Stock bulls are cheering a decline in April inflation with headline CPI coming in at +4.9% year-over-year, down from +5.0% in March and marking the first time in two years the gauge has sunk below 5%. The Fed's preferred gauge of "core" prices, which strips out food and energy, slowed to an annual pace of +5.5% from +5.6% in March.

Yesterday's report also showed the slowest monthly increase in services inflation since mid-2022. The services sector has been one of the Fed's main areas of concern thanks largely to increasing wages that have fueled consistent inflation in the sector. However, that slowdown in services inflation was offset by an increase in goods inflation, including used vehicles prices that jumped +4.4%.

Bears point out that inflation continues to wax and wane, fading in one category while rising in another, and keeping overall levels stubbornly elevated at more than two times the Fed's +2% target rate. Bears also expect progress will remain slow and could prove problematic for bulls betting on rate cuts later this year.

At the same time, the latest data doesn't make a strong case for the Fed to raise rates any further and investors mostly still expect the central bank will pause its hiking campaign at the upcoming mid-June meeting.

The Producer Price Index (PPI) is out today with economists expecting slowdowns in both headline and core prices. Investors overall seem to be treading carefully as the US debt ceiling deadline continues to creep closer with no signs of a breakthrough in Washington.

Wall Street is not yet panicking over what's become a fairly regular showdown that is often resolved at the last minute. However, past debt ceiling fights have triggered extreme volatility in financial markets.

If Wall Street start to respond negatively to what's happening in Washington, it could push more investors to the sidelines. A big sell off also isn't out of the question if investors get spooked that the US will actually default on its debt, something that could have profound consequences for the US and global economies.

Turning to earnings, not much has changed as the final slate of S&P 500 results continue to trickle in.

Disney yesterday delivered mixed results with earnings and revenue mostly in-line with expectations but missing on streaming subscribers. However, its parks, experiences, and products division saw a +17% increase in revenue driven mostly by its theme parks.

Overall, Q1 2023 earnings have been better than expected and analysts have been lifting full-year 2023 outlooks, which has now risen to +1.2%. That includes earnings declines of -2.2% and -5.7% in Q1 and Q2, respectively, and earnings growth of +1.2% in Q3 and +8.5% in Q4.

Keep in mind, the S&P 500 is currently trading at +19 times the current earnings run rate, meaning it's not real cheap, in fact many on Wall Street argue it's priced somewhat to perfection. For reference, back in 2013 the S&P 500 was trading at around 14 times forward earnings. Yes, we had just come out of a major global financial crisis and the stock market had gotten hammered so everyones perspective was much different than it is today.

In Historic First, Microsoft Signs Deal to Buy Fusion Power: Microsoft has signed the world’s first-ever deal to purchase fusion energy after agreeing to buy 50 megawatts of energy per year from Washington state-based Helion Energy starting in 2028. For decades, controlled fusion power has represented a holy grail of clean energy among scientists and policymakers, meaning power on demand, without the radioactive waste of traditional nuclear power or the planet-heating fumes of fossil fuels. The need for clean electricity to slow the climate crisis has helped spur a wave of investment and innovation in the field, which now boasts dozens of private companies and more than $4 billion in venture capital invested in 2021 alone. Among other things, the deal also represents a big-money bet on a bold proposition, that fusion power will be brought to market years or even decades earlier than most experts had predicted. Whether or not the technical elements pan out by 2028, the announcement marks “a market milestone” for the fusion industry, said Dennis Whyte, director of the Plasma Science and Fusion Center at MIT. Source Hill

Federal Student Loan Interest Rates Rise to Highest in a Decade: The interest rates on new federal student loans will increase by about half a percentage point from their current levels starting July 1. Graduate borrowers taking out direct federal loans will see a rate of 7.05 percent, up from the current 6.54 percent. And the interest rates on federal PLUS loans — both for graduate students or parents paying for their children’s education — will jump to 8.05 percent from the current 7.54 percent. Source Political

Google Ups Its Game with AI-Powered Search: Investors have been worried that Bing, long a minor player in internet search, could chip away at Google’s search engine dominance and the related pool of advertising dollars. However, at the company’s annual I/O developers conference, Google unveiled new conversational features for its core search engine, while also making its Bard chatbot widely available to English speakers. The company previously required people who wanted to use Bard to register on a waiting list for access. Google unveiled what it calls the “Search Generative Experience,” which uses AI to provide lengthy summary responses to some queries. The updated version of Google search allows users to ask follow-up questions, more like a chatbot than a traditional internet search. The new version of Google will initially be accessible via an experimental program called Search Labs, which will require signing up on a wait list for access. Google also said it is going to soon upgrade Bard to include images in response to queries—and to include images in prompts, using the Google Lens image search feature. The company is also going to make it easier to plug other apps into Bard—among other things, it plans to include Adobe Firefly, the creative software company’s family of generative AI applications. Source Barrons

Does the Market Think the US Will Default?: The cost of insuring Treasuries against default now eclipses some emerging markets as the American government gets closer to running out of money. US credit-default swaps are more expensive than contracts on the bonds of Greece, Mexico and Brazil, which have defaulted multiple times and have credit ratings many rungs below that of the US’s AAA. Few investors doubt that America will make good on its debts. But even a technical default — one that merely delays interest and principal payments — would roil the $24 trillion Treasury market, the bedrock of the global financial system. For holders of the credit-default swaps, such a scenario would yield a lucrative return. Euro-denominated US credit default swaps, the most actively traded, hit 166 basis points yesterday, near a record high and surpassing the levels during previous debt-ceiling standoffs in 2011 and 2013. US CDS are mostly denominated in euros while those on emerging markets tend to be dollar-denominated. But even accounting for that currency difference, insuring exposure to US debt via one-year CDS is several times costlier than in Brazil and Mexico, according to data compiled by Bloomberg. Source Bloomberg

Housing Market Favors Sellers' as Rising Demand Beats Low Supply: The housing market has tilted firmly back in favor of sellers, as steady demand met scarce inventory to drive up home values, according to the latest market report from Zillow. "Buyers are back on the hunt for houses in what is typically the hottest time of year, thanks to a normal seasonal surge in demand around the end of the school year and some help from slightly lower mortgage rates," said Jeff Tucker, Zillow senior economist. "Unfortunately, many potential sellers have ghosted the market this spring, concentrating buyer demand on the few listings that do come to market and fueling price growth, especially for more affordable and well-presented houses." The value of the typical home climbed +1% from March to April, the strongest monthly appreciation since last June and in line with pre-pandemic norms for this time of year. Although -2.2% below their peak last July, typical home values are +1.5% above last April and stand +38% higher than 2020. The flow of new listings to the market decreased in April, defying the normal trend of rising through the spring and deepening the year-over-year deficit in new listings. Total inventory is up just +3% annually and now stands -46% lower than in 2019. Source Zillow

Mosquitoes Have Mixed Feelings About Soap: Mosquitos and the humans they feed on seem to have something in common: a discerning palate for soap. In a new study this week, scientists have found that female, blood-sucking mosquitos are drawn to certain kinds of soaps commonly used by people while repelled by others, though sometimes in unexpected ways. The team recruited four human volunteers for their experiments. First, they identified each person’s unique smell signature. Then they had them wash up with four soap brands: Dial, Dove, Native, and Simple Truth. Finally, the scientists exposed female Aedes aegypti mosquitoes—prolific disease carriers—to fabrics worn by the volunteers when they were unwashed or washed. In only some volunteers, the mosquitoes became more attracted to their scent after they washed with Dove and Simple Truth brand soap, while Native brand soap was more consistently repellent to them. Source

Global Luxury Home Prices Fall for First Time Since 2009: Global luxury home prices fell in the first quarter for the first time since the financial crisis. An index of prime prices in 46 cities declined -0.4% year-over-year, the first drop since 2009, according to real estate consultancy Knight Frank. That’s a sharp reversal from +10% growth seen in the fourth quarter of 2021. New Zealand posted the biggest slump, with double-digit declines in Wellington and Auckland in the first quarter. Major cities including San Francisco, New York, Los Angeles, Hong Kong and Vancouver also saw prime prices drop. Knight Frank defines prime homes as the top 5% of a market in terms of value. Still, the majority of cities tracked by the firm saw prices increase in the first quarter, with Dubai and Miami posting double-digit gains. Prices in Dubai surged +44%, bringing its total pandemic-era growth from March 2020 to +149%. Source Bloomberg

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