The Consumer Price Index (CPI) released yesterday showed the year-over-year rate slowed to 5%, slightly less than expected and down a full percentage point from +6% in February.
Big drops in energy and food prices compared to last year led the decline. However, the "core" rate, which strips out energy and food prices, climbed by +0.2% in March, pushing the annual rate to +5.6% versus +5.5% previously. The big inflationary culprit here remains "shelter prices," which account for about a third of the CPI's weighting.
Economists as well as Fed members have been saying for months now that decelerating home prices will eventually make their way to the gauge and likely make a big dent in the inflation numbers but those effects are still not showing up. In fact, both energy and rents look like they are again pushing higher. Bulls are talking about other inflation gauges that show bigger decline than the official CPI numbers and remain confident that an even more dramatic slowdown lies ahead. Bulls have also latched on to comments by Fed officials that believe tightening credit conditions will do some of the Fed's heavy lifting by slowing down the US economy.
Bears however warn that credit crunches are historically unpredictable and could lead to fallout in unexpected areas that may do even more harm to the economy. Most investors are now turning their attentions to Q1 earnings which will "unofficially" kick off on Friday with results from big Wall Street banks. Citigroup, JPMorgan Chase, and Wells Fargo report on Friday, followed by Bank of America and Goldman Sachs next Tuesday (4/18). Keep in mind that bank earnings could be loaded with "bearish" surprises as the sector faces several profit-denting headwinds.
Small and regional banks are reeling from an outflow of deposits following the collapse of SVB and others in March, which is expected to result in less lending and hence lower profits, but the big banks may have been a beneficiary as money moved to a new home. All banks likely face tighter regulation and higher Federal Deposit Insurance premiums ahead, which again would ding profits.
Bottom line, the upcoming US corporate earnings season is going to be important. The market will also be paying very close attention to the Big Tech companies. I know a lot of smart traders who say if the overall stock market is going to get hit in any big way, we will have to see the large tech stocks roll-over and take a sizable downturn.
Also keep in mind, a lot hinges on how the Fed plays their hand moving forward, they are trying to thread the needle between continuing to battle high inflation and strong wage gains against tightening too much and bringing the US economy to a grinding halt.
Wall Street insiders are still giving it about 7% odds that the Fed hikes by another +25 basis-points at the upcoming early-May meeting, about 70% odds that the Fed pauses at the June meeting, and about 50% odds that the Fed is going to cut rates by -25 basis-points at its July meeting.
Postal Service Wanting to Raise Stamps to 66 Cents: The increase, which the Postal Service says is needed to offset the rise in inflation, would take effect July 9 if the Postal Regulatory Commission approves it. Keep in mind, the Postal Service just hiked the cost of stamps from 60 cents to 63 cents back in January. If approved, stamp prices will have risen +32% since early 2019 when they rose from 50 cents to 55 cents. The Postal Service said in February revenue for the final three months of 2022 was $21.5 billion, up +$206 million, or +1%, on a volume decline of 1.7 billion pieces, or 4.8%. Somehow, however, the Postal Service reported a net loss for the quarter of -$1 billion. The Postal Service has reported net losses of more than $90 billion since 2007.I think somebody needs to figure something out and be held responsible Source NBC
EPA Pushing for Mmore Electric Vehicles: The U.S. Environmental Protection Agency proposed new tailpipe emissions limits that could require as much as 67% of all new vehicles sold in the U.S. by 2032 to be all-electric. The proposed limits would surpass President Joe Biden’s previous commitment to have EVs make up roughly 50% of cars sold by 2030 and accelerate the country’s clean energy transition. EV sales accounted for only 5.8% of all the 13.8 million new vehicles sold in the country last year, an increase from 3.1% the year before, according to Kelley Blue Book data. Source CNBC
Bitcoin Rally Continues, Up 80% This Year: Bitcoin is still the market’s runaway success story of the year as the cryptocurrency topped $30,000 on Tuesday for the first time since June. Bitcoin has gained more than 80% in price this year, far outperforming many other assets. The Nasdaq 100, an index of the biggest tech stocks, has gained roughly 20% in that period. The latest rally appears to be partly tied to the Federal Reserve’s monetary policy, which has included nine interest rate increases over the past year. Crypto asset prices sank a year ago as the central bank began to raise rates, but investors are now betting that the Fed will soon pause its rate increases, even though Fed officials have been suggesting the opposite, setting off a big rebound. Bitcoin’s biggest gains also coincide with the turmoil in the banking sector, now up more than 45% since the collapse of Silicon Valley Bank last month. Source NYTBusiness
UBS Study Says Over +50,000 US Stores Will Close Within 5 Years: Brick-and-mortar stores had something of renaissance in the wake of the pandemic. But according to UBS , that revival is over, killed by tighter macroeconomic conditions and growing demand for online shopping. Shoppers returned to stores in droves in 2021, and retailers responded in kind, opening roughly 11,000 new outposts that year, according to UBS estimates. It didn’t last long. Retailers closed more than 2,000 stores over the past 12 months. The closures hit large chains, such as Bed Bath & Beyond, Foot Locker, and Best Buy, as well as mom and pop shops. By the end of 2027, U.S. retailers could shutter more than 50,000 stores, predicts UBS analyst Michael Lasser. Small independent retailers will bear the brunt of the slowdown, the analyst added. In the past 10 years, more than 40,000 stores with fewer than 20 employees have closed. In contrast, chains with over 500 employees added 17,000 in the same period. Smaller retailers are also facing more competition from e-commerce players. While this threat isn’t new, it is intensifying. Lasser estimated that e-commerce penetration—or the percentage of consumers who have made an online purchase in the past year—could rise to 26% by 2027, up from 20% currently. Source Barrons
Entertainment Expenses Have Been Hit by Economic Pressures: Recession fears have yet to be realized, but consumers have still made efforts to trim entertainment expenses. Morning Consult data shows that U.S. adults have consistently made efforts to save money on entertainment, largely because it’s much easier to trim discretionary spending than it is to cut back on household staples. Over the last year, real spending declined for recreational and entertainment activities (including concerts, sporting events and museums) and telecom services (including internet, mobile plans and streaming subscriptions) as inflation discouraged discretionary spending. According to Morning Consult Economic Intelligence data, between February 2022 and February 2023, recreation/entertainment was among the categories with the sharpest year-over-year decline in spending as consumers facing elevated price growth across a variety of goods and services were forced to make trade-offs. However, Morning Consult's data shows that overall, consumers have reallocated a growing share of spending away from goods and toward services such as travel, for which there was pent-up demand due to the pandemic. This desire to splurge on travel may have taken away from budgets for closer-to-home entertainment like concerts and sporting events. Source MorningConsult
More Students Question Whether College is Worth It: College admissions are plunging in the U.S., with anxiety over the debt burden a degree comes with— coupled with a shift in attitudes toward career paths—leading many young people to question whether it’s really worth pursuing higher education. Last month, a massive survey of Gen Z workers found that 40% of people aged between 16 and 26 did not believe they needed a university degree to have a successful career. And they may be right, according to new data from global jobs site Indeed—at least, if earnings play a role in their perceptions of career success. On Wednesday, Indeed published its top 25 entry-level jobs for those with degrees and those without degrees, ranking the roles by average annual salary and growth in demand from employers. The top job that required a degree—that is, the role with the greatest increase in demand this year—was outside sales representative, which pays an average $60,000 a year, according to Indeed. The highest-paying job on Indeed’s list was entry-level C++ developers, with an average starting salary of $120,000. When it came to the top job for those who haven’t attended college, the position that saw the biggest year-on-year surge in demand was that of inventory manager, which pays an average salary of $59,000. The highest paying entry-level role that didn’t require a degree to feature on Indeed’s list was an auto body technician, which offered an annual salary of $82,500. Source Fortune
US "Food at Home" Prices Ease for First Time Since 2020: Egg prices tumbled the most in 36 years in March, the second straight monthly decline, giving US consumers relief after months of soaring food inflation. Prices for eggs fell -11% for the month, according to Labor Department data released Wednesday. Coupled with declines in prices for some meat, poultry, and produce products, the index for "food at home" eased for the first time since September 2020. Overall food prices measured by the US Bureau of Labor Statistics’ consumer price index rose +8.5% in the 12 months through March, extending a retreat from a peak of +11.4% reached last August. Food costs have now cooled for seven consecutive months, with price increases softening from +9.5% in February and +10.1% in January. The cost of "food at home" saw the largest pullback, with prices up +8.4% last month, compared to +10% in February. However, the expense to eat out in a restaurant or grab a takeaway edged up to +8.8% on an annualized basis, from +8.4% previously. Nonetheless, cereals and bakery prices were still +13.6% higher in March than they were 12 months ago and non-alcoholic beverages were +11.3% more costly. The price of dairy products was up +10.7%, and meat, poultry, fish and eggs +4.3%. Fruit and vegetables were +2.5% more expensive. Source JustFood
Don't Forget The Tax Man
Since April 15th falls on a weekend this year, the tax deadline for filing our taxes is pushed back to midnight on Tuesday, April 18th for most taxpayers. If you file an extension you will have six more months to get your return to the IRS and not be subject to the late-filing penalty. For 2023, this means that, with an extension, you’ll have until October 16, 2023.
Who Pays What? Some politicians argue that the rich need to pay more of their fair share and label the proposed changes in tax law as tax cuts for the rich. But the latest facts from the government show the top 50% of all taxpayers paid 97% of all individual taxes, while the bottom 50% paid the remaining 3%. The top 1% paid a greater share of individual income taxes than the bottom 90% combined. In fact, according to IRS data, the payment of income taxes is as follows. The top 1% of income earners, those having an adjusted annual gross income of +$597,815 or higher, pay about 39% of the federal income taxes. The top 10% of income earners, those having an adjusted gross income over +$173,136, pay about 31% of federal income taxes. In other words, about 1.7 million Americans, or less than 1% of our population, pay more than +70% of our federal income taxes. Keep in mind, +37 Million tax filers have no tax obligation at all. In fact, the Tax Policy Center estimates that 57% of households will not pay federal income tax this year.
Source Tax Foundation.Org
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