Commentary |
The Consumer Price Index (CPI) came in just as expected with the headline rate slowing to +3.4% from +3.5% previously, while the “core” rate (strips out food and energy) dipped to +3.6% from +3.8% in March and the lowest in three years.
This is also the first time in 2024 that CPI has not overshot Wall Street’s forecast so it’s going a long way in relieving some of the anxiety over inflation possibly reigniting and the Fed being forced to hold off making rate cuts for longer than expected. Hopes that the “disinflation” trend has returned are also being fueled by slower-than-expected April Retail Sales, which were flat for the month.
Some bears are noting that the core control group of retail sales that is used to calculate GDP (gross domestic product) fell by -0.3%, versus a small increase expected by Wall Street. Bears see this as further evidence that the economy may be taking a downward turn that could be intensified by the Fed’s tight monetary policy. It will no doubt take more than one month of data to identify a trend but for now, the renewed possibility of lower interest rates in the second half of 2024 has put bulls back in control.
Wall Street once again thinks as many as three 25 basis point rate cuts are possible with most expecting the first cut in September. Traders give slim odds (less than 6%) of a June rate cut, around 30% for July, and over 50% for September.
Economic data today includes Housing Starts & Permits, Philadelphia Fed Manufacturing, Import/Export Prices, and Industrial Production. There are also a slew of Fed speakers today, including Fed Vice Chair for Supervision Michael S. Barr, who is scheduled to testify U.S. Senate Banking Committee.
Turning to earnings, Walmart is in the spotlight before the market open this morning. Wall Street analysts think Walmart is likely benefiting from strapped consumers “trading down” to lower-priced goods as they try to stretch their dollars further.
The company is uniquely positioned to capture business from both lower and higher income consumers, as well. That also means Walmart has insights into a really broad section of US consumers so the company’s comments about the trends they are seeing will be closely scrutinized.
John Deere also reports before the market open. Tech investors are anxious to see Applied Materials results after the market close this afternoon. The company makes equipment used to make semiconductors.
President Biden and former President Trump to Debate: Biden's campaign announced this morning it wouldn't take part in fall debates by the nonpartisan Commission on Presidential Debates. It offered one-on-one debates with Trump in June and September, with no studio audience and microphones that could be cut. Trump immediately accepted, telling Salem Media radio host Hugh Hewitt he'll debate with any moderator. Biden and Trump accepted a CNN invite for a debate on June 27. That's before either party has its national convention to officially pick presidential nominees. The Trump campaign then proposed extra debates in July and August. Trump and Biden then accepted invites from ABC News for a debate on Sept. 10. Trump also said that he accepted a debate with Fox News on Oct. 2.
Jamie Dimon Urges the U.S. to Deal With its Deficit Sooner Rather Than Later: JPMorgan Chase CEO Jamie Dimon on Wednesday urged the U.S. to reduce its fiscal deficit, warning the issue will likely become far more uncomfortable if it continues to be overlooked. His comments follow a period of rapid interest rate hikes, tax cuts and massive stimulus programs designed to support the world’s largest economy during the coronavirus pandemic. America has spent a lot of money. During Covid and after Covid, our deficit is at 6% now. That’s a lot, but obviously that drives growth, Dimon said in an interview with Sky News. Any country can borrow money and drive some growth, but that may not always lead to good growth. So, I think America should be quite aware that we have got to focus on our fiscal deficit issues a little bit more, and that is important for the world, he added. The federal government has so far spent $855 billion more than it has collected in the 2024 fiscal year, according to the U.S. Treasury Department, resulting in a national deficit. Source CNBC
New York Fed & St. Louis Fed Report "Rising US Credit Card Delinquencies Rates" - Americans owe a collective $1.12 trillion on their credit cards, according to a new report on household debt from the Federal Reserve Bank of New York. At the same time credit card delinquency rates have been rising. Over the last year, roughly 8.9% of credit card balances transitioned into delinquency, the New York Fed reported. The St. Louis Fed reported the richest 10% of US ZIP codes have experienced the greatest proportional increase; their delinquency rate climbed from 4.8% in the second quarter of 2022 to 7.4% in the first quarter of 2024, or 54% in relative terms. For the poorest 10% of ZIP codes, the delinquency rate increased from 14.9% in the third quarter of 2022 to 21% in the first quarter of 2024, or 41% in relative terms. Source CNBC
Baby Boomers Are Loving the ‘Freedom’ of Renter Life: It’s not just young Americans on the sidelines of the real estate market. The vast majority of baby boomers who are renting also say buying a home is a bad bet right now. The difference? Boomers are loving the renter’s life. Typically those who don’t own a home worry it might be detrimental to their financial future. However, more baby boomers are in favor of renting and have little interest in buying, according to a Bank of America Homebuyer Insights Report Wednesday. About 80% of renters in that generation, who are now 57 to 75 years old, say doing so is better than buying a home in the current environment, up from 63% a year ago, the report shows. Nearly all of that cohort also said they appreciate not having to deal with property maintenance and repair work and prefer to avoid other financial responsibilities and stress associated with homeownership. As the largest living adult generation, baby boomers exert a significant influence on the housing market. Many are downsizing to better suit their needs in retirement. But, with borrowing costs more than double what they were at the start of 2022, more are finding benefits to renting. Of course, renting isn’t cheap. While the national median rent has eased from a peak in 2022, prices are still +22% higher than at the start of 2021, according to Apartment List. Source Bloomberg
Where Inflation is Still Hanging On: April CPI’s price gains were driven heavily by rises in both shelter and energy. Shelter, the largest spending category for the average household, is by far the biggest component of the “core” CPI. Annual housing inflation cooled to +5.5% in April from +5.7% in March. In the shelter components, both rent of primary residence and the important “owners equivalent rent,” or what homeowners think they can get to rent their properties, rose +0.4% on the month. They respectively increased +5.4% and +5.8% on a 12-month basis. The energy index rose +1.1% for a month and was up +2.6% on an annual basis. Food was flat and up +2. 2% year-over-year. Used and new vehicle prices, which had contributed to the earlier rise in inflation, both declined, falling -1.4% and -0.4%, respectively. Areas showing notable gains on the month included apparel (+1.2%), transportation services (+0.9%) and medical care services (+0.4%). For transportation services, that took the annual increase up to +11.2%. Services excluding energy increased +0.4% on the month and were up +5.3% on the year. Source CNBC
Netflix to Stream NFL Christmas Day Games: Netflix will stream Christmas Day NFL games for the next three years, in its first true step into live sports. The streaming platform will show two games on Christmas Day this year, followed by at least one matchup in both 2025 and 2026, the league announced Wednesday. It is unclear how much Netflix paid for the rights to stream the games. The three Christmas Day NFL games averaged 28.68 million viewers last year, according to Sports Media Watch. Source CNBC |
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