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Stock bulls seem to be taking pause as another weak Treasury auction sends bond yields higher. Yields on the benchmark 10-Year Treasury note hit +4.623 yesterday, their highest since the end of April. The US Treasury yesterday held an auction of 7-year notes that ended up selling at a yield of 4.650%, higher than the market yield at the time. That followed similarly weak demand for 2-year and 5-year Treasury note auctions on Tuesday that also sold at a yield premium. Some blame waining demand for US debt on the ballooning US deficit, while others think it has more to do with uncertainty surrounding the Federal Reserve’s rate cut plans. It could be a combination of both.
There is a real concern that investor demand for US government bonds won’t keep up with supply, something bond insiders have been warning about since the Treasury increased its auction sizes earlier this year.
This week alone, there is more than $600 billion in coupon bonds, T-bills, and floating-rate notes up for sale. Bond traders are also extremely anxious about getting caught on the wrong side of Fed policy again. With Wall Street widely expecting rates to stay higher for longer, there also been some selling pressure that is helping to buoy yields this week. Stock bulls have not had much to work with this week as earnings season is winding down and economic data has been light.
The earnings that have been released this week are once again a mixed bag but generally don’t seem to be having much impact on overall market sentiment.
The “big” releases are now in the rearview mirror which is another reason interest rates and inflation are again dominating the conversation.
Earnings highlights today include Best Buy, Burlington, Costco, Dell, Dollar General, The Gap, Hormel Foods, Marvell Technology, and Nordstrom. Note that there are again a lot of retailers scheduled, a sector that has mostly failed to impress this earnings season. Bulls are also hoping a softer PCE Prices Index on Friday could help ease some worries that the “disinflation” trend is still stalled. Most bulls are looking to next week for the next major catalyst, which brings the May jobs report as well as the latest ISM surveys that will provide some insights into the inflation trajectory.
Today, investors will be digesting the second estimate of Q1 2024 GDP, Pending Home Sales, and advance reads on Retail Inventories, Wholesale Inventories, and International Trade.
Another Store Cutting Prices... Walgreens Announces Price Cuts on 1,300 Items: Walgreens announced Wednesday it would cut prices on some 1,300 items — the latest company to pivot to value amid signs U.S. consumers are experiencing spending fatigue. “Walgreens understands our customers are under financial strain and struggle to purchase everyday essentials,” said Tracey D. Brown, EVP, President. Walgreens’ announcement follows others by retail giants that also indicate greater awareness of consumers’ price sensitivities. Last week, Target announced lower costs for thousands of items in its stores, while Walmart recently unveiled an entire new line of food items costing $5 or less.
Yemen’s Houthis Launch Attacks at Six Ships in Three Seas: Yemen's Houthis launched attacks on six ships in three different seas, the Iran-backed group said on Wednesday, including the Marshall Islands-flagged bulk carrier Laax that was damaged after reporting a missile strike off the Yemeni coast. The Houthis attacked Laax in a barrage of attacks on Tuesday. They also targeted the Morea and Sealady in the Red Sea, the Alba and Maersk Hartford in the Arabian Sea and the Minerva Antonia in the Mediterranean, Houthi military spokesperson Yahya Saree said in a televised speech. Tuesday's Houthi attacks came as Israeli tanks moved into the heart of Rafah for the first time. The Houthis, who describe their attacks as acts of solidarity with Palestinians in Israel's war in Gaza, have launched repeated drone and missile strikes in the Red Sea region since November. They have since expanded attacks to other busy waterways. Source Reuters
Unemployment Rates Up From Last Year in 78% of US Metro Areas: Unemployment rates were higher in more than three-quarters of metropolitan areas in the US last month compared with a year ago. The jobless rate climbed in 305 of the 389 metropolitan areas in April, according to data released by the Bureau of Labor Statistics Wednesday. The rates fell in 56 places, and were unchanged in 28. According to the “Metropolitan Area Employment and Unemployment Summary”, the unemployment rate was up a full percentage point or more over the past year in about 10% of metropolitan areas. Among the 51 largest metropolitan areas, nine cities surpassed the US jobless rate of 3.9%. Las Vegas topped the list at 5.2%, while California had six areas that were among those with the highest rates. In seven large metros, the unemployment rate climbed fast too - rising a full percentage point or more over the past year. In Providence, Rhode Island, the rate jumped to 3.7% from 2.5% and in Baltimore it rose to 2.7% from 1.5%, which was one of the lowest in the country. Other areas that saw a sharp increase in joblessness are Seattle, Detroit, Columbus, San Jose, and Cincinnati. Going by numbers, the Portland metro area had the biggest loss of jobs, with 14,600 fewer people working compared to April 2023. In Denver there was a 9,900 drop in jobs and in Memphis, 7,500 less people collected a paycheck. Source Bloomberg |
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US Experiencing Unusually Busy Tornado Season: If you think there have been a lot of tornadoes this year, you're right: With at least 850 confirmed tornadoes so far and several major tornado outbreaks, it ranks among the busiest years in recorded history. It's at least the sixth-busiest in the past 30 years, based on preliminary information from the Storm Prediction Center. That number is likely to rise as the National Weather Service continues surveying and confirming damages from the April and May tornado reports, which were up significantly over previous years. Even some of the most veteran storm chasers have been astounded by tornado activity so far this year. Preliminarily, the U.S. has seen four days with at least 30 tornadoes rated EF1 or stronger, said Harold Brooks, a senior scientist at the National Severe Storms Laboratory in Norman, Oklahoma. The average is two a year. That likely puts 2024 in the top 10% of years. Source USA TODAY
ConocoPhillips Buying Marathon Oil: Top U.S. independent oil and gas producer ConocoPhillips on Wednesday agreed to buy Marathon Oil for $22.5 billion, the latest in a series of mega-deals in the energy industry. The U.S. oil and gas industry has been riding a consolidation wave over the last two years as companies look to bolster reserves and create economies of scale. Last year was one of the most active, with some $250 billion in deals struck. The momentum has carried over into this year as the stock market continues to boom and as U.S. shale oil production scales new records. "We're heading into a period of kind of Shale 2.0, which is more about using technology and efficiencies, data analytics and some of the refrack potential that allows us to extend some tier one inventory," said ConocoPhillips CEO Ryan Lance. The all-stock offer equates to $30.33 per Marathon share, a premium of nearly 15% to the stock's Tuesday close, according to Reuters calculations. The transaction, which includes $5.4 billion of Marathon's debt, is expected to close in the fourth quarter of 2024. Source Reuters
McDonald’s Exec Says Average Menu Item Costs Up +40 vs 2019: A top McDonald’s executive is weighing in on claims that the company has jacked up its prices by more than 100%. Joe Erlinger, president of McDonald’s USA, said in an open letter the average price of a Big Mac meal today is up 27% from 2019. The price for a 10-piece McNuggets meal is up 28% over the same period, and the price of medium french fries increased 44%. Erlinger added the cost increases are tied to similar increases in input costs such as crew salaries and cost of goods. “For a brand that proudly serves nearly 90% of the U.S. population every year, we feel a responsibility to make sure the real facts are available,” Erlinger said. McDonald’s recently reported same-store sales below expectations in its first-quarter earnings report. The company will also soon offer a $5 value meal for roughly a month, beginning June 25. Source CNBC
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US Money Supply Rises for First Time in a Year: The money supply in the U.S. has been shrinking fast, but the latest update showed a significant change in its trajectory, offering an important clue about the outlook for inflation. Money supply, as measured by M2, sums up the currency, coins, and savings deposits held by banks, balances in retail money-market funds, and more. Data for April showed an increase of +0.6% from a year ago. That modest gain is the first time M2 has risen from a year earlier since November 2022. Its decline —the most significant drop, of 4.5%, happened precisely one year ago—matched the narrative that the Federal Reserve’s tightening of monetary policy was doing its job of taking money out of the financial system. But even as M2 declined at a historic pace, the underlying thesis that the overall amount of money in the system was abnormally high never changed. The level hasn’t fallen below $20 trillion in years, and even after many months of year-over-year declines, the current level of $20.86 trillion is still way higher than before the pandemic. That is because the Fed flooded the economy with cash as the pandemic hit. The central bank’s bond-buying program, government stimulus checks, and the extension of generous business loans, have worked to juice the economy. The recent uptick is a sign that there is still too much money chasing too few goods and services. Source Barrons |
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US Experiencing Unusually Busy Tornado Season: If you think there have been a lot of tornadoes this year, you're right: With at least 850 confirmed tornadoes so far and several major tornado outbreaks, it ranks among the busiest years in recorded history. It's at least the sixth-busiest in the past 30 years, based on preliminary information from the Storm Prediction Center. That number is likely to rise as the National Weather Service continues surveying and confirming damages from the April and May tornado reports, which were up significantly over previous years. Even some of the most veteran storm chasers have been astounded by tornado activity so far this year. Preliminarily, the U.S. has seen four days with at least 30 tornadoes rated EF1 or stronger, said Harold Brooks, a senior scientist at the National Severe Storms Laboratory in Norman, Oklahoma. The average is two a year. That likely puts 2024 in the top 10% of years. Source USA TODAY ConocoPhillips Buying Marathon Oil: Top U.S. independent oil and gas producer ConocoPhillips on Wednesday agreed to buy Marathon Oil for $22.5 billion, the latest in a series of mega-deals in the energy industry. The U.S. oil and gas industry has been riding a consolidation wave over the last two years as companies look to bolster reserves and create economies of scale. Last year was one of the most active, with some $250 billion in deals struck. The momentum has carried over into this year as the stock market continues to boom and as U.S. shale oil production scales new records. "We're heading into a period of kind of Shale 2.0, which is more about using technology and efficiencies, data analytics and some of the refrack potential that allows us to extend some tier one inventory," said ConocoPhillips CEO Ryan Lance. The all-stock offer equates to $30.33 per Marathon share, a premium of nearly 15% to the stock's Tuesday close, according to Reuters calculations. The transaction, which includes $5.4 billion of Marathon's debt, is expected to close in the fourth quarter of 2024. Source Reuters McDonald’s Exec Says Average Menu Item Costs Up +40 vs 2019: A top McDonald’s executive is weighing in on claims that the company has jacked up its prices by more than 100%. Joe Erlinger, president of McDonald’s USA, said in an open letter the average price of a Big Mac meal today is up 27% from 2019. The price for a 10-piece McNuggets meal is up 28% over the same period, and the price of medium french fries increased 44%. Erlinger added the cost increases are tied to similar increases in input costs such as crew salaries and cost of goods. “For a brand that proudly serves nearly 90% of the U.S. population every year, we feel a responsibility to make sure the real facts are available,” Erlinger said. McDonald’s recently reported same-store sales below expectations in its first-quarter earnings report. The company will also soon offer a $5 value meal for roughly a month, beginning June 25. Source CNBC
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US Money Supply Rises for First Time in a Year: The money supply in the U.S. has been shrinking fast, but the latest update showed a significant change in its trajectory, offering an important clue about the outlook for inflation. Money supply, as measured by M2, sums up the currency, coins, and savings deposits held by banks, balances in retail money-market funds, and more. Data for April showed an increase of +0.6% from a year ago. That modest gain is the first time M2 has risen from a year earlier since November 2022. Its decline —the most significant drop, of 4.5%, happened precisely one year ago—matched the narrative that the Federal Reserve’s tightening of monetary policy was doing its job of taking money out of the financial system. But even as M2 declined at a historic pace, the underlying thesis that the overall amount of money in the system was abnormally high never changed. The level hasn’t fallen below $20 trillion in years, and even after many months of year-over-year declines, the current level of $20.86 trillion is still way higher than before the pandemic. That is because the Fed flooded the economy with cash as the pandemic hit. The central bank’s bond-buying program, government stimulus checks, and the extension of generous business loans, have worked to juice the economy. The recent uptick is a sign that there is still too much money chasing too few goods and services. Source Barrons |
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