Morning Briefing
May 24, 2023 | Daily JAM, Morning Briefing |
This reporting from the Washington Post this morning makes me very pessimistic about any debt ceiling deal until after the first checks DON’T go out on June 1 or whenever. “During a closed meeting Tuesday morning at a GOP hangout a block from the U.S. Capitol,” the Post reported “House Speaker Kevin McCarthy (R-Calif.) made a pointed plea: Do not break ranks over the debt ceiling crisis. Ahead of another round of negotiations with the White House, McCarthy told Republicans they had the upper hand in the discussions and encouraged his members to show their support for colleagues facing tough reelection bids next year as a sign of unity, according to two people in attendance, who spoke on the condition of anonymity to describe the private talk. McCarthy urged members to make sure vulnerable lawmakers would have plenty of campaign money from GOP coffers — even pledging that they would not be outraised by their opponents in the 2024 election cycle.”
May 23, 2023 | COST, Daily JAM, Morning Briefing, WMT |
More woe for the retail sector this morning BJ’s Wholesale (BJ) reported first-quarter results before the market open that missed expectations for same-store sales growth (with earnings per share matching estimates.) The big killer, though, was guidance from the company that said second-quarter comparable store sales are tracking below the 5.7% increase in the first quarter. That 5.7% growth in first-quarter comparable store sales was below the 5.9% that Wall Street analysts had expected. The stock closed today down 7.26% on the day.
May 22, 2023 | Daily JAM, Morning Briefing, Short Term |
Last week Federal Reserve chair Jerome Powell said that the Fed could hold off on another interest rate increase at its June 14 meeting. That comment wz one reason that the CME FedWath tool showed the odds of no increase at the meeting jumping to 82.6% on Friday, May 19. But today, Federal Reserve Bank of St. Louis President James Bullard and Neel Kashkari, head of the Minneapolis Fed said, essentially, that “could” doesn’t mean will. Bullard backed two more 2023 interest-rate increases and Kashkari said if the central bank pauses next month it should signal tightening isn’t over.
May 19, 2023 | Daily JAM, Morning Briefing |
If or when there is a debt ceiling deal, the Treasury Department will need to go on a selling binge to replenish its cash supplies. Ari Bergmann, the founder of Pneso Advisors, told Bloomberg that he estimates the Treaury’s cash needs at more than $1 trillion by the end of the third quarter. The deluge of supply as the Treasury rushed to sell bills, notes, and bonds would, he warns, the supply burst would drain liquidity from the banking sector, raise short-term funding rates, and tighten the liquidity just as the U.S. economy is on the edge of recession. Bloomberg reports that Bank of America estimates the wave of supply from Treasury Department sales would have the same economic impact as a quarter-point interest-rate hike.
May 19, 2023 | Daily JAM, Morning Briefing |
Remember yesterday when both President Joe Biden and House Speaker Kevin McCarthy sounded so reassuringly optimistic that a deal would get struck on raising the debt ceiling before the U.S. defaulted on its obligations? Today, not so much as McCarthy’s negotiators walked out of talks with White House officials.
May 17, 2023 | Daily JAM, Morning Briefing |
Target (TGT) easily beat Wall Street earnings projections for the company’s fiscal first quarter with a report yesterday May 16 after the close with a report of $2.05 a share. Analysts were looking for $1.80 a share. Earnings were down, however, 6.2% year-over-year. But like Home Depot yesterday, Target warned that consumers are hesitant to make discretionary purchases.
May 16, 2023 | Daily JAM, Mid Term, Morning Briefing, Short Term |
The typical pattern is for households to run up credit card balances for holiday shopping and then for consumers to pay down credit card balances in the first quarter. That’s what happens in a healthy economy where consumers are living within their means and aren’t seeing family budgets stretched by high inflation. But that isn’t what happened in the first quarter of 2023. For the first time in 20 years, consumers added to their debt loads in the first quarter rather than paying down some of their fourth-quarter spending.
May 14, 2023 | Daily JAM, Morning Briefing |
Tuesday’s release of new economic data from China for April is expected to show rapid year-over-year growth as China’s economy recovers from its Covid-19 shutdown. For example, economists surveyed by Bloomberg expect industrial output to jumped 10.8% in April year-over-year. That would be much stronger than March’s 3.9% year-over-year growth rate. But the month-to-month growth rate is likely to show a much different picture. Economists at Goldman Sachs. for example, project that industrial production declined 1.3% in April from March
May 12, 2023 | Daily JAM, Mid Term, Morning Briefing |
It’s only a survey of consumer sentiment so it’s not very important to the financial markets, right? Wrong. The University of Michigan survey of consumer sentiment for May illustrates perfectly the trap that the Federal Reserve is caught in right now.
May 11, 2023 | Daily JAM, Morning Briefing |
The Producer Price Index rose 0.25% in April from March and at a 2.3% rate year-over-year, the Bureau of Labor Statistics reported today, May 11. This index measures prices at the wholesale level–changes at that level eventually show up in the prices that consumers pay so they’re an indicator of the direction of future consumer inflation. Economists surveyed by Bloomberg had expected producer prices to rise 0.3% in April on a monthly basis and 2.5% on a yearly basis. In March, producer prices slipped 0.5% on a monthly basis and rose 2.7% on a yearly basis. The annual 2.5% rate is the lowest annual increase in producer inflation in more than two years. So in these numbers, we’ve got clear evidence that inflation is falling. But, also this morning, initial claims for unemployment for the week ending May 6 rose 22,000 to a seasonally adjusted 264,000 claims. That was above expectations from economists surveyed by Reuters for 245,000 initial claims for unemployment. The number of workers filing new claims for unemployment hit a 1-1/2-year high.
May 10, 2023 | Daily JAM, Morning Briefing |
CPI inflation ticked lower in April with the all-items (headline) inflation rate nudging down to a year-over-year 4.9%. The core rate, which excludes food and energy prices, also slipped lower to a year-over-year 5.5% from a 5.6% rate in March. On a month-to-month basis all-items inflation rose by 0.4% in April from March after a 0.1% gain in March. The core rate rose 0.4% in April after rising 0.4% in March. If you were looking to have this morning’s inflation report settle the argument on when the Federal Reserve would pause its interest rate hikes, this report didn’t deliver. The most likely Fed reaction to this data would be a pause at the June 14 meeting that left the Fed’s benchmark short-term interest rate at the current 5% to 5.25% range. The CME Fed Watch Tool, which tracks prices in the Fed Funds Futures market, calculates that market participants believe that the Fed will hold rates steady at that meeting. Odds are 93.9% on the Fed Watch Tool in favor of no change in rates at the June 14 meeting. I can see the logic of that.
May 9, 2023 | Daily JAM, Morning Briefing, Short Term |
Tomorrow, May 10, brings the key CPI inflation report for April. Economists surveyed by Bloomberg are projecting that headline inflation will rise at a 5% year-over-year rate. That would match the 5% headline rate for the Consumer Price Index in March. The headline rate would remain so elevated because of a rise in oil prices in April after OPEC+ announced a drop in crude production. Month-to-month headline CPI inflation is expected to have climbed by 0.4% in April after a 0.1% month-to-month increase in March. The Federal Reserve watches the core rate, which strips out the costs of food and energy. Here too economists are not expecting a significant drop in inflation. Core inflation is projected to have climbed at a 5.5% rate against the 54.6% rate projected in March.
