Stock indexes are little changed with many investors sticking close to the sidelines ahead of critical inflation data later this week.

The Consumer Price Index (CPI) on Wednesday and the Producer Price Index (PPI) on Thursday will be first official reads on March inflation and could have a major impact on Wall Street’s outlook for Federal Reserve rate cuts this year.

Keep in mind that traders have already walked back expectations from as many as six -25 basis point cuts at the start of the year to now just two or three. The Fed’s March projections signaled -75 basis points worth of cuts in 2024 but recent comments by multiple officials are raising doubts about how realistic that is if inflation remains elevated.

Fed officials, much like investors, are particularly concerned about rising oil prices stemming from the geopolitical tensions in the Middle East and Ukraine. Chicago Fed President Austan Goolsbee yesterday also singled out the persistent rise in housing costs, which he called “the biggest danger to the inflation picture in my view.” Bulls point out that while officials have warned rate cuts may not happen as soon or as much as currently projected, most have also expressed concerns that keeping rates high for too long could do more harm than good, especially to the job market.

Bulls in turn think the Fed may be inclined to trim rates “just to be on the safe side” later this year even if inflation remains elevated near current levels. Meaning bulls believe at least one rate cut will happen no matter what, assuming inflation doesn’t start accelerating again.

While gasoline prices have pushed up headline consumer prices, “core” CPI, which exclude food and energy, has not seen much upward pressure, though it has come in on the high end of expectations the last two months. At the same time, both headline and core producer prices have increased sharply since the start of the year, a leading indicator of higher consumer prices ahead.

There is some hope that a cease-fire deal between Israel and Hamas may be close, which is taking some of the upward pressure off of crude prices. It’s worth noting that bond yields are starting the week higher, with the yield on the 10-year Treasury note approaching 4.5%, its highest level since November, which is only adding to stock investors’ anxiety. There is not much on the calendar today that is likely to change the current market doldrums. The only data is the NFIB Small Business Optimism Index. 

Gas Prices Surge to Six-Month High:  The national average price for a gallon of gas hit $3.60 over the weekend, according to GasBuddy, which compiles data from over 150,000 gas stations nationwide. That price brings the national average up +6.5 cents over the past week and +17.1 cents from a month ago. Keep in mind, however, the national average being paid by drivers is still -1 cent below where it was this time last year. The state average for California, according to AAA, touched $5.35 per gallon on Monday, making it the only state in the country with an average price north of the dreaded $5 mark. Behind California are Hawaii ($4.72 per gallon), Washington ($4.62), Nevada ($4.56), Oregon ($4.39) and Alaska ($4.26), while drivers can find the cheapest gas in the Southeast, Great Plains and parts of the Rocky Mountains, led by Colorado at $3.05 per gallon, Mississippi ($3.10) and Oklahoma ($3.15). The rise in prices coincides with several seasonal factors, including “extensive refinery maintenance” on the West Coast, as well as the transition to more expensive summer fuel blends, and rising gasoline demand. At the same time we are seeing high global oil prices on the recent production cuts by OPEC producers Russia and Saudi Arabia,as well as lingering “geopolitical escalations in the Middle East. Source Forbes

Jamie Dimon Warns U.S. Might Face Interest-Rate Spike:  JPMorgan Chase, CEO, Jamie Dimon warned that US interest rates could soar much higher in coming years, reflecting the risk that record-high deficit spending and geopolitical stress will complicate the fight against inflation. “Huge fiscal spending, the trillions needed each year for the green economy, the remilitarization of the world and the restructuring of global trade—all are inflationary,” Dimon wrote in an annual letter to JPMorgan Chase shareholders released on Monday. Dimon, head of the nation’s largest bank, acknowledged in his 61-page letter that the U.S. economy has remained resilient despite abundant skepticism by forecasters including him. Once again sounding a cautious note, Dimon said he questioned the optimism in financial markets. He said investors and traders expect the Federal Reserve to engineer a so-called soft landing in which the economy avoids a recession despite a sharp rise in interest rates in recent years. “These markets seem to be pricing in a 70% to 80% chance of a soft landing,” Dimon wrote. “I believe the odds are a lot lower than that.  Source WSJ

Ivy League College Costs Soar to More Than $90,000 a Year: The sticker price to attend an Ivy League school next year is stretching to more than $90,000. At the University of Pennsylvania, for instance, the annual cost of attendance is now well above the median household income in the US, with tuition, fees, housing and other expenses totaling an estimated $92,288. Cornell University will run more than $92,000, while the price is higher than $91,000 at Dartmouth and Brown. Many students enrolled at the eight Ivy League colleges will pay less after federal and institutional aid. With a $21 billion endowment, Penn covers costs for students whose families make $75,000 or less. Families paying full price for an Ivy League school could face a bill of more than $350,000 for four years. The increased cost of attending an Ivy League school was roughly in-line with a 4% increase rate at colleges and universities across the US, according to the Commonfund Institute. Source Bloomberg

China Has Been on a Gold Buying Binge: Gold prices set a new record high yesterday, topping $2,300 per ounce. Central bank purchases have been key in driving up the precious metal, which normally operates as a safe haven in times of turmoil. Conflict in the Middle East, as well as speculation that the Fed may loosen monetary policy later this year, is also giving bullion a lift. The U.S. leads the world's official bullion holdings, making up 69.7% of its reserves. China, the world's second-largest economy, led central banks in gold purchases in 2023, ahead of Poland and Singapore, according to Bank of America data. China added 225 metric tons of gold to its reserves last year and has stockpiled the metal for 17 straight months. Its increases last year were the most for the country since 1977. After the EU and US slapped Russia with sanctions, which included freezing its central bank's foreign reserves, it made many central banks rethink on the kind of reserve assets they should be holding, according to Francisco Blanch, head of global commodity and derivatives research at BofA Securities. China's gold-buying strategy also fits well with its goal to diversify its assets alongside other BRICS countries, which are aiming to lessen dependence on the U.S dollar, or de-dollarize. Source Axios

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Major Food Companies Offer More Deals: Americans relying on government benefits to buy food and other essentials are slashing spending, prompting food makers like Kraft-Heinz and Conagra Brands to overhaul their products and strategies following years of price hikes. Many of the biggest makers of packaged foods and drinks are seeing their sales volumes fall, due partly to low-income consumers -- typically making roughly less than $35,000 per year -- cooking from scratch, using up leftovers or just buying less. To appeal to Americans who can no longer afford fast food, Conagra in late May will introduce new Banquet chicken patties, priced at $6.99 for six, a company spokesman said. Chicken sandwiches are top picks at fast-food chains. Consumer companies' new emphasis on value and discounts is a reversal from their strategy during the pandemic and immediately after, when they focused on premium products, touting new flavors and options in an effort to justify climbing prices. Now food companies must “make sure they are attracting the value buyer back into the fold,” said Duleep Rodrigo, U.S. consumer and retail sector leader at KPMG. “They can’t get volume without this key segment. Source Reuters

US Will Not Accept Chinese Imports Decimating New Industries: U.S. Treasury Secretary Janet Yellen warned China on Monday that Washington will not accept new industries being decimated by Chinese imports, as she wrapped up four days of meetings to press her case for Beijing to rein in excess industrial capacity. Yellen told a press conference that U.S. President Joe Biden would not allow a repeat of the "China shock" of the early 2000s, when a flood of Chinese imports destroyed about 2 million American manufacturing jobs. She did not, however, threaten new tariffs or other trade actions should Beijing continue its massive state support for electric vehicles (EVs), batteries, solar panels and other green energy goods. "We've seen this story before," she told reporters. "Over a decade ago, massive PRC (People's Republic of China) government support led to below-cost Chinese steel that flooded the global market and decimated industries across the world and in the United States." In a CNBC interview after the meetings, Yellen said she was "not thinking so much" about trade curbs on China, as much as shifts in its macroeconomic environment. But she reiterated she would not rule out tariffs.  Source Reuters

Insurers Are Spying on Your Home From the Sky: Across the U.S., insurance companies are using aerial images of homes as a tool to ditch properties seen as higher risk. Nearly every building in the country is being photographed, often without the owner’s knowledge. Companies are deploying drones, manned airplanes and high-altitude balloons to take images of properties. No place is shielded: The industry-funded Geospatial Insurance Consortium has an airplane imagery program it says covers 99% of the U.S. population. The array of photos is being sorted by computer models to spy out underwriting no-nos, such as damaged roof shingles, yard debris, overhanging tree branches and undeclared swimming pools or trampolines. The red-flagged images are providing insurers with ammunition for nonrenewal notices nationwide. “We’ve seen a dramatic increase across the country in reports from consumers who’ve been dropped by their insurers on the basis of an aerial image,” said Amy Bach, executive director of consumer group United Policyholders. The increasingly sophisticated use of flyby photos comes as home insurers nationwide scramble to “derisk” their property portfolios, dropping less-than-perfect homes in an effort to recover from big underwriting losses. Consumer groups say that the use of inspections to drive nonrenewals is worrisome because of the limited rights customers have to challenge the images or complain that the surveillance is an intrusion on their privacy. Source WSJ

India Could Overtake China as World’s Growth Engine by 2028: China is slowing and Western governments increasingly see it as a rival rather than an economic partner. On its southwestern border, another rising economy is vying to take its place as the world’s next growth driver. India’s stock market is booming, foreign investment is flooding in and governments are lining up to sign new trade deals with the youthful market of 1.4 billion people. Aircraft makers like Boeing Inc. are taking record orders, Apple Inc. is scaling up iPhone production, and suppliers that have long clustered around manufacturing corridors of southern China are following. For all the optimism, India’s $3.5 trillion economy is still dwarfed by the $17.8 trillion behemoth that is China and economists say it would take a lifetime to catch up. Shoddy roads, patchy education, red tape and a lack of skilled workers are just a few of the many deficiencies western companies run into when setting up shop. But there’s one important measure where India could overtake its northern neighbor far more quickly: As the engine of global economic growth. Bullish investment banks, such as Barclays, believe that India can become the world’s largest contributor to growth within Prime Minister Narendra Modi’s next term. His party is widely expected to win elections set to begin in weeks. Source Bloomberg

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