Bulls believe an end or a pause in the US Federal Reserve's interest rate hiking campaign would greatly reduce - if not eliminate - the risks of both an economic and earnings recession. The Bank of Canada yesterday offered some new hope that such a move could be around the corner as it became the first major central bank to say it will hold off on hiking rates any further.
The BOC made the move despite inflation still holding above +6%, more than three times its target rate of +2%. The bank noted, "We are still a long way from our target, but recent developments have reinforced our confidence that inflation is coming down." The BOC also made it clear that this was just a pause "to give us time to assess whether we've raised interest rates enough." The US and Canadian economies are both in similar boats right now so bulls see a case for the US Fed to follow the CoB's lead.
Three upcoming US economic reports could have a big impact on what investors expect from future Fed policy moves.
The first is the initial estimate of Q4 Gross Domestic Product (GDP), which is due out today. Economists expect the annual growth rate fell to +2.7% from +3.2% in Q3. A moderate slowdown here would match what the Fed is trying to accomplish. If growth slides much further than expected or worse, turns negative, it will likely fan the recession fear flames.
Bulls will see any major growth pullback as justification for the Fed to end rate hikes in the near-term and possibly start cutting rates by the end of the year if growth continues to crater.
After GDP today, the PCE Prices Index on Friday is the next major test for the Fed's inflation fighting policies, followed by the Employment Cost Index next Tuesday, January 31. Next Tuesday also marks the start of the Fed's two-day policy meeting, with its rate hike decision due on February 1.
Other data today includes New Home Sales and Durable Goods Orders, as well as advance reads on International Trade, and Retail and Wholesale Inventories.
On the earnings front, results so far for Q4 have not been as bad as expected. However, many of the big names reporting this week have offered very disappointing forward guidance which is only adding to existing fears about an economic downturn.
Earnings results are due today from Blackstone Group, Comcast, Dow, Intel, Mastercard, Northrop Grumman, Nucor, Sherwin Williams, Valero Energy, and Visa.
Surge in Hiring by Small Business is Complicating Fed’s Effort to Cool Economy: Small companies have been responsible for all of the net job growth in the U.S. since the onset of the Covid-19 pandemic and account for almost four out of five available job openings, according to a Wall Street Journal review of labor data and an analysis by Jefferies. Since February 2020, small businesses, meaning companies with fewer than 250 employees have hired 3.67 million more people than have been laid off or who quit. Larger businesses, those with 250 employees or more have cut a net 800,000 jobs during that time, despite some rapid pandemic-era expansions in such sectors as tech. Investors are closely tracking the surge in small-business hiring because it could have big implications for financial markets. In the sometimes confounding logic of Wall Street, good news for the economy, such as a hiring surge by small businesses can be bad news for markets. As long as the job market is strong, the Fed will have a hard time slowing down the economy and curbing inflation and will continue raising interest rates. Source WSJ
Some "Fireball" Just Ain't What You Thought: In April 2021, a columnist for the Albany-based newspaper, The Times Union, wrote that liquor store owners were “pissed” that supermarkets, convenience stores, and gas stations had started stocking mini-bottles of Fireball — despite the fact that in New York state, only liquor stores are allowed to sell spirits. But that’s because what was selling in gas stations isn’t actually Fireball at all. As writer Steve Barnes explained, those single-serving bottles, which often retail for under a dollar, are called Fireball Cinnamon, and they aren’t the same product as Fireball Cinnamon Whisky. The difference between the two drinks is that Fireball Cinnamon is actually a malt-based beverage with 16.5% alcohol by volume (ABV), while Fireball Cinnamon Whisky is whisky-based and has an ABV of 33%. “The labels look almost identical,” he wrote. “That is intentional.” Those two beverages — and their similar-looking labels — are now the subject of a class-action lawsuit. Lead plaintiff Anna Marquez has sued Sazerac Company, Inc, which makes and markets Fireball. According to her legal filing, Marquez saw a “huge” display of Fireball Cinnamon at a gas station and wondered if the station was “doing something they’re not supposed to be doing.” Source Food and Wine
USDA Raises Food Price Forecasts for 2023: In 2023, all food prices are predicted to increase +7.1%, with a range from +4.2% to +10.1%, according to the USDA's latest food price outlook. Food-at-home (grocery store) prices are forecast to increase +8.0%, with a range from +4.5% to +11.7%. Food-away-from-home (restaurant) prices are expected to increase +8.2%, with a range from +6.7% to +9.7%. This comes on top of the estimated +9.9% increase in food prices during 2022. In 2022, food-at-home prices jumped +11.4%, while food-away-from-home prices rose by +7.7%. USDA noted: “Egg prices are predicted to increase +27.3% in 2023, with a prediction interval of +6.9% to +52.0%. This wide prediction interval reflects the volatility in retail egg prices. In January 2023, USDA’s food price outlook data and forecasting methodology were revised. The agency explains, “The updated primary methods are based entirely on statistical models that are fitted to recent trends in the data. These methods provide wider initial prediction intervals that narrow over the forecast period as more data become available and the degree of uncertainty declines. Source USDA.Gov
Goldman Predicts 4 US Cities Will Suffer 2008-Style Housing Crash: Goldman Sachs expects home values to worsen through 2023 amid continued skyrocketing interest rates and declining housing prices. The firm wrote to clients earlier this month that it predicts four U.S. cities will suffer the most catastrophic dips, drawing comparisons to the 2008 housing crash. San Jose, California; San Diego, California; Austin, Texas; and Phoenix, Arizona, will likely see noticeable increases before drastic decreases of more than 25%. These declines would be similar to those witnessed during the Great Recession in 2008. Home prices across the U.S. fell around -27% at the time, according to the S&P CoreLogic Case-Shiller index. The bank says these cities will suffer the lowest prices this year because they became too detached from fundamentals during the COVID-19 pandemic housing boom. Goldman Sachs also forecasts that many Northeastern, Southeastern, and Midwestern markets could see milder corrections. "Our 2023 revised forecast primarily reflects our view that interest rates will remain at elevated levels longer than currently priced in, with 10-year Treasury yields peaking in 2023 Q3," Goldman Sachs strategists wrote. "As a result, we are raising our forecast for the 30-year fixed mortgage rate to 6.5% for year-end 2023 (representing a 30 bp increase from our prior expectation)." Source Yahoo Finance
Remote Jobs are Getting More Scarce: Many prospective workers who were determined to get a remote job just a few months ago are hitting a wall as remote listings rapidly dwindle. After remote work surged during the pandemic, fewer employers now feel the need to lure talent with the promise of working from home. Remote jobs made up 13.2% of postings advertised on LinkedIn last month—down from 20.6% in March. Other job sites such as Indeed.com and ZipRecruiter also report declines in remote listings. Demand for these jobs remains high. Remote jobs attracted a majority, or 52.8%, of all applications submitted on LinkedIn, slightly higher than a year before. The decline in remote listings marks the latest shift in the power dynamic between employers and employees. Companies are showing they can be choosier in their recruiting after months of scrambling for new talent. A study published by the National Bureau of Economic Research this week suggests both employers and workers have benefitted from some aspects of remote work. In a survey of full-time employees in 27 countries, workers in the U.S. said they saved an average 55 minutes in commute time on days they worked from home during the pandemic. Worldwide, workers reclaimed a daily average of 72 minutes. About 40% of the saved commute time was plowed into more time on the job, researchers found. Source WSJ
Groundbreaking Research Identifies Neurons That Help Reverse Paralysis
Spinal cord injuries tend to be some of the most difficult to recover from, and oftentimes cause so much damage that patients are left paralyzed. Scientists have had success in restoring motor functions via treatments with implants that send electrical pulses to the specific parts of the spine, known as epidural electrical stimulation (EES), although they didn't really understand why. Now, scientists in Switzerland think they have answered that question after restoring the walking ability of nine more patients.
Surprisingly, scientists working for Swiss bioengineering research center NeuroRestore have discovered that the neurons responsible for restoring mobility are NOT essential to walking in healthy people. What's more, by targeting those neurons, patients receiving the therapy retained their mobility improvements when the stimulators were turned off while four patients could still walk even after their implant was removed.
To initiate movement, the brain normally sends a message to the spinal cord, telling it to stimulate a pool of nerve cells that in turn activate the necessary muscles. However, the type of spinal injuries that leave a patients unable to walk interrupt critical pathways from the brain and brainstem that send those "walk" signals to the lumbar spinal cord. By stimulating the neurons in the spine directly, scientists have discovered that they can effectively bypass the defective link between the brain and the nerve cells.
EES involves stimulating neurons with electrical pulses through a spinal cord implant. This type of therapy has been in use for decades to help people manage chronic pain. Those treatments send signals to the patient's brain, though, whereas treatments to restore walking send electric signals to specific areas of the spine.
Results have gotten progressively more promising since scientists began using this approach but none truly understood what was happening behind the scenes.
According to Jocelyne Bloch of the Vaud University Hospital Center (CHUV), one of the lead researchers, they suspected that EES somehow remodeled the spinal cord. To find evidence, they studied neuron activity while walking. However, what they found was less overall activity in the lumbar region of the spine, which is the area responsible for walking. This suggested that another group of neurons was responsible.
That led the team to creating a "molecular atlas" of the neurons in the spinal cords of mice that underwent a similar EES rehab program to the human patients. With the help of an AI that tracked gene activity in the mouse spine cells, the researchers were able to identify the essential neurons.
To test the theory, they deactivated those cells in mice and found that the same EES technique was ineffective.
According to their findings, stimulation of the spinal cord activates the Vsx2 neuron, which is not very active in a healthy person. But after a spinal cord injury, “it's complete chaos,” according to Bloch. “All the cells start talking at the same time. And they are no longer able to deliver a concrete action”, such as moving the leg, she said.
During a patient’s recovery, Vsx2 acts like a project manager of sorts, dominating other neurons and helping with control of the brain and the legs. The more a patient recovers, the more the neuron becomes active and the overall level of cell activity in the spinal networks appears to decrease. As study co-author Jordan Squair explains, "Essentially, the spines are becoming more efficient.” Meaning unlike at the start of rehabilitation, they no longer need to activate a whole bunch of cells to create movement.
There are only an estimated 50 people worldwide with spinal cord injuries that currently have electrical stimulators but there are also nearly a dozen companies now working on the technology.
While more work needs to be done, these latest studies are undeniably exciting, especially for spinal cord injury patients and their families.
Squair also believes these kinds of neurons govern more functions than just walking.
A 2021 Nature paper by many of the same authors as the new research showed epidural electrical stimulation can help regulate the blood pressure of patients with paralysis, so who knows what else they might discover.
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