5 Things You Need to Know to Start Your Day

Putin’s power questioned, Goldman Sachs slashes jobs, and traders finally heed the Federal Reserve’s message. — Liza Tetley The big news ove [View in browser]( [Bloomberg]( Putin’s power questioned, Goldman Sachs slashes jobs, and traders finally heed the Federal Reserve’s message. — [Liza Tetley]( Putin challenge The big news over the weekend was the [short-lived mutiny by Russia’s notorious Wagner group.]( Though it did not culminate in an attack on Moscow, it still shows how Russia’s leader has miscalculated his invasion of Ukraine, according to NATO chief Jens Stoltenberg. “The events over the weekend are an internal Russia matter, and yet another demonstration of the big strategic mistake that President Putin made,” he said. Job cuts [Goldman Sachs has started cutting managing directors across its global operations as part of a cost saving drive amid a dealmaking slump](. It’s slashing around 125 positions, including some in investment banking, after deal values fell more than 40% this year to $1.2 trillion. These cuts follow reports of similar cost saving exercises at other banks. JPMorgan cut around 40 investment bankers, according to reports last week, while Citigroup is planning hundreds of cuts across the company this year. Volatility persists [Investors are conceding that the Federal Reserve is intensely focused on fighting inflation and less concerned about higher interest rates]( breaking the US economy, according to the latest MLIV Pulse survey. That implies bond market volatility is likely to persist. In a notable market shift, 80% of survey respondents predict the US yield curve will remain inverted until 2024, and 50% expect at least two more rate hikes from the Fed. Gloomy markets S&P 500 and Nasdaq futures have swung to losses this morning, declining 0.1% and 0.2% respectively as of 5:24 a.m. in New York. Capital is flowing into Treasuries instead, driving yields lower across the curve. A measure of the dollar is weakening slightly while gold prices rise as investors look for havens. Oil is gaining slightly after the events in Russia over the weekend, while iron ore prices fall on China economic gloom. Coming up… No Fed speakers today, but we will get June Dallas Fed Manufacturing Activity data at 10:30 a.m., and the US will sell $65 billion 13-week and $58 billion 26-week bills at 11:30 a.m. and another $42 billion 2-year notes at 1:00 p.m. Earnings today include Carnival. What we’ve been reading Here’s what caught our eye over the past 24 hours: - [Putin may have averted an attack on Moscow](, but the uprising shows his grip on power may be weakening - [China’s recovery is showing more signs of losing momentum]( - Two more [Chinese builders say they can’t meet their debt obligations]( - [UK plans to clamp down on corporate profiteering]( and public sector pay - [SBB enters discussions with Brookfield as the beleaguered Swedish]( landlord struggles to pay its debt - [Ryan Reynolds’s investment firm backs Renault’s Formula 1 team]( - [US-China tensions are complicating the world’s debt crisis](bbg://news/stories/RWUM56TP3SHS) And finally, here’s what Joe’s interested in this morning... A fact about the US economy right now is that the US government budget is very elevated. This is not to say it's too high or unsustainable (others can judge that). But just by historical standards, the government is spending a lot more than it's taking in. [Jason Furman recently posted this chart](, that showed the deficit as a % of GDP plotted against the unemployment rate. And you can see, it's rare for the deficit to be this high, and it's definitely never been this high with the unemployment rate as low as it is (at least since 1960). [On the new Odd Lots]( podcast, Tracy Alloway and I speak with James Montier, strategist of GMO. And per his work, these high deficits are crucial for understanding the broader economy, but also the persistent elevation of corporate profit margins over the last decade. Montier gets use out of the famous Kalecki-Levy profits equation, which decomposes the source of corporate profits into various categories including investment, dividends, household savings and government (dis-)savings. He wrote an [excellent paper on it here last month](. The paper was something of a mea culpa for a piece he'd written 10 years ago, where he talked about US corporate profits being unsustainably high. And his conclusion for why he got that wrong was that large deficits persisted much longer than he would have expected. Beyond just the market implication, the other big idea per Montier is that we may be in a new era of Big Government as the famed economist Hyman Minsky discussed it. "Big government" is typically used as a pejorative. And people have all kinds of different definitions depending on what they're talking about. But in the context of Montier and Minsky, it's specifically about a level of spending large enough to provide economic stability, across the inevitable up and down swings in business investment. Obviously, the massive fiscal expansion was a big part of why the shock of the pandemic didn't lead to a sustained downturn in economic activity. And it's interesting now thinking about the role of fiscal in why economists keep having to push back their recession forecasts. Deficits are still very large (despite the plunge in the unemployment rate) and between multi-year investment programs like CHIPS and the IRA, the government is not slamming the brakes (the way many governments did after the GFC). Also as society ages, spending on public welfare programs grows structurally. Workers' market income gets replaced by stable publicly-funded income. So again, ups and downs in business investment are always going to happen for various reasons, but a large sustained fiscal force seems likely to remain for sometime, with various macro implications. Follow Bloomberg's Joe Weisenthal on Twitter @TheStalwart Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. 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