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Harvard Business School Executive education delivers a
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world class learning experience that energizes aspiring and established change makers.
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Prepare for the next elevation for your organization and for yourself.
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Learn more at HBS ME Breakthrough.
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That's HBS ME Breakthrough. A federal judge rules that the Trump administration unlawfully froze Hudson River Tunnel funding. Plus how Ukrainian drones are making Russians feel the hardships of war. And as inflation shows signs of pulling back across Europe, we'll look at why the continent needs all the help it can get.
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The fact that Europeans are so anxious about spending, the fact that they're saving more, that is really holding back the European economy.
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It's Tuesday, June 30th. I'm Luke Vargas for the Wall Street Journal, and here is the AM edition of what's news, the top headlines and business stories moving your world today. In a break for east coast commuters, A federal judge has permanently blocked the Trump administration from withholding funds for a new rail tunnel connecting New York and New Jersey under the Hudson River. Both states had sued after the administration said it wouldn't distribute funding for the project as it reviewed whether it included DEI policies. In her ruling, however, Judge Jeanette Vargas cited public comments from Trump suggesting that the funding freeze was his personal decision and was politically motivated. The White House referred requests for comment to the Transportation Department, where a spokesman said it remained committed to making sure taxpayer dollars were spent responsibly. Amtrak's current pair of tunnels connecting Manhattan to New Jersey are over a century old and sustained major damage during 2012's Superstorm Sandy, spurring calls for their replacement. U.S. stocks are set to close out a blockbuster quarter with fresh momentum. Futures are rising this morning, putting major indexes on pace for their best quarterly gains in years. The S&P 500 is up 14% through yesterday and the Nasdaq up 20%, the biggest quarterly rallies for both since 2020. That's despite remarkable volatility that saw tech stocks sell off as recently as last week. Their investors have returned, however, with tech shares doing much of the heavy lifting again. Pre market the Japanese yen has hit a 40 year low, driven down by a strong US dollar and high interest rates from the Federal Reserve. As Tokyo bureau chief Jason Douglas explains,
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there are a bunch of factors driving it, and then some of it is still kind of slightly unexplainable. There's a big gap between rates in Japan and rates in the US for instance, and that's the kind of thing that tends to weaken a currency. I think there's some anxiety around the fiscal plans of the government of Prime Minister Takaichi here in Japan, planning on doing some big spending. She announced new plans for a $2 trillion thereabouts investment package only yesterday. And then there are a few other slightly more idiosyncratic things. There's this AI boom going on, and that is weakening the currencies of big Asian exporters somewhat paradoxically, because they're benefiting on the export side, selling all this equipment to the US to build data centers and that kind of thing. But then retail investors in these countries are in fact piling into US stocks. So we see these big outflows from places like Korea and to some extent in Japan as well. And that is adding to dimer pressure on currency. In Japan's case, the stock market here is up something like 40%. But a lot of that is institutional money from overseas. And because they're more sophisticated, they tend to hedge their exposure to the currency, which tends to push it down, not up. And then all this. Of course, more recently we've had the Iran war and the crisis in the Strait of Hormuz. Japan is a big energy importer. And so when you price energy in dollars, the currencies of countries that have to import a lot do tend to weaken.
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With the yen trading just below Japan's preferred 160 level at 162 to the DOL, traders are on high alert for whether authorities may intervene to defend the yen in a bid to avert a currency induced rise in consumer prices. Well, inflation is also a concern in Europe, as new data this morning from Spain, France, Italy and Germany show that consumer prices are coming off recent highs, but broadly remain more elevated than policymakers would like. As a result, economics reporter Chelsea Delaney says that Europeans have doubled down on saving, a move that's hurting growth.
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So the US has grown twice as fast as the eurozone in the UK in the past couple of years. Consumers are what drive economies. Their willingness to spend on food and clothes and vacations and going out to restaurants, and the fact that in Europe, consumers are so frugal and so anxious. It is one of the main reasons why the economy has been growing so slowly, especially in comparison to the United States.
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Historically, Europeans are more debt averse than Americans and seemingly more wary of the future too.
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Young people tell me they're really worried about the future of these pension systems, which have been so wonderful for a lot of Europeans for generations with aging populations. They're worried that's not going to be there. They need to save more. Some people are just still really shocked by the prices they See, when they go to the grocery store and even if they can't afford it, they say, I'm not going to buy that. And some people are genuinely worried about the economy. You know, we're seeing wars, inflation is going up again. So Europeans just seem to have larger psychological scars from this recent period of inflation.
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Unlike Americans, Europeans keep about a third of their financial assets tucked away. Economists argue that $10 trillion sitting in household bank accounts would help the economy if it were put into productive investments instead. Coming up, Russians are starting to feel the pain of war as Ukraine pummels Crimea in what should be its peak summer tourism season. We've got that story and more after the break.
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At cla, we're in your corner and on it, we coach tax strategies and little league first base. We help you adopt AI data tools and we adopt rescue's name. Buddy. We walk your factory floor and jogged the local 5k, though sometimes we walk that too. Wherever you're coming from, we're right there with you. Wherever you're going, we'll get you there. CLA CPAs consultants and advisors. Learn more@claconnect.com with you.
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Ukraine is taking the war to Russian civilians. Almost four and a half years after the Russian invasion, Kyiv is unleashing waves of punishing attacks against occupied Crimea and hundreds of miles away, overwhelming Russian air defenses as its drones enact a heavy toll on energy infrastructure and other targets in and around Moscow. To put those developments in Conte, joined now by Journal correspondent Thomas Grove. Thomas, let's talk about these two moves by Ukraine in turn, starting with the attacks that we've seen on Crimea, which really should be in tourist high season now, plans that Kyiv has managed to thwart tell us what's been going on.
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What we're seeing is what seems to be a very well timed campaign by the Ukrainians against Crimea, which, as we know, Russia annexed in 2014. What we're seeing is just hundreds of drones flying to Crimea, hitting oil installations, fuel installations, energy infrastructure, power infrastructure. And what we've seen is that this kind of incredibly prized asset has turned into a liability for Moscow. And tourists have been leaving in droves, numbers in the thousands, driving back across the only route available to them to get back into Russia, the Kerch Bridge. And regional authorities put a state of emergency in place late last week. So things are looking pretty serious at the moment.
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And Thomas, it's not just Crimea that Ukraine's hitting, but also targets that are deep inside Russian territory, including sites near Moscow. How is it Kyiv is now able to hit targets so far away.
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What we're seeing is Ukraine's capabilities changing significantly, and that's both in the number of drones that it can produce and how far they can fly. While they've struck Russia's Black Sea fleet in the past, now they're really going after civilian infrastructure, things that are kind of keeping the lifeblood of the peninsula, so to speak, in terms of energy resources. So that's really creating a huge problem and a big headache for Putin domestically, especially ahead of parliamentary elections later this year.
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Thomas, what's the goal here for Kyiv? Are these just attacks for the sake of attacking something, or is there a hope this can lead to something else?
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So I think Kyiv's accomplishing a few things here at the same time. On one hand, they've made it very clear they want to really attack the infrastructure that feeds the front line. So whether we're looking at fuel supplies, whether we're looking at the industrial base that Russia uses to get its arms to the front line, and the fuel that the soldiers run run on. On another level, I think there is an important psychological component here. I think they are trying to really show the Russians what they're capable of and parlay this potentially into some sort of negotiations in the future that will be, you know, terms of which could be more favorable to the Ukrainians, at least they hope. But there are no talks as such right now. And I think that's one of the problems that Kyiv is facing, is that right now there's no platform in which they could really launch this into a negotiating win.
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We also saw at the recent G7 Volodymyr Zelenskyy advertising Ukraine's recent flashy strikes on Russia as a reason to convince Western supporters to get off the sidelines and give them more weapons. What's the likelihood that's actually the outcome here? Does Russia not still have massive factors on its side if it's able to weather this current situation?
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Interestingly enough, more than four years into the war now, we're seeing a lot of variables coming into play that maybe weren't there before. I think we're seeing a slowdown in the Russian economy. We're seeing faltering poll numbers for Putin. Russia has always managed in the past to regain the edge and then lose it. It's a cycle that goes back and forth between the two opponents, and it has for years. There's a sense that Russia could very well get off its back foot militarily and start intercepting a lot of these drones. The problem that Russia has Here is the one that most European countries have, which is simply their air defenses aren't geared to handle drones. They're geared to handle tactical missiles, ballistic missiles perhaps, in some places, not drones. And I think, you know, what Russia's FAC facing now is exactly what Ukraine and Europe is facing.
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If I'm hearing you correctly, Thomas, unlike earlier phases of the war where Ukraine was really reliant on anti tank missiles, longer range missiles from the US Are they now self sufficient militarily at least as it pertains to drones?
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So I mean militarily obviously depends on a huge amount of money coming into the country as well. That's a very important aspect of this. And Ukraine is still dependent on the west for that. But whenever we're looking at their own ability to produce and launch by themselves, we've seen a huge increase in their capabilities. And what's most important about this is that, you know, we're no longer dealing with big expensive missiles that they want from the West. They're creating hundreds of thousands of very small and cheap to make drones. And that's what's really important here.
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I've been speaking to Wall Street Journal correspondent Thomas Grove. Thomas, appreciate the update. Thank you so much.
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Thank you.
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And finally, picture this.
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You walk into your aircraft cabin, right? You take a left turn, not right, left turn. And you walk towards these gorgeous lie flat seats that have an enclosure so you have that privacy from everyone around you.
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That's aviation reporter Ben Katz.
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You've got a little locker where you can put all your safety items. You've got an ottoman to put your feet. You've got a separate lie flat bed should you want it. There are speakers built into your head.
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What Ben's describing are a new generation of luxury business class seats or suites rolling out on a number of airlines including klm, Lufthansa, Singapore Airlines, United and American. But you can't sit in them. Eager to outdo one another and attracting deep pocketed travelers, those airlines debuted new premium seating before receiving safety approvals from regulators. And as a result, Ben said they're being forced to rope off portions of their cabins as those bespoke new seats are run through a gauntlet of crash and fire tests, leading lucrative customers to settle for less glitzy seats or take their business elsewhere.
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The fact that this is happening, and we're seeing this repeatedly at multiple different airlines, these business class seats that are lying literally empty, this is a massive failure on the industry. An overconfidence, maybe by the airlines, maybe by the seat manufacturers who over promised in terms of customization and what the regulators would be able to do. Maybe a bit of conservatism from the regulators. But you take it all together and what you're really seeing is a real nightmare for the airlines who, as this drags on, these delays, they're missing out on potentially this boon in premium leisure travel.
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And that's it for what's news for this Tuesday morning. Today's show was produced by Daniel Bock and Hattie Moyer. Our supervising producer is Sandra Kilhoff. And I'm Luke Vargas for the Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening. What's driving the markets this week?
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What's on investors minds as they look ahead?
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Find out on the Markets podcast from Goldman Sachs, a breakdown of market moves and macro signals in 10 minutes or less. The Markets podcast from Goldman Sachs. Listen now.