Stock bulls are hoping for more signs of declining inflation in the April Consumer Price Index (CPI) due out this morning.

Economists expect the year-over-year headline rate to remain unchanged at +5.0% with the "core" rate (strips out food and energy) slowing slightly to +5.5% from +5.6% previously. While those forecasted numbers wouldn't be much of an improvement, the more important thing is that the annual rates don't accelerate, which is what "core" CPI did in March.

There are two more key inflation reports before the Fed's next policy meeting in mid-June - the PCE Prices scheduled for release on May 26, and May CPI scheduled for release on June 13, the same day the central banks's policy meeting begins.

Bulls are expecting inflation data starting in May will begin to show more significant signs of slowing as year-ago comparison numbers get larger and declines in shelter prices start to show up. I'm not so sure about that as I'm hearing the home real estate market is starting to heat back up again with many listings getting multiple offers well above asking price.

I personally, don't think things are cooling down all that much in residential real estate. I think there is such a lack of inventory that demand is still overwhelming. Bears warn that this could keep inflation above the Fed's target rate longer than bulls anticipate. Most bulls expect the Fed to be cutting rates by the end of 2023 but if inflation is still holding much above the +2% target rate, that might not be an option.

More near-term, many on Wall Street think the debt ceiling battle in Washington may be the bigger challenge for stock prices. A meeting yesterday between President Biden and congressional Republicans reportedly made little progress. The precise date the US government will run out of cash to pay its bills is not yet known but it could come as soon as June 1.

Most on Wall Street believe the two sides will strike a deal to extend the debt limit but the closer the deadline gets with no solution, the more nervous investors are going to become. Back in 2011, under then-President Obama, lawmakers faced a similar showdown over the debt ceiling that resulted in the first downgrade to US credit in the nation's history. The Obama Administration and Republicans struck a last minute deal to end that battle but not before the S&P 500 lost some -10%.

Wall Street is nervous that negotiations may again be drug out until the eleventh-hour, which could lead to increasing volatility in stock and bond markets in the meantime.

The US has never defaulted on its debt before, making it nearly impossible to predict what the full economic impact could be. Moody’s Analytics has previously estimated default could result in a 2008-style financial crisis. During previous simulations from 2021, the firm said economic growth could shrink -4% from peak to trough, while 6 million jobs could be at stake.

Joblessness could also hit 9%, and household wealth could fall by -$15 trillion during a massive stock market decline.

On the earnings front today, the big highlight is Disney, which reports after the close. Nutrien and Roblox also report today.

Stress in the Banking System Looks to be Easing: Bank borrowing from the Fed's discount window, a key measure of stress in the system plunged last week, a sign that the worst of the panic that started with Silicon Valley Bank's collapse in March may be in the past. Borrowings from the discount window dropped to $5.3 billion in the first week of May, from nearly $74 billion the previous week. Discount window borrowing had jumped to $153 billion in March, after the implosion of SVB. The big drop in discount borrowing suggests that First Republic which was taken over by the FDIC and sold for parts last week, was the central borrower from the Fed. Despite recent gyrations in regional bank stocks, the Fed data should be a relief, since it doesn't show cash-strapped banks rushing to the Fed for help. Source Axios

EIA Forecasting Second-Highest U.S. Summer Power Demand for "Natural Gas" - The EIA forecasts that an average 38 billion cubic feet per day of natural gas will be consumed to generate electricity in the United States during the summer of this year, which runs from May to September. That would be the second most on record, according to the energy agency. One of the main reasons it doesn’t expect natural-gas consumption to reach a new record this year is increased electricity generation from renewable sources in 2023. Source MarketWatch

Online Grocery Prices Continue To Climb, Many Others Falling - Online grocery prices were +9.3% higher in April than they were a year ago, despite price declines in most of the categories tracked by the Adobe Digital Price Index. The report shows once again how persistent inflation is in the online grocery category as demand for the convenience of online grocery shopping remains strong. While the pace of price increases in the online grocery category has slowed over the past seven months, groceries continue to see the steepest price hikes of the categories tracked by Adobe. Consumers are increasingly buying more of their groceries online, and this category has generally moved in lock step with the Consumer Price Index, Adobe reported and their March data showed that the grocery category saw the biggest jump in online sales in 2022, with spending rising +10.8%, to $86.8 billion. Eleven of the 18 product categories tracked by Adobe in the Digital Price Index had price drops on a year-over-year comparison, but. not groceries. Electronics, computers, flowers and related gifts, appliances, sporting goods, toys, books, home and garden, furniture and bedding, office supplies, and jewelry had year-over-year declines. Electronics prices were down -11.6% annually, and computers were down -15.4% annually. The sporting goods category also saw online prices drop in April, making it the 12th consecutive month when online prices for sporting goods declined year-over-year. Prices were down -6.4% on an annual basis, not groceries. Source Forbes

Amazon's New Service Lets Users Buy Items in Games and Apps: Amazon is launching a new immersive shopping experience called “Amazon Anywhere,” the company announced on Tuesday. The service brings Amazon’s online marketplace to video games and mobile apps, starting with Niantic’s new real-world augmented reality game Peridot. With Amazon Anywhere, the company will allow users on gaming, mobile and AR applications to discover and buy physical products from Amazon without having to leave the game or app. A video demonstrates a shopper linking their Amazon account to the game and purchasing a t-shirt, all without leaving the game. Products will ship to you like any other purchase from Amazon, and you can track and manage orders via the Amazon app. Amazon notes that most shopping in virtual worlds is currently limited to purchases of virtual currency and in-game digital items, but it wants to start offering users the option to buy physical products, which is why it’s launching the new offering Source TechCrunch

New York’s Empty Office Buildings Lure Rich Families Hunting Bargains: With large institutional buyers pulling back on deals, high-net-worth families and little-known developers are bargain-hunting for Manhattan office buildings. They’re making up an increasing share of purchases, according to brokerage Savills, finding an opportunity for a slice of what was once among the most coveted commercial-property markets in the world. More transactions are likely on the horizon, as existing owners who are strapped for cash and struggling with soaring borrowing costs look to offload their buildings at a discount. Family offices, which manage money for the ultra-rich, are among those that are interested in the chance to snap up properties, according to interviews with brokers and wealth advisers. Seven of the 11 New York office acquisitions completed in the second half of last year involved wealthy individuals, family-run companies or smaller developers as buyers, according to Savills data, which covers deals above $50 million. Source Bloomberg

IBM Intros a Slew of New AI Services: IBM, like pretty much every tech giant these days, is betting big on AI. At its annual Think conference, the company announced IBM Watsonx, a new platform that delivers tools to build AI models and provide access to pretrained models for generating computer code, text, and more. IBM says the launch was motivated by the challenges many businesses still experience in deploying AI within the workplace. Thirty percent of business leaders responding to an IBM survey cite trust and transparency issues as barriers holding them back from adopting AI, while 42% cite privacy concerns — specifically around generative AI. “AI may not replace managers, but the managers that use AI will replace the managers that do not,” Rob Thomas, chief commercial officer at IBM, said in a roundtable with reporters. “It really does change how people work.” IBM says it differs from the competition as Watsonx is the only AI tooling platform in the market that provides a range of pretrained, developed-for-the-enterprise models and “cost-effective infrastructure.” Source Techcrunch

Kraft Heinz Launches Velveeta Cheese and Chocolate Truffles: There probably have not been many consumers agitating for truffles mixing the tastes of fine chocolate and Velveeta cheese spread, but the launch is happening, nonetheless. Kraft Heinz is teaming with confectioner Compartés Chocolatier to create TruffVels, a limited-time chocolate and cheese truffle. They are sold on Compartés website starting this week. The truffles are made to look like Kraft’s signature Velveeta Shells & Cheese. The outer shell coating is made of white chocolate infused with Velveeta. This is the latest product mashup from Kraft Heinz, which has recently launched many offbeat limited time offerings featuring unexpected uses of their signature products. Similar launches include a Kraft Macaroni & Cheese flavor of Van Leeuwen ice cream and Grey Poupon wine. Kraft Heinz has created an internal marketing team called "The Kitchen" to find these kinds of opportunities and pursue them. Source Fooddive

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