Stock investors are braced for what could be a volatile trading session with two key releases that have potential big impacts on the market.

First up is the Consumer Price Index (CPI) for March which is expected to show a substantial slowdown in inflation. Consensus is looking for a headline read of +5.2% versus +6.0% previously. This stems primarily from the steep decline in energy prices, which last year at this time were sent soaring as a result of Russia's invasion of Ukraine.

However, the important number for the Federal Reserve is the "core" rate, which strips out food and energy. Economists expect the annual pace to climb to +5.6%, up from +5.5% in February, largely as a result of a spike in used car prices and climbing rents. If the core rate does accelerate, it will likely cement expectations for another 25 basis-point rate hike at the Fed's upcoming May 2-3 meeting. It could also dash hopes that the Fed might consider pausing after a May hike, something bulls have been heavily betting on.

Remember, this would follow the March employment report that overall did show a decline in jobs added but was still historically strong at +236,000. Wage gains fell to +4.2% year-over-year versus +4.6% previously, but again, this is historically high and not compatible with the Fed's goal of bringing down inflation. Many bulls think that even if inflation comes in hot, the Fed might still choose to signal a pause in May due to signs of stress in the financial sector that are tied to rising interest rates.

Comments from Fed officials this week indicate that there are divisions about how much higher rates need to climb. Some have voiced support of taking a pause in order to let the Fed's tightening work through the system while others believe at least one more hike is necessary. Which brings us to the other key release today, the "minutes" from the Fed's March meeting.

Considering the differing opinions being expressed publicly, investors will be highly interested in any details contained in the "minutes" about the growing divide. The Fed "doves" have been arguing for months that raising rates much further risks the economy slipping into recession and sending unemployment skyrocketing.

Many Fed "hawks" by contrast remain concerned about ending rate hikes too soon and several have outright warned that it may not be possible to lick inflation without inducing a recession.

Wall Street seems to be mostly positioning for one more 25 basis-point rate hike but the bigger question is how long they will stay elevated. The idea of Fed hawks remaining in control is troublesome because Wall Street is also very concerned about recession.

Typically the Fed would start cutting rates as soon as signs of a downturn start to reveal themselves. But if central bankers are more worried about inflation than a slowing economy, the Fed may not come riding to the rescue as they have in the past.

Bottom line, bulls are betting that the Fed is at or very near the end of its rate-hiking cycle and that the stock market will start to rally just as soon as traders are fully convinced the Fed is done raising rates.

On the flip side, bears argue regardless the US and global economy has an extremely tough road ahead, i.e. commercial real estate worries, regional banks tightening lending, wage growth still too hot, major geopolitical tensions involving Russia and Ukraine and China and Taiwan.

For reference, the next Fed FOMC meeting and press conference is scheduled for May 3rd.

FBI Warns Against Using Public Phone Charging Stations: The FBI recently warned consumers against using free public charging stations, saying crooks have managed to hijack public chargers that can infect devices with malware, or software that can give hackers access to your phone, tablet or computer. Consumer devices with compromised USB cables can be hijacked through software that can then siphon off usernames and passwords. The law enforcement agency says consumers should avoid using public chargers at malls, hotels, and airports, and stick to their own USB cables and charging plugs Source CNBC

Airlines Pilot Shortages Could Get Worse: North American airlines are short about -17,000 pilots this year, according to consulting firm Oliver Wyman. Airlines have compensated by cutting flights to smaller cities, mostly those flown by regional carriers, which have lost hundreds of pilots to the major airlines. There were 324 U.S. airports with less service in January than in the same month in 2020. About a dozen small airports, including Williamsport, Pennsylvania, have lost service entirely. The major U.S. airlines brought on a record 13,128 pilots last year, according to the consultancy Future & Active Pilot Advisors. The previous high was 5,426 in 2021. But it’s not enough, with a wave of Boomers heading into retirement and older members of Generation X not far behind. Almost half of U.S. airline pilots are 50 or older, with a mandatory retirement age of 65. Source Forbes

The IMF Is Watching These Potential Trouble Spots: Risks to financial stability have risen “significantly” amid the recent turmoil in the banking sector, the International Monetary Fund’s economists said on Tuesday, sounding a warning about hidden trouble, not just at banks but also nonbank financial intermediaries. For several years, the multilateral organization has warned in its Global Financial Stability report of the potential fallout of interest rate rises after an era of historically low rates on banks and nonbank financial intermediaries. Those have come to pass with the trouble at Credit Suisse and failures of Silicon Valley Bank and Signature Bank in the U.S. While IMF economists described the failed Silicon Valley Bank as an outlier in terms of the degree of unrealized losses and wholesale deposits that made it more vulnerable, other trouble spots could emerge from the dangerous combination of tighter financial conditions, mismatches in asset and liability liquidity and financial leverage, as well as the links between the nonfinancial banking sector and traditional banks. For example, the IMF noted that life insurers have doubled illiquid investments over the last decade to boost returns and increasingly use leverage to fund illiquid assets. Other pressure points include venture capital in technology and commercial real estate, according to IMF economists Source Barrons

OpenAI to Offer Users Up to $20,000 for Reporting Bugs: OpenAI, the firm behind chatbot sensation ChatGPT, said on Tuesday that it would offer up to $20,000 to users reporting vulnerabilities in its artificial intelligence systems. OpenAI Bug Bounty program, which went live on Tuesday, will offer rewards to people based on the severity of the bugs they report, with rewards starting from $200 per vulnerability. Technology companies often use bug bounty programs to encourage programmers and ethical hackers to report bugs in their software systems. According to details on bug bounty platform Bugcrowd, OpenAI has invited researchers to review certain functionality of ChatGPT and the framework of how OpenAI systems communicate and share data with third-party applications. The program does not include incorrect or malicious content produced by OpenAI systems. The move comes days after ChatGPT was banned in Italy for a suspected breach of privacy rules, prompting regulators in other European countries to study generative AI services more closely. Source Reuters

China May Change Retirement Policy: China has one of the lowest retirement ages among major economies. Under a policy unchanged since the 1950s, it allows women to retire as early as age 50 and men at age 60. Now, local governments are running out of money just as a wave of retirees hits, leaving Beijing with little choice but to ask people to work longer, a move economists say is long overdue but one still likely to be met with resistance. China’s version of “baby boomers," those born after China emerged from devastating starvation in the early 1960s, are retiring in droves. Even with government subsidies, by 2035 China’s state-led urban pension fund will run out of money accumulated over the previous two decades, leaving it to rely entirely on new workers’ contributions, according to projections made in 2019 by the Chinese Academy of Social Sciences, a government think tank. China has seemed to be on the verge of changing the retirement age for years, but has let several deadlines pass without coming up with a plan. However, economists and demographers say Beijing may finally take action this year, as the economy is starting to recover and as Xi Jinping has secured a third term as China’s leader, which makes a politically unpopular move less perilous for the Communist Party. Source WSJ

Next Wave of Remote Work Is About Outsourcing Jobs Overseas: During the pandemic millions of Americans worked from home and many decamped to cities like Boise, Austin and Phoenix. Those moves were usually at the behest of workers who wanted a change of environment, sought more living space or somewhere cheaper. Companies agreed to these arrangements largely to retain employees in a competitive labor market. Now companies are responding to lingering labor shortages and rising wages by sending jobs overseas, according to labor consultants. Deel, a human-resources company that helps clients hire abroad, said hiring through its platform more than doubled last year. The share of job listings that are remote has surged since 2019. The exodus of office jobs overseas is still a trickle. But it is accelerating and some economists see it as the beginning of a new era. About 10% to 20% of U.S. service support jobs like software developers, human-resources professionals and payroll administrators could move overseas in the next decade, according to Nicholas Bloom, an economist at Stanford University. While office offshoring isn’t new, what is changing is that more companies are moving highly skilled jobs abroad. Source WSJ

Accounting for Flood Risk Could Lower US Home Prices by -$187 Billion: Floods are the most expensive type of natural disaster in America, causing at least $323 billion (bn) in direct damage since 1960 after accounting for inflation. Unlike other types of risks, private insurers generally do not offer residential coverage for floods. To fill this void, Congress set up the National Flood Insurance Program (NFIP) in 1968. Homeowners in the “100-year floodplain”, where regulators reckon the chance of flooding each year is at least 1%, can get government-backed mortgages only if they are insured. In 21 of the 50 states, sellers of homes do not have to disclose past damages or future risks from floods, leaving buyers with no idea of the threat they face. Moreover, even if buyers are informed, they often fail to discount their offers sufficiently. As a result, houses in flood-prone areas are overpriced. One study in 2021 estimated this overvaluation at $33bn-56bn. But a new paper in Nature Climate Change puts it at $121bn-237bn. The difference stems from assessments of flood risk. The earlier figures relied on the NFIP’s historical premiums, which take little account of risks from heavy rain or along small waterways, and do not factor in climate change. In contrast, the new study is based on maps produced by First Street Foundation, a research group, which add up the risks from all potential causes of flooding in a warming world—including those faced by properties outside the officially recognized floodplain. It finds that at least 6.9 million American homes are overpriced because of expected flood damages, with 1.2 million overvalued by at least 10% and 660,000 by more than 25%. Source Economist

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