| Good morning. Gridlock in Spain's election, the ECB's outlook and Tesla laps German automakers. Here's what people are talking about. Prime Minister Pedro Sanchez engineered a late swing during the final days of the Spanish election campaign to deny his right-wing opponents a majority in parliament. While the center-right People's Party won the most seats, the right-wing bloc has only 170 in total and needed 176 to oust the 51-year-old Socialist. With a wider range of potential partners, Sanchez could potentially muster 172 votes. Sanchez and PP leader Alberto Nunez Feijoo both claimed victory as they addressed their supporters after the count, but it's Sanchez who has the upper hand. That uncertainty may roil Spanish assets in the short term, according to JPMorgan, which last week warned that an inconclusive vote would be the worst outcome for investors. A year after the European Central Bank began lifting interest rates, officials are thrashing out the final stages of what's already their toughest-ever campaign of hiking. Policymakers gathering this week in Frankfurt are poised to unveil another quarter-point increase in the deposit rate, to 3.75%, on top of the 400 basis points of monetary tightening enacted since last July. They're less likely, though, to offer guidance on the following meeting, in September, when some are angling for one last move while others prefer a pause. Despite some hawkish Governing Council members sounding more conciliatory of late, that debate remains in full swing. Investors and economists lean toward a 4% peak in rates. Meantime, the euro is at its most expensive level on record, potentially setting itself up for a fall if it starts to undermine the euro area economy and forces the ECB to turn dovish. Germany's automakers announced bold plans the last several years to shift to electric cars and challenge Tesla's dominance. Instead, they're only falling further behind. The Germans are struggling as software issues delay key models and contribute to waning sales in China, their biggest market, where Tesla and local champion BYD have raced ahead. They're even playing second fiddle in their home market, where Tesla remains the top EV brand. Investors will hear from three of the German companies this week, with Porsche reporting quarterly earnings Wednesday, followed by Mercedes and VW on Thursday. Lower-ranked investment banks are on a hiring spree as bigger firms including Goldman downsize. A slump in M&A and the collapse of Credit Suisse have sparked an epic turnover of senior managers. It goes all the way to the top: of last year's eight top merger advisory firms, seven have changed their investment bank chiefs or shuffled their M&A leadership in 2023. European stocks are set to nudge lower at the start of a busy week for central bank meetings. Expected data include Spain's PPI inflation and Germany's manufacturing PMI. Naturgy, Philips and Ryanair are among companies on tap for earnings. This is what's caught our eye over the past 24 hours  As recent data have beaten expectations, even economists are increasingly calling into question whether the US will fall into a recession. But temporary help services, one of the best leading indicators of the business cycle, was weak in the most recent US jobs report. That creates a dilemma for the Fed, as the report also showed rate hikes having a clear impact in rising unemployment levels for African Americans and Hispanics, despite high inflation. The disparate impact of hikes will keep the Fed from raising rates more aggressively. The mantra of Chair Jerome Powell as he has hiked is that the Fed needs to stamp out inflation because it is especially pernicious for the most economically vulnerable. A recent Bloomberg piece on wages not keeping up with rising costs and rents in boomtown Miami highlights this very effectively. The problem for the Fed is that the Miami piece also highlights how the Fed's rate hikes, while designed to snuff out inflation, are also already creating unemployment for the most vulnerable economically. We saw that in the last jobs report, but the Miami piece shows how stark the disparate impact can be. If this trend continues in future jobs data, it will add evidence to the FOMC doves' case that holding makes more sense after this next rate hike. The data between now and the September meeting will be critical in establishing that view, however. No matter how slowly the core PCE inflation prints recede, with real interest rates now positive, the Fed will feel it has room to hold. That means we need to look not just at the aggregate numbers in the jobs data but also at underemployment, Black and Hispanic unemployment, and temp employment to discern how likely the Fed is to hold. If those numbers go up, expect the July hike to be the last one. Edward Harrison is a senior editor for Bloomberg News, based in Washington, D.C. | 
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