Stock investors are debating whether the spike in oil prices will endure beyond the knee-jerk reaction to OPEC's recent surprise production cuts. Some energy analysts are forecasting oil prices will hit $100 a barrel or more by this summer with supplies expected to be tight heading into the second half of the year. Before the new production cuts were announced, some energy insiders were already anticipating the global oil market could be in a supply deficit by late summer.

Others, however, believe slowing economies in the US and elsewhere will keep a lid on gasoline demand, which in turn would help hold down pump prices. Whether the US economy is headed toward a full blown recession is another heated point of debate with most of the data for February sending conflicting signals. Economists are hoping to get a clearer picture of how things are trending as March data starts rolling out this week.

The ISM Manufacturing Index released yesterday did show a larger-than-expected decline in activity in March with the gauge still firmly planted in "contraction" territory. Bulls were excited to see a drop in the prices paid component, which fell to 49.2 from 51.3 previously. However, that is still nearly +20 points higher than it was in December 2022, indicating that inflationary pressures remain entrenched at the wholesale level.

The ISM Services Index on Wednesday may actually have more market impact as the Federal Reserve has consistently singled out climbing wages in the sector as a key driver of inflation. The prices paid component in February slowed -2.2 points but remained above 60, a level it hasn't dipped below since late 2020.

Bulls are hopeful that more meaningful signs of "disinflation" will continue to appear as more March data is released, in turn supporting the idea of a Fed rate hike pause following the May 2-3 policy meeting.

Bears aren't convinced that a Fed pause will do much to benefit stocks longer term if the US does slip into recession later this year, which bears definitely believe is going to happen as consumers will begin to buckle.

Also, keep in mind, lower interest rates by the Fed does NOT guarantee a stock market rally. The Fed went on a rate hiking spree from 2004 to 2006. then paused between August 2006 and August 2007, then it started aggressively lowering rates at every meeting for the next 18-months, through December 2008.

For historical stock reference, the S&P 500 peaked in October 2007, just a couple of months AFTER the Fed started cutting rates, then proceeded to collapse until it finally bottomed in March of 2009, which followed an entire rate cutting cycle.

Great Read on Banking Crisis: The largest US regional banks began this year with less cash on hand than at any time since the 2008 financial crisis, leaving them ill-prepared for a rush of deposit withdrawals that led to the collapse of Silicon Valley Bank and Signature Bank. As they adapted to rising interest rates, the 30 banks with assets between $50bn and $250bn cut the percentage of their assets held in cash to an average 7% at the start of 2023, from 13% a year before, according to Federal Deposit Insurance Corporation data. That was less than half the cash held by the nation’s largest and more strictly regulated lenders, such as Citigroup and JPMorgan Chase, which on average had 15% of their assets in cash. The Fed’s rate increases squeezed that so-called spread income last year, forcing regional and community banks to put more and more of their cash to work in order to generate the same level of profits. In all, the larger regional banks collectively cut their cash holdings by half last year. Regional banks last year drew down their cash to make loans and invest it in bonds and other securities. The small cash piles left regional banks including SVB and Signature, which failed last month, vulnerable to deposit outflows and the risk that they would be destabilized by losses on forced sales of their securities to give customers back their cash. That lack of cash has now become a major issue for regional banks well beyond SVB and Signature. First Republic, which entered 2023 with just 2% of its assets in cash, experienced large deposit outflows after SVB failed and its shares plunged 90%. Ultimately, 11 of the nation’s largest banks agreed to deposit $30bn in cash with the California-based bank, stabilizing its share price. Western Alliance Bank had just $1bn in cash at the beginning of 2023, just 1.5% of its $67bn in deposits. Its shares have dropped by half in the past month. Shares of KeyCorp, which started this year with just over $3bn in cash, or less than 2% of its $188bn of its deposits, are down 30% this month. Citigroup, on the other hand, had nearly 25% of its deposits in cash at the end of last year, the most out of any of the large banks. Its stock fell a relatively modest 10% in March. Source Financial Times

World's Largest AI fund Surges +23% This Year, Beating the Nasdaq Index: The rise of ChatGPT has spurred a renewed spike in investor interest in the artificial intelligence sector that's led the world's largest AI fund, the Global X Robotics & Artificial Intelligence ETF (BOTZ), to a stronger start in 2023 than even the red-hot Nasdaq 100. The $1.7 billion ETF has gained 23%, while the Nasdaq 100, coming off its second-strongest quarter in a decade, is up 19%. The fund's top holding is Nvidia, which was the top-performing name in both the S&P 500 and more tech-heavy Nasdaq 100 during the first quarter. The chipmaker, which makes up roughly 9% of the ETF's net assets, has climbed 88% in 2023. Further, lesser-weighted fund members like and South Korea-based Rainbow Robotics have seen their stocks soar more than 200% this year. Amid the strong fund returns, BOTZ has seen $135 million of inflows so far in 2023, including $80 million in March, according to data compiled by Bloomberg. A new survey from Brown Brothers Harriman suggests the trend toward AI will continue. Source Business Insider

The ‘King Kong’ of Weight-Loss Drugs Is Coming: People who are overweight are flocking to the drug "Ozempic" to slim down. But coming is an even more powerful weight-loss treatment. The drug "Mounjaro" helped a typical person with obesity who weighed 230 pounds lose up to 50 pounds during a test period of nearly 17 months. No anti-obesity drug has ever safely made such a difference. In the coming months, it is widely expected to get the go-ahead from U.S. health regulators to be prescribed for losing weight and keeping it off, and some patients are already using it unapproved for that purpose. The advance of Mounjaro, which is already on the market to treat Type 2 diabetes, has excited doctors and patients who have been waiting decades for effective treatments, while helping turn its maker, Eli Lilly & Co., into the most valuable standalone pharmaceutical company in the U.S. with a market value of more than $300 billion. Mounjaro helped people who have difficulty losing pounds despite dieting cut their weight by up to 22.5% over 72 weeks during testing. In comparison, Ozempic and its sister drug, Wegovy, made by Novo Nordisk AS, which share the same active ingredient, induced weight loss of up to around 17% in studies. Mounjaro could be one of the highest-selling drugs of all time with annual sales exceeding $25 billion. Novo’s Ozempic and Wegovy brought in close to $10 billion last year, with prescriptions rapidly growing.Source WSJ

China's Yuan Replaces Dollar as Most Traded Currency in Russia: China’s yuan has replaced the US dollar as the most traded currency in Russia, a year after the invasion of Ukraine led to a slew of Western sanctions against Moscow. The yuan surpassed the dollar in monthly trading volume in February for the first time, and the difference became more pronounced in March, according to data compiled by Bloomberg based on daily transaction reports from the Moscow Exchange. Before the invasion, the yuan’s trading volume on the Russian market was negligible. The Finance Ministry converted its market operations to the yuan instead of the dollar earlier this year and developed a new structure for the national wealth fund to hold 60% of its assets in yuan. “Now there are fewer dollars on the market as Russia’s revenues decreased due to the oil-price drop and a decrease in exports,” said Iskander Lutsko, a strategist at ITI London. At the same time, “commodity imports from Russia to China are up by +29%, although exports from China are stagnating.” Source Bloomberg

Cities Getting Rid of Parking Garages to Make Way for Housing: For decades, American cities have had a parking problem: too much of it. Countless residential parking spots go unused, and many downtown garages sit half empty. Ride-sharing and the rise of remote work during the pandemic have aggravated the trend. The average American drove 4% fewer miles in 2022 than in 2019, according to government statistics. Recognizing this, cities are shrinking the number of spaces, freeing up the land for other uses, with far-reaching consequences. Garages and parking lots are being demolished. New buildings now come with fewer spots. Major retailers are leasing unused spaces for new development. And local governments are scrapping decades-old minimum-parking rules for new buildings. Urban planners and economists say this helps to reduce construction costs, hold down rents, relieve congestion, revitalize cities and mitigate the national housing shortage by making better use of some of the country’s most valuable land. Source WSJ

More Companies Target "Premium Consumers" Less Concerned with Inflation: Companies from toothpaste makers to even discounters are adding more premium items like designer body creams and services as they reach out to wealthier shoppers who are still spending freely even in the face of higher inflation and a volatile economic environment. “If you want to hedge against the economic challenges, you hedge your bets by chasing after the upper income,” said Marshal Cohen, chief industry adviser at market research firm Circana. Many companies that normally cater to middle-income shoppers are unleashing a bevy of premium items in an attempt to grab consumers with more money to spare. But that could leave fewer options for consumers with less money to spare. Some like Chipolte Mexican Grill have even publicized they are not pursuing discount-loving shoppers. The restaurant chain has been frank over the past year about how its price increases have scared off lower-income consumers. Source Fortune

US Passport Delays Up to Four Months Long...and Could Get Worse: Americans traveling abroad may need to wait more than four months for a new passport — and delays are likely to worsen as the busy summer travel season approaches. That means international travelers should act soon if they’re planning a trip later this year or in 2024, travel experts said. “The only way you can really deal with this is to get ahead of the problem,” said Charles Leocha, chairman of Travelers United, a nonprofit advocacy group. Weekly applications have been about 30% to 40% above last year, Secretary of State Antony Blinken told Congress in March. While demand is typically seasonal, with the busy season running from March to late summer, “basically it’s full time now,” he added. As of March 24, travelers waited 10 to 13 weeks for processing of a routine passport application, the State Department said. (A traditional passport — a passport book — costs $130 to renew; there’s an additional $35 acceptance fee for first-time applicants.) Even an expedited application, which costs an extra $60 plus delivery fees, still takes seven to nine weeks. Importantly, Americans may not be allowed to travel if their passport expires within a few months after their trip. Source CNBC

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