Interestingly, even as banking sector turmoil appears to be contained, an increasing share of investors believe the Fed will hold rates steady at its next policy meeting in May. Some of that wishful thinking stems from economic data that does point to lower inflation levels ahead.
In particular, the US housing market continues to lose steam with prices now falling for a seventh month in a row, according to the S&P CoreLogic Case-Shiller Home Price index.
Data this week also showed another decline in national rent prices. As we've mentioned before, "shelter" prices account for about a third of the Consumer Price Index. It makes up just under 20% of the PCE Prices Index, which is one of the Fed's preferred gauges. Figuring out when exactly the declines in housing and rent prices will be reflected in these inflation gauges is not an exact science but most economists still think it will be the second half of this year.
Of course many Wall Street economists believe the US will be in a full-blown recession by the second half of 2023, which is also influencing outlooks for Fed policy. As of yet, it is tough to find any signs in the data that the US economy is hitting the skids but remember, economic data is backwards looking. It's worth noting that even with persistent worries about recession in the latter half of the year, many insiders have recently raised earnings expectations for the last two quarters. I understand the reasoning which can somewhat be attributed to leaner operating margins after companies tightened belts and made moves to streamline operations.
The economy is not the stock market so we have to be careful making that correlation and thinking it will be all doom-and-gloom for stocks.
Old World Order for Crude Oil May Be Disappearing: Russian Energy Minister Nikolai Shulginov said on Tuesday that his country has now been able to redirect all of its crude oil exports that have been impacted by Western sanctions over Ukraine to what he referred to as "friendly" countries. I can say today that we have managed to completely redirect the entire volume of exports affected by the embargo, with no decrease in sales, Shulginov was quoted by Reuters as saying. There is no question that Russia’s fellow members of the increasingly influential BRICS, Brazil, Russia, India, China, South Africa Alliance have played a major role in helping the Putin government to achieve this outcome. India was the biggest buyer of Urals grade crude in March, accounting for almost 50% of all such exports. Russia’s Deputy Prime Minister, Alexander Novak, stated that Russia’s sales to India have risen 22-fold over the past year. Started in 2001 as a loosely-formed trading alliance among rapidly-developing economies of Brazil, Russia, India and China, the group added South Africa to its membership in 2010. Since then, it has increasingly positioned itself as a geopolitical alternative to the G7. In 2014, for example, BRICS used $50 billion in seed funds to create the New Development Bank as an alternative to the World Bank and the International Monetary Fund. As the same time, the group also created what it calls the Contingent Reserve Arrangement to support members struggling to meet debt obligations. Source Forbes
Used Car Prices Rise Again: A notable decline in used vehicle prices toward the end of last year has been roughly cut in half in 2023, as inventories remain significantly down following vehicle-production disruptions. There’s also been an uncharacteristically large number of consumers buying out leases to avoid sky-high car prices and increasing interest rates. It looks like it will persist for some time, said Chris Frey, senior industry insights manager at Cox Automotive, adding it’s really a function of this hole in new production, creating a dynamic where wholesale or general used values are higher because there are millions of fewer new vehicles that would eventually turn into used. Cox Automotive reports wholesale used vehicle prices are up by 8.8% this year through mid-March, according to the Manheim Used Vehicle Value Index, which tracks vehicles sold to dealers at auction. The prices are trending higher, and the index is heading back toward a record of 257.7 basis points set at the start of 2022. It was 238.6 as of mid-March. On top of that, used vehicle inventory is down 21% from a year ago and off a whopping 26% from pre-pandemic levels of 2.8 million available vehicles in 2019.
Interesting Graphic Showing Two+ Decades of Monthly Home Price Changes: On Tuesday, we learned that U.S. home prices as measured by the seasonally adjusted Case-Shiller National Home Price Index fell for the seventh straight month in January. Since peaking in June, U.S. home prices have fallen -3% on a seasonally adjusted basis, and -5% without seasonal adjustment. On one hand, that -3% drop in single-family house prices marks the second-biggest home price correction of the post–World War II era. On the other hand, this correction remains mild compared to the -26% peak-to-trough drop notched between 2007 and 2012. This streak of seven consecutive months of U.S. home price declines comes after national home prices ran up for 124 consecutive months, spanning from the bottom of the housing crash in February 2012 through the peak of the Pandemic Housing Boom in June 2022. And even with this -3% national dip, house prices are still up big-time. In fact, as of January, national home prices as measured by the seasonally adjusted Case-Shiller are up +37% since since March 2020. Source Fortune
White House Tees Up EV Supply-Chain Rethink: Seven months after President Joe Biden signed the Inflation Reduction Act into law, the magnitude of the challenge it will be for the US to loosen China’s grip on the electric vehicle supply chain — a key objective of the legislation — is coming into sharper relief. Ford, the top US car producer, confirmed last month that it will tap technology from China’s battery-making behemoth CATL for a $3.5 billion plant it’s building in Michigan. Tesla is expecting the base version of its cheapest car, the Model 3, to lose the entirety of the $7,500 tax credit it’s been eligible for because its cells come from China. And barring big surprises later this week, many other EVs currently qualifying for credits will be eligible for $3,750 incentives, at most, after the Treasury Department finalizes content requirements that have been the subject of heated debate and frantic lobbying. Days before those rules are released, a Washington think tank whose mission is aligned with the IRA’s goals is releasing a detailed report delving into China’s command of the supply chain, and the corners it says the country cut on the way to dominance. Source Bloomberg
Apple Launches ‘Pay Later’ Service: Apple on Tuesday announced the launch of Apple Pay Later, the company’s long-anticipated entry into the “buy now, pay later” space. The new service will allow consumers to split purchases made via Apple Pay through the Apple Wallet app on iPhones and iPads into four payments, spread over six weeks, with no interest and no fees. Apple said it is inviting select users to access the service Tuesday, with an expansion to all eligible users in coming months. To buy something with Apple Pay Later, users can apply for a loan of between $50 and $1,000 through Apple Wallet with no impact to their credit, Apple said. The company does a “soft credit pull…to help ensure the user is in a good financial position before taking on the loan.” The service is offered by Apple Financing, a unit that will handle credit assessment and lending. Apple said it would start reporting Apple Pay Later loans to U.S. credit bureaus this fall. Source Barrons
Why Binance, the World's Largest Crypto Exchange, Might be a "Ticking Time Bomb": Most casual observers think of Binance, the world’s biggest crypto exchange, as a trading-tech titan, a data-driven juggernaut run by the ubiquitous Changpeng Zhao, or CZ for short. Binance is the cornerstone of the crypto trading world. Over half of all spot and futures trades in crypto run over Binance, according to digital data outfit Arcane Research; Coinalyze, an other data provider, estimated that the exchange now handles over 90% of spot Bitcoin transactions. But look under the hood, and things get murky fast. The exchange’s broad edifice includes two surprising and potentially shaky pillars. The first is the Runefeltian world of paid influencers who entice young traders to try crypto—a tactic which, while perfectly legal, is an expensive and erratic way to grow. Second is Binance’s reliance on its “native token,” the Binance Coin or BNB. Some experts who’ve studied the company believe that the BNB on its balance sheet accounts for most of its net worth. Source Fortune
US Rent Prices Drop for Third Straight Month: The rental market has seemingly flipped: After prices surged throughout 2021 and most of 2022, they’ve declined almost as quickly for five of the last six months, a new rent report reveals. U.S. rent prices decreased by 0.25% from January to February 2023, according to the latest data from rental listings site Rent.com. While it’s a smaller decrease than in previous months, it brings the U.S. monthly average rent price down to $1,937 — lower than its August 2022 peak of $2,053. As of February, 12 of the 50 most populous U.S. cities have declining year-over-year rent prices, including Oklahoma City (-15.71%), Austin (-6.51%), and Phoenix (-4%). Even with the recent dip in prices, year-over-year U.S. rent prices are still up 1.7% as of February. However, that’s a remarkable climb down considering that year-over-year rent growth was double digits for most of 2022. Raleigh, North Carolina, has seen the most growth, with a year-over-year rent price increase of 19% as of February, according to Rent.com. Three other metros — Cleveland, OH, Charlotte, NC and Columbus, OH — all registered yearly increases above 10 percent. Among the 10 largest gainers, eight were from the South or Midwest. The biggest factor in recent rent price declines is a glut of new rental units in 2023, “the largest in 50 years,” says Thomas LaSalvia, director of economic research at Moody’s Analytics. Rental unit vacancies have increased slightly as well, he says. Source CNBC & Rent.Com
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