Canada’s Rate Rise Could Spread Like Wildfire to the Fed. Why That’s Bad.

The likelihood that the Fed will take a break in its aggressive interest-rate campaign this month is baked in. The CME FedWatch Tools is showing a 70% chance that policy makers will keep the rate at 5% to 5.25% on June 14.

After that, though, the market sees a 52% chance of a resumption of quarter-point increases in July. A month ago, there was only a 10% chance of that happening.

What changed? A few weeks ago, traders assumed a pause in interest rates would presage interest-rate cuts later this year. Maybe that expectation was based more on hope than on reason, especially since Fed officials always said cuts are unlikely.

The quarter-point move in Canada—the first increase since January—brings home the reality that a pause needn’t be a pivot. It can also be a way to slow down increases while fresh data come in. The same happened in Australia, but the pause was even shorter.

It’s worth remembering the data don’t suggest a pause is particularly needed. Inflation is still way faster than target. Unemployment remains historically low. Traders are only expecting a June pause because several Fed officials have suggested June is a good time to pencil one in.

It’s now clear rates can go still higher. After disregarding Fed comments for months, maybe it’s time for investors to start taking officials at their word.

—Brian Swint

*** Join MarketWatch senior banking reporter Steve Gelsi today at noon when he sits down with Citizens CEO Bruce Van Saun to explain what happened in the recent banking crisis, the role of his bank in addressing market jitters, and what the road looks like ahead for regional banks amid here-for-longer inflation. Sign up here.

Try your hand at this morning’s Barron’s crossword puzzle and sudoku games. For all games, including a digital jigsaw based on the week’s cover story, click here.

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Smoke Causes Cancellations Across New York Region

Heavy smoke conditions caused by hundreds of Canadian wildfires blanketed millions of people in the Northeastern U.S. on Wednesday. Poor air quality was the talk of social media and forced shutdowns and delays of everything from flights to events and school activities in the New York City region.

• The reduced visibility prompted the Federal Aviation Administration to temporarily ground flights at New York’s LaGuardia Airport and Newark Liberty International Airport, and caused delays at JFK Airport. The smoke plume is expected to spread further on Thursday.

• Major League Baseball postponed games in New York and Philadelphia, and a National Women’s Soccer League game in New Jersey and a WNBA game were canceled. Broadway’s hit show Hamilton canceled its evening performance because cast members called in sick, the New York Times reported.

• New York City’s Bronx Zoo and its library system closed earlier on Wednesday, as did city beaches for swimming and public school outdoor after-school activities. Performances of Shakespeare’s Hamlet were canceled for Thursday and Friday at the outdoor Delacorte Theater, citing air quality.

• The White House said the Environmental Protection Agency, the Centers for Disease Control and Prevention, and the Federal Emergency Management Agency are working with state and local governments to communicate air quality conditions and other information. Residents can check local air quality at AirNow.gov or download the AirNow app.

What’s Next: The U.S. National Weather Service said it does not expect a “great deal of air quality improvement” Thursday, keeping alerts in place across the Northeast.

—Angela Palumbo and Janet H. Cho

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Senators Reintroduce Bid to Cut Merchants’ Credit-Card Swipe Fees

Lawmakers have revived a plan to let shop owners and other retailers choose a processing network rather than being forced to use Visa and Mastercard when shoppers pay with credit cards. Members of the Senate and House introduced versions of the bill with bipartisan support.

• Visa
  and
  Mastercard
  reap network fees to process credit card transactions. They also set interchange fees that stores pay to banks that issue the cards. Lawmakers said the planned changes could lower the fees merchants pay.

• The Electronic Payments Coalition said the legislation would let
  Walmart,

  Target,
  and other retailers process credit card transactions where it costs less for them, ignoring consumer benefits such as cybersecurity and credit card rewards programs, which are subsidized by interchange fees.

• The National Retail Federation supports the bill, saying skyrocketing swipe fees have been driving up prices for consumers for too long and adding that competition would bring fees under control and improve security.

• Sen. Dick Durbin (D., Ill.) introduced a similar bill last year that made it to the Banking Committee but never got to a vote. Visa’s shares closed down 1.3% on Wednesday, while Mastercard’s stock fell 2.3%.

What’s Next: TD Cowen analyst Jaret Seiberg said expectations are low that the bill will make it into law. It isn’t an issue that voters care about, he said. Jefferies analyst Trevor Williams told clients his contacts in Washington think the bill faces long odds, MarketWatch reported.

—Janet H. Cho

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Amazon Considering Ad-Supported Streaming Service for Prime Video

Amazon.com
is considering an advertising-supported tier for its Prime Video streaming platform as a way to boost its entertainment and advertising revenue, The Wall Street Journal reported. Amazon would join rivals such as Walt Disney and Netflix that have rolled out ad-supported subscription tiers.

• Amazon’s ad revenue reached $9.65 billion in the last quarter, working out to an annual run rate of about $40 billion. It was its fastest-growing business in the quarter. Advertisers want access to premium movies and programs that are now mostly ad-free.

• Amazon Prime members, who pay $14.99 a month, get Prime Video as part of the package. The streaming platform is also available for $8.99 a month, but that doesn’t include features such as same-day delivery on Amazon orders. Prime Video shows include The Marvelous Mrs. Maisel and Thursday Night Football.

• One option would be for Amazon to insert more ads into its standard service for Prime subscribers, while offering them a chance to pay more for an ad-free viewing experience, the Journal reported. Amazon has been pushing to trim costs, including cutting its head count by 27% in 2022.

• Shifting the Prime subscriber offering could lead to some consumer revolt, although that could depend on how much subscribers would have to pay to keep Prime ad-free. Amazon declined Barron’s request for comment.

What’s Next: Amazon is also talking to
Warner Bros. Discovery
and
Paramount Global
about adding their ad-based streaming tiers through Prime Video Channels, and considering bidding for the rights to stream National Basketball Association games starting in 2025, the Journal reported.

—Eric J. Savtiz and Janet H. Cho

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GameStop Fires CEO, Installs Cohen as Executive Chairman

GameStop
fired its CEO Matt Furlong, announcing that activist shareholder Ryan Cohen was elected executive chairman. Furlong, who was dismissed on Monday, had been at the helm of the videogame retailer for two years as it tried to remake itself. GameStop didn’t call him by name in the announcement.

• The company also reported a net loss of $50.5 million, or 17 cents a share, as sales fell 11% from the same time last year. There aren’t enough analysts tracking the stock to draw a comparison with a Wall Street consensus. Furlong could not be immediately reached for comment.

• Cohen’s responsibilities will include capital allocation and overseeing management, the company said. GameStop canceled its earnings call, scheduled for after the market’s close Wednesday. Shares were down in the early Thursday premarket.

• The company said in a Securities and Exchange Commission filing that the board appointed Mark H. Robinson as GameStop’s general manager and principal executive officer, reporting to Cohen. Robinson’s responsibilities include administrative matters, legal affairs and support for GameStop’s holdings.

• Furlong is the third high-profile former Amazon executive who joined GameStop in 2021 but has since departed, noted Wedbush Securities analyst Michael Pachter. There has yet to be a sign of a turnaround, the analyst said, despite the effort to bring in Amazon talent. “It simply didn’t work.”

What’s Next: GameStop became a meme stock during the retail trading frenzy of early 2021, as ordinary investors took on the Wall Street pros who had gone bearish on the stock. GameStop continues to be a meme favorite, though the CEO firing may test the faithful and cheer the short sellers.

—Liz Moyer and Connor Smith

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Apple, Adidas Help MLS Snap Up Soccer Star Messi

Global soccer star Lionel Messi has agreed to join David Beckham’s U.S. team Inter Miami in a deal set to be backed by Apple and Adidas.

• Messi, seen as one of the greatest soccer players of all time, revealed Inter Miami will be his next club after his exit from Paris Saint Germain, in an interview published by two daily newspapers in Barcelona Wednesday.

• The 35-year-old, who led Argentina to World Cup glory in December, will earn a salary from the club but also be paid by Major League Soccer’s (MLS) two largest partners—Apple and Adidas, The Wall Street Journal reported. Apple announced a four-part documentary series about Messi on Tuesday, before news of his Miami move broke. The companies did not respond to a request for comment.

• Apple and MLS agreed a 10-year deal worth $2.5 billion last year, giving the tech giant broadcast rights. Earlier this year, Adidas extended its apparel partnership with the league through 2030.

• “Although work remains to finalize a formal agreement, we look forward to welcoming one of the greatest players of all time to our league,” MLS said in a statement.

What’s Next: Messi’s signature is a massive coup for MLS, particularly when Saudi Arabian teams have been offering players huge annual salaries, and it will undoubtedly help soccer grow in the U.S. As the league’s exclusive broadcaster, it’s also set to benefit Apple.

—Callum Keown

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As part of the debt ceiling deal negotiated by President Joe Biden and House Speaker Kevin McCarthy, payments, collections and interest on federal student loans will resume 60 days after June 30, 2023. Since November of last year, the Biden administration has said payments will resume at the end of the summer. At that time, officials tied the end of the payment freeze to the Supreme Court’s decision in lawsuits challenging the administration’s plan to cancel up to $20,000 in student debt for a wide swath of borrowers, saying it would end 60 days after the decision was announced or 60 days after June 30, whichever comes first.

Because the debt limit deal bans the Secretary of Education from extending the pause without an act of Congress, advocates worry that it locks the officials into restarting payments even if the Supreme Court knocks down debt relief that the Biden administration has said is necessary to ensure payments resume without widespread delinquency and default. Still, the debt limit deal doesn’t affect the loan forgiveness plan, which House Republicans made a target in the debt ceiling bill they passed earlier this year. GOP lawmakers are advancing a different bill that would knock down the debt forgiveness plan, but the Biden administration has said the president would veto it, if passed.

Read more here.

—Jillian Berman

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—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner