Commentary |
Stock indexes start the week lower as geopolitical worries and inflation continue to dominate the headlines.
Treasury yields, by contrast, have jumped as on-edge investors seek shelter in “safer” investments. Israel and Iran are at the root of the latest unease with the whole world currently waiting to learn whether Israel will launch an attack in retaliation for Iran’s missile and drone strike this past weekend.
While the US and other Western allies are urging Israel to stand down, Israeli defense officials have said they do plan to strike back at Iran, though they haven’t provided any details. Not surprisingly, Iran said any attack by Israel “will be met with a response,” setting up a tit-for-tat conflict that could very quickly expand into a wider war, including possible US involvement.
At the same time, disruption to oil supplies remains a top concern, which would translate to higher oil and energy prices, and likely higher inflation. Adding to investor worries is a US economy that continues to run hotter than most have been anticipating.
March Retail Sales released yesterday topped estimates by a wide margin while February’s already strong read was revised upward. Strong consumer spending gives the Fed yet another reason not to cut rates and if anything may make them feel more comfortable about keeping rates on hold. Strong spending on consumer goods, which is happening now, also works to keep inflation elevated and supports the “higher for longer” interest rate narrative that seems to be growing in popularity on Wall Street.
Bottom line, expectations for Federal Reserve interest rate cuts that have fueled a good part of the current rally could now be in jeopardy amid a growing list of geopolitical flashpoints that may negatively impact the global economy.
Stock bulls are still hoping Q1 earnings can provide some distraction, though it may be tough to build any sustained upward momentum so long as an Israel-Iran Middle East Showdown remains on the table.
Today’s earnings highlights include Bank of America, Bank of New York Mellon, Interactive Brokers, JB Hunt, Johnson & Johnson, Morgan Stanley, PNC Financial, United Airlines, and United Health Group.
Economic data includes Housing Starts & Permits and Industrial Production.
Well here we are today with 10-year Treasuries at their highest level since last November. The yield on 10-year Treasury notes was up +10.9 basis points at 4.608%. The yield on the 30-year Treasury bond was up +9.2 basis points at 4.695%. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up +8.8 basis points at 4.970%. The interest rate on a 30-year fixed-rate mortgage is now pushing 7.5%.
Tesla to Lay Off More Than 10% of its Global Workforce: As we prepare the company for our next phase of growth, it is extremely important to look at every aspect of the company for cost reductions and increasing productivity, CEO Elon Musk said in the memo obtained by CNBC. As part of this effort, we have done a thorough review of the organization and made the difficult decision to reduce our headcount by more than 10% globally, the memo said. Tesla had 140,473 employees as of December 2023. Tesla shares have taken a bruising in recent months, falling 31% year to date. While electric vehicle sales are still gaining popularity worldwide, their sales growth rate has slowed especially for Tesla. The company now faces more competition than ever and to end 2023, China’s BYD temporarily dethroned Tesla as the world’s top EV maker. Another competitor, Chinese smartphone company Xiaomi in March said it would sell its first electric car for far less than Tesla’s Model 3. Source CNBC
US Exported Record Volume of Natural Gas in 2023: The United States exported 10% more natural gas in 2023 than in 2022, a record of 20.9 billion cubic feet per day (Bcf/d), according to our Natural Gas Monthly. U.S. liquefied natural gas (LNG) exports accounted for more than half of all U.S. natural gas exports, and natural gas exports by pipeline to Canada and Mexico accounted for the remainder. Since 2017, the United States has exported more natural gas than it has imported. Prior to 2017, the last time U.S. natural gas exports exceeded natural gas imports was in 1956. Even as a net natural gas exporter in 2023, the United States imported 8.0 Bcf/d of natural gas, primarily by pipeline from Canada. Source EIA
US Tax Refunds Decline -3.3% This Year: Fewer US taxpayers have received a refund this year in the run-up to tax day compared to 2023, signaling some consumer spending may be disrupted. Data from the Internal Revenue Service showed that 66.8 million taxpayers were reimbursed through April 5 compared to 69.1 million through April 7 last year. That means that 3.3%, or roughly 2.3 million, fewer Americans obtained the boost to their finances that they got in 2023. Still, while the number of refunds dropped, the average amount received ticked higher to just over $3,000 compared to almost $2,900 last year. Americans are increasingly reliant on these refunds, with many saying they’d use the extra cash to pay off debt, according to a survey conducted by LendingTree. Separately, a poll conducted by CivicScience found that more Americans say they owed money unexpectedly or owed more than thought this year compared to 2023, the latter being especially true for households earning $100,000 or more annually. The survey results also suggested that tax refunds may be correlated with economic sentiment. Within the past 30 days, almost two thirds of those who owed more than anticipated were far more likely to report being “very” concerned about the current state of the US economy and the labor market, compared to 45% who were billed or refunded as expected. Source Bloomberg
Auto Insurance is a Big Driver of Inflation: A surprising category is helping derail the U.S. economy's disinflationary path: car insurance, where the cost of coverage is rising at unprecedented rates. Pricier auto insurance is a key example of the persistent difficulty in slowing down overall inflation. Four years on, lagged effects from the pandemic are still warping price-setting behavior for car insurers. Meanwhile, labor shortages lingering in some sectors have pushed wages up, which are flowing on to coverage costs. Hotter auto insurance prices make up a notable part of the Consumer Price Index's gain over the past year. As of March, the category contributed roughly 0.6 percentage points to the annual increase. If you strip out oil and food prices, that sector has contributed +0.8 percentage points to core CPI's annual gain. Among the key reasons that insurance costs are jumping: Cars are more expensive, and they're also getting more expensive to fix after accidents. Pricier repairs are explained, at least in part, by a shortage of mechanics and repair shops having to pay up to employ them. Insurers also see a necessary adjustment after underpricing coverage in recent years, especially when the economy was locked down and there were fewer collisions. "The system at this point just has a lot of inflationary forces," Allstate EVP and CFO Jess Merten said at a conference last month. Last week's CPI report showed that the auto insurance sub-index jumped +2.6% in March alone. Source Axios
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“X” May Charge New Users Fee for Posting: X owner Elon Musk suggested Monday new users on the social network formerly known as Twitter will need to pay a small fee to use basic functions on the platform—a change he says is needed to combat a bot problem that has plagued the site for years. Musk’s tweet, which was a reply to speculation about charging new accounts a small annual fee to post, like, bookmark and reply, didn’t specify when the fee will kick in or how it will work, but said a fee “is the only way to curb the relentless onslaught of bots” on X. Musk said artificial intelligence bots and internet trolls can pass bot-identifying tests “with ease.” The fee mentioned by Musk is similar to one already introduced to new users in New Zealand and the Philippines last October as part of X’s “Not a Bot” program, which required new accounts to pay a $1 annual fee to post, like, reply and more Source Forbes
Fewer Students Graduating College: For the second year in a row, the number of students earning an undergraduate degree declined, according to a recent report by the National Student Clearinghouse Research Center. Overall, undergraduate degree earners fell by nearly -3% in the 2022-23 academic year — the steepest decline ever recorded, the report found, while bachelor’s degree earners sank to the lowest level in nearly a decade after notching a one-year loss of almost -100,000 graduates. Meanwhile, the number of students earning a certificate hit a 10-year high, largely due to the growth in vocational programs. Nationwide, enrollment has lagged since the start of the Covid-19 pandemic, when a significant number of students decided against a four-year degree in favor of joining the workforce or completing a certificate program instead. High schoolers are putting more emphasis on career training and post-college employment, other reports also show. Now, fewer students are pursuing a four-year degree and more students are dropping out due to financial constraints, among other factors, according to Doug Shapiro, executive director of the National Student Clearinghouse Research Center. Source CNBC |
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