Morning Roundup

By Mark Masterson on May 15, 2024

Good morning,

Below are the news items moving markets today:

Executive Summary:

I had a hunch the CPI might be reported just modestly lower.

Sure enough – it was.

• April CPI inflation rate falls to 3.4%, in-line with expectations of 3.4%.
• Core CPI inflation was 3.6%, in-line with expectations of 3.6%.
• This marks the 37th consecutive month with inflation above 3%.

That pushed bond yields lower modestly, and helped support equity markets as hope rises the Fed may yet be able to cut rates.

There are only three Fed meetings before the election.  June – July – September.  The Fed will likely need at least another inflation report to be light to be able to cut.

Retail sales were also a miss…..

April headline retail sales miss consensus, flat m/m:

• Headline April retail sales came in flat m/m below consensus for a rise of 0.40%, while March’s headline was revised down to 0.6% pace (was 0.7%).

Powell spoke yesterday.  He essentially reiterated his comments from the Fed meeting last week.

• FED’S POWELL: I DON’T THINK IT’S LIKELY THAT THE NEXT MOVE WOULD BE A RATE HIKE. IT’S MORE LIKELY THAT WE WOULD HOLD THE POLICY RATE WHERE IT IS.
• FED’S POWELL: THE HOUSING INFLATION HAS BEEN A BIT OF A PUZZLE.
• POWELL: NON-CONTROVERSIAL TO SAY US FISCAL POLICY IS ON AN UNSUSTAINABLE PATH
• FED’S CHAIRMAN POWELL: US ECONOMY HAS BEEN PERFORMING VERY WELL

I love this quote from Powell…..

• POWELL: CREDIBILITY IS EVERYTHING FOR CENTRAL BANKS

I’m not sure how much credibility the Fed really has.  Powell has repeatedly said that the Fed’s policy is restrictive.  Yesterday he said “we have to let restrictive policy do its work on inflation.”

Yet – here is the Bloomberg financial conditions index right back at all time highs…..that means conditions are very, very loose.

So much for credibility.

Lawrence McDonald 5 15 24

The economic surprise index continues to fall……

This could provide some cover for a Fed cut in July or September.

• The US economic surprise index has dropped to its lowest level since January 2023.
• The economic surprise index measures economic data coming in above or below consensus estimates.
• The index hit -18.5 in May, meaning most data has been below expectations in recent weeks.
• This gauge has declined by nearly 60 points in just one month, marking the steepest decline since early 2022.
• Data such as consumer confidence and sentiment, ISM manufacturing, and services PMIs have lately surprised downward.

Kobeissi Letter 5 15 24

Articles of Interest:

• Markets:
  • GameStop, AMC soar again in after-hours trade (Bloomberg, Reuters); as meme stocks trade returns (Reuters, Bloomberg)
  • Roaring Kitty craze suggest that online subcultures might have a permanent influence on the market (link)
  • Goldman Sachs’ Kostin says US stock market will trade at around current levels through year-end (Bloomberg)
• China:
  • China said to be mulling proposal of local governments buying millions of unsold holes to save property market (Bloomberg)
  • Sluggish pockets of China economy raise expectation of more monetary easing if things don’t turn around (CNBC)
  • China’s slow progress on ‘whitelist’ project for property loans adds to challenge of home completion (Reuters)
• Economy:
  • Hopes for US soft-landing on the line with US inflation data today the big focus (Reuters, Bloomberg)
• Commodities:
  • IEA reduces 2024 oil demand growth forecast, further expanding gap with OPEC regarding oil demand outlook (Reuters)
  • Copper hits record high on data center build up, EVs (CNBC) but iron ore down on softer China demand, latest US tariff hikes (Reuters)
• Geopolitics:
  • Yellen says new China tariffs won’t cause “meaningful” increases in prices, will protect US businesses and workers (Bloomberg)
  • Bipartisan Senate group recommends spending on AI policy to stay ahead of China, while addressing the technology’s potential harm (link)
  • Two Chinese chipmakers in early stages of producing HBM semiconductors used in AI chipsets (Reuters)
  • Blinken vows unwavering support for Kyiv (NYT, Reuters) as Ukraine withdraws in two areas near Kharkiv (Reuters)
  • Sources say Biden administration working to send an additional Patriot air-defense battery to Ukraine (Bloomberg)
  • Russia’s Putin to visit China this Thursday-Friday (FT, Reuters); relationship could rattle the world (FT)
• Washington:
  • Biden and Trump clash over who can be tougher on trade with China, a topic at heart of White House race (FT)

Charts of the day:

This chart speaks volumes.

Retail is piling into the market.

Notice when this kicked into overdrive?  The Covid lockdowns and money give-away started the retail addiction with trading stocks.  In particular, it kicked off the meme stock craze and crypto trading phase that led to the peak in 2021.

FT 5 15 24

Quote of the day:

“If you can get really good at destroying your own wrong ideas, that is a great gift.” -Charlie Munger