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Stock indexes are coming off a mixed week with the Nasdaq at a new record high and the S&P 500 close to a new record, while the Dow has lost some ground for the first time in five weeks.
Bulls this week will be trying to revive excitement about possible Federal Reserve rate cuts that have maybe been overshadowed by Q1 2024 earnings. Keep in mind, the Fed’s next meeting is June 11-12 and virtually no one expects any changes to its benchmark interest rate.
Traders give a July cut very slim odds (about 11%), with most still leaning toward September (44% for the first rate cut). A majority on Wall Street are also penciling just one or two -25 basis point cuts versus the three projected by the Fed in its most recent update, and well below the six rate cuts that many on Wall Street were talking about at the start of the new year.
Fed officials themselves have been leaning more hawkish as of late and cautioning that inflation remains too persistent to consider cutting rates yet, even after some of the softer April economic data that we’ve already seen. Fed officials no doubt want to see those soft reads repeated before getting overly optimistic about the inflation progress moving the right direction as recent “disinflation” trends have proved hard to sustain. Data today includes the S&P Case-Shiller Housing Price Index, the FHFA House Price Index, Dallas Fed Manufacturing, and Consumer Confidence.
There are no earnings today but this week’s releases are again heavy the retail sector. Results from retailers so far this earnings season have painted a picture of increasingly strapped consumers that has reignited concerns about a slowdown in economic growth, including some fears of recession and “stagflation.”
On the geopolitical front, the Israel-Hamas war remains a potential powder keg as Israel continues strikes in Rafah that are escalating international criticism. Israeli forces also engaged with Egyptian forces across the border over the weekend that left one officer from Egypt dead. The two countries are in talks to try and ease tensions.
Argentina Talking About Using Bitcoin as Legal Tender: Argentina opened discussions with El Salvador’s Digital Assets Commission on their experience using Bitcoin as legal tender. “El Salvador has established itself as a global leader not only in the use of Bitcoin but also in the broader realm of digital assets,” Roberto E. Silva, president of Argentina’s National Securities Commission, said in a blog post. “We aim to strengthen our ties with El Salvador and are exploring potential collaboration agreements.” El Slavador made headlines in 2021 when it became the first country in the world to make Bitcoin legal tender, leading to a surge in tourism and going on Bitcoin spending sprees. Now Argentina, with their new eccentric leader Javier Milei, is looking to explore Bitcoin as legal tender too. According to WorldoMeters, Argentina is the 22nd largest country by GDP with a population of over 45 million people. While the meeting happened on May 23, the news didn’t spread until Sunday driving Bitcoin to over +$70,000. Source Decrypt
NCAA Agrees to Share Revenue and Directly Pay College Athletes: Breaking with more than a century of policy, the NCAA will pay billions in damages to former athletes and allow schools to pay athletes up to $20 million a year. The NCAA and the five most prominent athletic conferences agreed to a $2.77 billion settlement of a class-action lawsuit late last week. The settlement will resolve a case that began in 2020 and was seeking back pay for athletes who were barred from earning compensation from endorsements, as well as a cut of future broadcast revenues. First, the NCAA allowed athletes to receive academic bonuses and profit from their name, image, and likeness. Now, the biggest domino of all has fallen, for the first time ever some players are going to be paid directly by their schools for playing their sports, a seismic shift that will completely reshape the business model for the top end of this billion-dollar industry. Some university leaders were less pleased with the outcome. The settlement, though undesirable in many respects and promising only temporary stability, is necessary to avoid what would be the bankruptcy of college athletics, said Notre Dame president Rev. John Jenkins in a statement. Source WSJ
What You Need to Know About New SEC Settlement Rules: A new settlement rule will go into effect today that will affect almost every stock, bond, and ETF trade in U.S. markets. This new rule establishes the “T+1” settlement cycle, and it relates to how long it takes for securities transactions to “settle.” When you buy or sell a stock through your broker, usually you get a confirmation of that trade right away, but that doesn’t necessarily mean the transaction has settled. For that to happen, the stock has to be transferred from the seller’s portfolio to the buyer’s portfolio, and the money deducted from the buyer’s account and sent to the seller’s. So “settlement” is the official delivery of both securities and money between the two parties. Settlement doesn’t always happen the same day a trade is placed, known as the transaction date. Currently, we’re in a “T+2” settlement cycle, where U.S. financial institutions have two business days to settle all applicable security transactions. When this new regulation goes into effect, institutions will now have one business day to settle. Starting May 28, all securities that traded on a T+2 settlement cycle will transition to T+1. Meanwhile, some other securities, including options and government securities like Treasurys, are already on a next-day settlement schedule. Source MarketWatch
Trade Strains Boost Cargo Rates at Pace Recalling Covid ‘Chaos: Global goods trade is showing signs of accelerating after last year’s slump, pushing up shipping rates and giving some supply-chain managers flashbacks to the demand spike that disrupted international commerce three years ago. Some of the catalysts for the monthlong advance in seaborne freight rates stem more from worry than optimism. They include concerns about port congestion in Asia, labor strikes in North America that threaten to hobble ports or rail services, and heightened trade tensions between the US and China. Ocean shipping began the year already stretched by Red Sea attacks that forced carriers to send their vessels the longer way around southern Africa rather than through the Suez Canal. A.P. Moller-Maersk A/S, the world’s No. 2 container line, has estimated the industry’s capacity loss at 15%-20% this quarter on routes to northern Europe from Asia. Importers and exporters across Asia, the US, and Europe typically see shipments increase from July to September as retailers look to restock before back-to-school, Halloween and year-end holiday sales seasons. That spurt of orders looks to be happening now, analysts said, at a time when spare container capacity is limited. Spot rates for containers reflect the tightness. The cost for a 40-foot container to the US West Coast from Asia jumped +13.4% to $4,915 in the week ended Sunday, according to Freightos data, the fifth straight weekly advance. That’s triple what it was in late December, but still well below the September 2021 peak of $20,586. Container imports through the top 10 ports in the US rose for a seventh straight month in April from a year earlier, pushing the three-month trailing average gain to 19.1%. That was the strongest showing since July 2021 — near the peak of the demand surge during the pandemic. Source Bloomberg
McDonald’s $5 Value Meal Starts Feud With Franchisees: McDonald’s franchisees have a beef with the global fast-food chain. It’s this summer’s $5 value meal. Local operators set their own menu prices and already offer plenty of their own specials. But now the company wants to roll out a new monthlong deal: a McDouble or McChicken sandwich, small fries, a small soft drink, and a four-piece Chicken McNuggets—all for five bucks. The kickoff is set for June 25. The franchisees argue that the deal would cut into their already thin margins. If sold separately, the items would total more than $5 in most of cities and towns. At a restaurant in Los Angeles, for example, the four items would cost about $8.50. McDonald’s certainly isn’t the only national chain hyping discounts. Burger King and Wendy’s have their own versions and McDonald’s CEO Chris Kempczinski wants in the game because he clearly thinks the lack of a nationwide value deal could make McDonald’s less competitive. While McDonald’s can suggest pricing strategies, it typically can’t require franchisees to lower prices. For a national promotion, corporate needs to persuade local operators to sign on—sometimes by lowering the costs of ingredients that are often negotiated. Source Barrons
The Highest Paid CEOs of 2023: The chiefs of America’s biggest companies reached new pay heights in 2023 as stock awards swelled the value of compensation packages. Half of the executives in a Wall Street Journal analysis made at least $15.7 million, a record for median CEO pay in the annual survey, with several making more than $50 million. Median pay for the same companies a year earlier was about $14.5 million. Most of the executives received year-over-year raises of at least 9%—one in four got 25% or more—and most companies recorded annual shareholder returns of at least 13%, the Journal found in an analysis of data on more than 400 companies. Eight tech executives ranked among the 25 top earners, as did five each heading financial companies and media or entertainment companies. Hock Tan, the highest-paid CEO in the Journal’s analysis at $162 million, has to stay on the job for five years and Broadcom’s share price must reach certain targets after October 2025 to get the full value of most of his pay. Equity awards continued to make up the bulk of most executives’ pay, much of it structured to deliver more stock or options if the company meets financial or share-price performance over several years. That means the pay can lose considerable value if the company’s share price falls or operating targets are missed—or soar in value amid market and operating success. Restricted stock awarded in early March last year to Jensen Huang, CEO of graphics-chip maker Nvidia, quadrupled in value through late January, to $107.5 million. Huang’s pay, originally reported at $34.2 million, included $26.7 million of restricted stock as valued at grant. Source WSJ
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