There was a -3.6% decline in energy prices, with food prices rising just +0.2%. However, core inflation, which excludes food and energy, rose +0.4% from last month and is up +5.3% from last year.
It was the +0.6% increase in shelter prices that was again the largest contributor to inflation, as housing-related costs account for about a third of the index’s weighting. There was a great graphic from CNBC floating around the rade today that shows the slowdown in inflation related CPI data. I included it below.
Stock bulls are also optimistic that the US Federal Reserve will "pause" interest rate hikes when its two-day policy meeting wraps up this afternoon. The announcement is due out at 1 p.m. CST and will be accompanied by the Fed's latest economic projections, which includes outlooks for GDP, inflation, and employment.
The odds are over +90% that the Fed laves rates "unchanged" and less than 10% that rates are bumped a quarter-point higher. Looking ahead, the trades has odds at close to 60% that the Fed bump's rates a quarter-point higher in the July meeting, thinking there could be one more rate hike in 2023 before a long pause.
Investors will be paying close attention to Fed Chair Jerome Powell's follow up press conference at 1:30 p.m. CST, with his words as well as how they are delivered equally important.
As far as economic data, the Producer Price Index (PPI) is out today and expected to show a decline of -0.1% for the month, pulling the headline inflation rate down to an annual rate of just +1.6%. Lennar is the earnings highlight. Speaking of earnings, the Q2 reporting season "unofficially" begins just one month from now on July 14. Insiders don't have high expectations with earnings projected to decline -6.4% for S&P 500 companies. However, that's expected to end the earnings decline for this year with S&P 500 companies forecast to make gains in both Q3 and Q4. The Q2 results will prove to be pivotal in shaping investor expectations for the rest of the year, though, with many on Wall Street growing more concerned about declining profit margins.
If the combination of a slowing economy, high interest rates, and "deflation" begin to more seriously dent corporate outlooks, the second half of the year may not bring the smooth sailing that Wall Street bulls are anticipating. Lots of moving parts.
China Makes Unexpected Rate Cut: China unexpectedly cut a key interest rate on Tuesday and announced tax breaks for businesses, as weakening credit growth added to signs that the post-Covid recovery in the world’s second-largest economy is losing steam. Following the rate cut, the government released credit growth figures for May that analysts said fell well short of forecasts as a weak property market weighed on consumer sentiment. While the services sector is strong, with restaurants and other businesses reopening, factory activity is weak and construction has been constrained by the property market downturn. Source Financial Times
Billionaire Larry Ellison's Fortune Beats Bill Gates For the First Time: According to Bloomberg, the Oracle co-founder has grabbed the No. 4 spot on a list of the world's wealthiest, also surpassing fellow business tycoons including Warren Buffett and Mark Zuckerberg. Ellison's net worth jumped by almost $6 billion on Monday to $130 billion, while Microsoft co-founder Gates currently has $129 billion. The surge in Ellison's fortune comes as his software company's shares get a boost from hype around artificial intelligence stocks, following the smashing debut of OpenAI's ChatGPT. So far this year, Oracle's stock has rallied 40% along with other tech names best exposed to the AI revolution, including Microsoft, Apple and Nvidia, and the company also announced quarterly earnings on Monday, with total quarterly revenues rising 17%. Source Business Insider
AMD Plans to Ramp Up AI Chip Manufacturing This Year: Advanced Micro Devices' production of a new artificial intelligence chip to challenge market leader Nvidia Corp will ramp up in the fourth quarter, the company said on Tuesday. AMD Chief Executive Lisa Su at an event in San Francisco said the new MI300X chip will have 192 gigabytes of memory, more than any current Nvidia chip and a key performance measure for how well the chip will handle the large AI systems behind services similar to ChatGPT. Su also touted a system that combines eight of its MI300X chips into a single computer, competing against similar offerings from Nvidia. The company also said it has started shipping high volumes of a general purpose central processor chip called "Bergamo" to companies such as Meta Platforms. The Bergamo chip targets a different part of AMD's data center business that caters to cloud computing providers and other large chip buyers. Nvidia has few competitors working at a large scale. While Intel and several startups have competing products, Nvidia's biggest sales threat so far is the internal chip efforts at Alphabet's Google and Amazon's cloud unit, both of which rent their custom chips to outside developers. Source Reuters
Is Peak Oil Demand Coming for Transportation? For more than a century, two trends in global transportation have been relentless: humanity’s desire for more cars and the consumption of ever-more oil to fuel them. The second part, at least, may finally be coming to an end. By 2027, electric vehicles will force a reversal to the era of rising demand for oil used in transportation, according to a new forecast by analysts at BloombergNEF. For areas outside of transportation — such as plastics, petrochemicals, manufacturing and agriculture — oil demand will continue to rise with no end in sight. But by 2029, BNEF expects the stark shift to EVs to outweigh all else and bring total demand to its apex. Oil analysts have spent years grappling with the impact from the transitioning to electric vehicles, and have often been proven wrong. Small differences in assumptions about EV adoption can shift predictions by years. The below charts from BloombergNEF’s 2023 EV Outlook show where demand has already entered terminal decline and where lingering uncertainty remains. Road transportation has been the biggest driver of oil demand ever since Henry Ford made cars cheap and affordable to the masses. Today the open road is responsible for nearly half of the world’s oil consumption. And as the auto fleet electrifies, its share of the overall oil market will diminish to roughly a third of the market in 2040 and a quarter in 2050. Source Bloomberg
The Beatles "Reunite" for Final Album With Help From AI: The music has analog roots, but now it's being revived by futuristic technology: The Beatles have completed a new recording using an old demo tape by John Lennon, thanks to AI tools that isolate Lennon's voice, according to Paul McCartney. But if you're picturing McCartney sitting at a keyboard and telling ChatGPT, "sing a John Lennon verse," that's not what happened. Instead, they used source material from a demo recording that Lennon made before his death in 1980. "We were able to take John's voice and get it pure through this AI, so that then we could mix the record as you would normally do. So, it gives you some sort of leeway." McCartney didn't give details about what he says is The Beatles' final record, poised to emerge decades after Lennon was shot and killed in December 1980. But author Keith Badman has reported that in 1994, Lennon's widow, Yoko Ono, gave McCartney several of the late singer and songwriter's home demo recordings. The tape included Lennon's love song "Now And Then." As the BBC's Mark Savage notes, previous attempts to finish the song were abandoned due to the poor audio quality of Lennon's voice on the recording. Source NPR
New Research Claims America's Housing Market is "Significantly Overvalued": Based on the traditional measures, the “Sheetrock and framing” basics that normally determine its worth, the U.S. housing market is overvalued by 40%. That's according to Sean Dobson, founder and CEO of property powerhouse Amherst. Amherst manages $16.8 billion in capital for investors and ranks among America’s largest owners of single-family homes for rent, overseeing a portfolio of roughly 44,000 residences across 32 metros in 19 states. Dobson is also a pioneer in deploying artificial intelligence to automate the appraisals and purchases of houses. Amherst’s estimate of that 40% overvaluation doesn’t apply to the entire United States, but to the nearly three-dozen cities where Amherst purchases and leases single-family houses. Its portfolio features heavy concentration in Sunbelt cities that count among America’s fastest-growing markets, including Tampa, Atlanta, Charlotte, Dallas, and Phoenix, as well as affordable Midwest stalwarts, among them Louisville, Cincinnati, and Kansas City. It’s crucial to note that Dobson’s take that prices are excessively elevated doesn’t mean they need to collapse going forward, as they did in the aftermath of the Great Financial Crisis. He cites a number of positive, countervailing forces that should greatly cushion the adjustment to come. “Likewise, every economist in the world would have told you that if you increase rates this quickly, prices are going to fall significantly. And they didn’t. So that’s the mystery. How long can that condition persist? Source Fortune
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