Stock investors are bracing for the US Federal Reserve’s latest policy update due out tomorrow following the central bank’s two-day meeting, which kicks off today.

The one prominent change this week in Wall Street sentiment regarding Fed policy has been a reduction in expected rate cuts. Traders still place the highest odds on the Fed funds rate being 75 basis points lower by the end of 2024 (34%, mostly unchanged from last week) while odds for a full percentage point worth of cuts (four 25 basis point cuts) has moved down from 34% to 21%, and odds of just 50 basis points, or two 25 point cuts has moved up to almost 27% versus just under 13% last week.

In other words, most now expect two to three 25 basis point cuts rather than the three to four being penciled last week.

Tech bulls are a little disappointed that Nvidia’s GTC developers conference hasn’t sparked more upside momentum. CEO Jensen Huang unveiled its next-gen chips that will be available later this year, as well as a new software platform designed to streamline the deployment of custom and pre-trained AI models.

Interestingly, the real action seems to be in the options market, where yesterday afternoon, traders appear to have bought some 33,000 Nvidia call contracts that expire Friday with a strike price of $1,940. That’s more than double Nvidia’s almost $885 closing price yesterday. Some think Nvidia’s stock has failed to pop because most of the hype is already priced in while others believe the stock has run too far, too fast for most investors’ comfort. Of course, it’s also highly likely that investors are just staying cautious ahead of tomorrow’s Fed decision and, more importantly, the updated “dot plot.”

There is a lot of anxiety brewing over how the market will react if Fed officials walk back rate cut projections so it would not be surprising to see traders sticking to the sidelines the next couple of days.

It’s also worth noting that yet another partial government shutdown threat lies ahead, starting this weekend. Congressional leaders had reportedly reached a funding deal this past weekend but that seems to have fallen through now.  The deal, which included a package of five appropriations bills and a continuing resolution to fund the Department of Homeland Security, is being held up amid deep disagreements over immigration and border security. Lawmakers need to strike a deal by the end of the day on Friday to avoid a shutdown of the affected government agencies. As usual, traders will probably start getting a little jumpy toward the end of the week if lawmakers are still at an impasse. It could also keep a damper on any would-be rallies if it looks like things are going to get ugly.

Today, the only economic data is Housing Starts & Permits. There are no US earnings of note. It feels like US government and Fed headlines are going to be this week's leading actors... 

Some Extreme Bullishness... But Interesting to Think About:  Over the past 14 quarters, since the global economy screeched to a halt in the face of the COVID pandemic, U.S. gross domestic product, the value of all the goods and services produced within this country, has surged by an astonishing +40%. This is an unprecedented and largely unheralded economic miracle, one that nobody expected during the depths of the COVID recession. Global supply chains shattered and international commerce suffered its greatest blow in a century, one from which it still hasn't fully recovered. But far from ushering in a "Greater Depression," the pandemic destroyed a lot of suboptimal jobs and replaced them with something much more productive. If anything, the U.S. economy emerged from the pandemic too strong, forcing the Fed to hike rates aggressively to control surging inflation. The enormous labor market churn of COVID in 2020-21 had the unintended benefit of moving millions of lower-income workers to better jobs, more income security, and/or running their own businesses, Adam Posen, president of the Peterson Institute for International Economics, tells Axios. In burning down much of the old economy, we created the preconditions for a phoenix to rise from its ashes.  Source Axios

China’s Job Market Struggling, Especially for Young Adults: Job losses in China rose for the third straight month, according to new data published Monday. The rise in the unemployment rate was just one data point in a batch of new economic figures released in Beijing Monday. A longstanding concern has been youth unemployment, which rose in June to more than 21%. China’s statistics agency stopped publishing data for joblessness among 16- to 24-year-olds soon after, citing methodological issues it wanted to iron out. Source WSJ

Saudi Aramco CEO Says Energy Transition is Failing:  Saudi Aramco CEO Amin Nasser said that the energy transition isn't working and that policymakers should abandon the fantasy of phasing out oil and gas, as demand for fossil fuels is expected to continue to grow in the coming years. In the real world, the current transition strategy is visibly failing on most fronts as it collides with five hard realities, Nasser said during a panel interview at the CERAWeek by S&P Global energy conference in Houston, Texas. A transition strategy reset is urgently needed and my proposal is this, we should abandon the fantasy of phasing out oil and gas and instead invest in them adequately reflecting realistic demand assumptions, the CEO said to applause from the audience. The Paris-based International Energy Agency forecast last year that peak oil, gas and coal demand would come in 2030. Nasser said demand is unlikely to peak anytime soon let alone by that year. Nasser suggested that the IEA is focusing on demand in the U.S. and Europe and needs to focus on the developing world as well  Source CNBC

Job Seekers Without AI Skills Face Lower Salaries and Fewer Roles: The rise of artificial intelligence is affecting job seekers in tech who, accustomed to high paychecks and robust demand for their skills, are facing a new reality: Learn AI and don’t expect the same pay packages you were getting a few years ago. Recently laid-off information-technology workers aren’t quickly finding new roles because of a mismatch between the skills they have, and how much they expect to be paid, said Victor Janulaitis, chief executive of consulting company Janco Associates, which bases its findings on data from the U.S. Labor Department. Jobs in areas like telecommunications, corporate systems management and entry-level IT have declined in recent months, while roles in cybersecurity, AI and data science continue to rise, according to Janco’s data. The average total compensation for IT workers is about $100,000, making the position a target for continued cost-cutting. The overall unemployment rate for IT professionals dropped from 5.5% in January to 4.3% in February, but it is still higher than the 3.9% overall U.S. unemployment rate, Janco found. Source WSJ

More Russian Oil Refineries Hit by Ukrainian Drones: Ukraine has conducted another drone strike on an oil facility in Russia, according to reports, as an uptick of attacks on energy facilities threatens Moscow's war effort and sales of its main export. "This is a little bit like a chess game that we're watching," Thomas O'Donnell, a Berlin-based energy and geopolitical analyst, told Newsweek. "We don't really know what's the real tactic or the real aim of either side." O'Donnell said that drone attacks to the east of the Donbas region aim to disrupt the ability of Russia to deliver refined products, diesel especially, to the local area. "That's very important in providing materiel to troops inside Ukraine." Meanwhile, strikes on sites further north in Russia adversely impact oil most likely to be exported, "and that kills revenues." A wave of Ukrainian drone attacks last week targeted key facilities in Ryazan, the Rostov region close to the Ukrainian border, Nizhny Novgorod, Kirshi, and Pervyy Zavod. Bloomberg reported that the refineries forced to stop operations last week are collectively responsible for 12% of Russia's national oil refining capacity. Last month, Kyiv's "drone czar," Minister of Digital Transformation Mykhailo Fedorov told Reuters that Ukraine is producing thousands of drones capable of hitting targets at "300, 500, 700, and 1,000 kilometers (186 to 621 miles).” The country's UAV developers are already working on a vehicle that can fly 2,500 kilometers (1,553 miles) and have plans for platforms that can exceed 3,000 kilometers (1,864 miles). Such advances would theoretically put major refining facilities as far away as Omsk and Tobolsk—both in the Siberia region east of the Ural Mountains—within range. Source Newsweek

Sunbelt Savings Plummet: Higher housing costs are cutting into the savings of people who leave New York for Florida and Texas. Those earning at least $100,000 a year can still see significant savings when relocating to states with no income tax. But as more people make the move — fueling higher rent and home prices — the arbitrage on moving to Miami, Austin and Dallas has eroded since 2019. New Yorkers who left for sunny Miami in 2023 saved almost 30% less than they would have if they moved in 2019. Meanwhile, those who left Manhattan for Dallas or Austin saved about 20% to 25% less if they moved last year compared to 2019. And while Manhattan is still the most expensive place to live in the US, higher inflation rates in Miami, Dallas and Austin means costs in those popular destinations are catching up to New York, said Jaclyn DeJohn, the managing editor of economic analysis at SmartAsset. “The inflation over the last few years has impacted Manhattan less than Miami, Dallas and Austin,” DeJohn said. “The real, or inflation-adjusted, purchasing power saved when moving from Manhattan to any of the three cities has actually decreased over the last four years, even after accounting for all the cost and tax differences.” Source Bloomberg

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