” and that the company has “never seen a component price increase this much, this quickly.”

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3. Blue Owl Capital in Advanced Talks to Buy Minority Stake in Cleveland Cavaliers

Blue Owl Capital Inc. is in advanced talks to buy a minority stake of the NBA’s Cleveland Cavaliers, according to people familiar with the matter. The transaction would occur through the private equity firm’s Dyal HomeCourt Partners fund, said the people who weren’t authorized to speak publicly about the talks. That entity also has taken stakes in the Atlanta Hawks, Sacramento Kings and Minnesota Timberwolves. The size of the stake is expected to be between 5% and 10%, according to a person familiar with the situation. Sportico values the team at $4.86 billion, making it the 16th most valuable NBA team.

The NBA permitted private equity firms to hold stakes in teams in 2020, with Blue Owl the first to take minority interests in multiple franchises. Its HomeCourt Partners fund bought into the Phoenix Suns at a $1.55 billion valuation in 2021 but exited after the team’s former owner, Robert Sarver, controversially sold the team in 2023 for $4 billion to Mat Ishbia. Cavs owner Dan Gilbert had been looking to sell as much as 15% of the franchise since last summer, according to Sportico. Gilbert is the founder and majority owner of Rocket Companies, a residential mortgage lender. The Detroit-born billionaire is worth about $30 billion, according to the Bloomberg Billionaires Index.

The Cavaliers made it to the Eastern Conference Finals last season, the farthest the team has been since LeBron James left the franchise in 2018. James took the Cavaliers to five NBA Finals playing in Cleveland, with the team’s lone title coming in 2016.

Gilbert also led a group to buy a WNBA expansion franchise last summer for $250 million. The franchise, which doesn’t yet have a mascot name, will begin playing in 2028.

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4. More Than 1,000 Injured in Back-to-Back Venezuela Earthquakes

At least 164 people died and more than 1,000 were injured after back-to-back earthquakes struck Venezuela on Wednesday evening, toppling buildings and severely damaging the country’s main international airport. Government officials are warning the toll will rise.

Acting President Delcy Rodríguez said Thursday that authorities were still assessing the hardest-hit areas, particularly the coastal state of La Guaira, where dozens of buildings collapsed. The quakes impacted at least six Venezuelan states, authorities said.

The affected areas were experiencing outages of electricity, water and gas supply amid continued aftershocks. Venezuela’s oil facilities, however, appeared to be functioning normally. The government will create an initial $200 million reconstruction fund using International Monetary Fund resources to finance repairs to infrastructure, hospitals and housing, Rodríguez said on state television. Officials are also discussing an additional fund to support victims, while public and private banks will activate special credit lines for people who lost businesses or jobs.

Venezuela officials expect to see rescue brigades begin arriving as soon as Thursday from countries including the US, Colombia, Mexico, Dominican Republic, El Salvador and Qatar. Rodríguez said China, Brazil and Caribbean countries have also pledged aid.

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5. Jamie Dimon Names Doug Petno and Troy Rohrbaugh Co-Presidents

Jamie Dimon has named Doug Petno and Troy Rohrbaugh co-presidents of JPMorgan Chase, elevating two potential candidates to succeed him as chief executive of America’s biggest bank. As part of the changes announced on Thursday, Petno, 61, will become sole head of JPMorgan’s commercial and investment bank, which he previously ran alongside Rohrbaugh. Rohrbaugh, 56, will take over as head of JPMorgan’s Chase consumer division.

The consumer unit was previously run by Marianne Lake, who was the sole female succession candidate but is now retiring from the bank. Lake’s exit reflects how JPMorgan’s board of directors, which Dimon chairs, is narrowing the race to run the bank down to two executives. Rohrbaugh and Petno will now run the two divisions that were responsible for 80 per cent of JPMorgan’s $57bn in profits last year.

The moves are the latest twist in one of Wall Street’s most high-profile and slowest-moving succession contests over who will take over from Dimon, 70, who has led JPMorgan since 2006 and is one of banking’s most powerful executives.

In a memo to employees on Thursday, Dimon wrote that these changes “mark an important step in our board’s thoughtful process around succession planning and development of our top leaders”.

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6. Micron Profits Surge Nearly 15-Fold to Fuel $1.3tn Valuation

Chip giant Micron reported a nearly 15-fold surge in quarterly profits, sending shares in the $1.3tn group rallying sharply and boosting global markets on Thursday. The US tech company said its net income jumped to $28.2bn in its fiscal quarter to May 28 from $1.9bn in the same period a year earlier, exceeding Wall Street forecasts by about $4bn as its profit margins widened. The upbeat results sent Micron’s shares up almost 16 per cent in after-hours trading in New York, pushing its market value to about $1.3tn and recovering losses it suffered in a Wall Street sell-off earlier this week.

Futures contracts pointed to the Nasdaq 100 opening up 1.7 per cent on Thursday. In Asia, Japan’s Nikkei 225 jumped more than 4 per cent, with memory chipmaker Kioxia gaining another 8 per cent to bring this year’s rise to about 780 per cent. South Korea’s Kospi rose 5.5 per cent, with chipmaker SK Hynix soaring 11 per cent after announcing plans to raise $29bn by listing American depositary receipts on the Nasdaq exchange next month.

Micron’s blockbuster quarterly results underscore how a shortage of memory chips widely used in servers that train and host leading AI models has sent their prices soaring.

The group said its revenues jumped almost 350 per cent to $41.5bn in the May quarter, while it forecast sales in the current quarter of about $50bn, far above analysts’ expectations in a Visible Alpha poll of $43.7bn.

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7. Microsoft Hikes Xbox Console Prices by Up to $150

Pacific Investment Management Co. is warning that the “credit loss cycle is upon us” as heavy spending on artificial intelligence could widen economic outcomes and hit lower-quality borrowers. Pimco’s Richard Clarida, Andrew Balls and Daniel Ivascyn said in the firm’s latest annual secular outlook report that “the default cycle is reasserting itself, and we expect significantly higher losses in lower-quality credit such as leveraged and private direct lending.” Pimco, which manages $2.3 trillion in assets, said the AI buildout could widen the range of economic outcomes over the next five years while leaving weaker and more heavily leveraged borrowers exposed. High-grade credit spreads — the extra yield investors demand over US Treasuries to hold highly rated corporate debt — remain near their lowest levels in almost three decades. Demand for riskier debt has also held up despite a recent global bond selloff, as higher yields draw buyers.

Pimco said that backdrop clashes with “elevated secular uncertainty,” and “we interpret this as complacency rather than strength.” While the US economy has been resilient, “AI will disrupt old economy companies, especially highly levered ones.” The firm also pointed to “increased instances of maturity extensions and payment-in-kind structures that allow borrowers to repay debt with more debt,” a trend it said suggests “a more genuine default cycle is now unfolding, and investors should not expect past patterns of rapid recovery to repeat with the same reliability.” Pimco said one effect of the AI boom could be lower wage pressure and higher productivity, which it described as “a powerful disinflationary force, but geopolitical shocks and supply chain reconfiguration will likely put upward pressure on prices.”

Against that backdrop, Pimco said “central banks will do what it takes to keep inflation expectations anchored over the next five years,” and that “for this reason, sovereign bonds offer income plus the potential for capital gains in a future downturn.”

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