Investors are again keeping a close eye on Washington this week as lawmakers in Congress work to pass a debt ceiling deal reached by President Biden and Republican leaders over the weekend.

Many traders are arguing that neither party won the battle in Washington. Meaning the Democrats didn’t have to make many big concessions and the Republicans got very little of what they had hoped for. Bears are saying McCarthy’s legitimacy as Speaker could now be in jeopardy, especially if there are any last-minute hiccups.

Bears are also pointing toward a wave of Treasury bills that will soon be hitting the market and perhaps create a liquidity event that might influence the overall flow of money. The Treasury has amended the deadline from Thursday, June 1, to Monday, June 5, for when the US could potentially run out of cash to pay its debts. Right now, it looks like the legislation will come up for a vote in the House on Wednesday at the earliest. However, a vote in the Senate might not be possible until sometime next week. Meaning there is a risk that the US passes the possible "default" deadline before the Senate has a chance to pass the bill.

There are processes that can expedite the vote but they are highly dependent on bipartisan cooperation that may not be possible considering the political divides in Washington.

Keep in mind, there are lawmakers on both sides that have already said they oppose the current compromise and have vowed to try and block its passage. Wall Street this week is also anxious to see a slew of labor market data, including the Job Openings and Labor Turnover Report (JOLTS) due out on Wednesday, ADP's private payroll report on Thursday, and the critical May Employment Report on Friday.

Many economists, including Federal Reserve members, believe the tight labor market is a key contributor to stubbornly elevated inflation as competition for the small pool of available workers continues to push wages higher. The unemployment rate in April fell back to a 50-year low of 3.4%, which is even lower than where it ended last year (3.5%). In fact, January 2022 was the last time the unemployment rate hit 4%, which is about the level that the Fed considers "full employment." In other words, the highest level of employment the Fed believes the economy can sustain without generating inflation.

Notably, unemployment hasn't managed to climb any higher than 3.7% since the Fed began its tightening campaign in March 2022. The Fed's efforts to cool the labor market have been hindered by the fact that there are still so many employers struggling to find workers, particularly in the service sector.

The JOLTS report on Thursday is expected to show only a slight decline in job openings, which stood at 9.59 million in March 2023 compared to over 12 million in March 2022. It's worth mentioning that the PCE Prices Index on Friday revealed a hotter-than-expected inflation read with the Fed's preferred gauge - the "core" rate that strips out food energy - gaining +0.4% in April. That brought the year-over-year rate to +4.7% versus +4.6% in March and Wall Street expectations for the rate to remain unchanged.

The headline gauge also ticked up more than expected to an annual rate of +4.4% versus +4.2% previously. The report also revealed another month of robust wage gains and an uptick in consumer spending.

Overall, the "hot" data raises more doubts about the potential for a Fed rate hike pause at the upcoming June 13-14 meeting and makes rate cuts later this year seem increasingly unlikely.

Investors today will be digesting the S&P Case-Shiller Home Price Index, Consumer Confidence, and the Dallas Fed Manufacturing Survey.

On the earnings front, Hewlett Packard is today's main highlight. Overall, S&P 500 companies have been beating Wall Street estimates, though the index reported its second straight quarter of earnings declines.

According to data from FactSet, S&P 500 earnings fell -2.2% during Q1 while 81 companies have provided negative guidance, the highest since the third quarter of 2019.

US Could Have Its First Major Refinery in Half a Century: An Oklahoma oil hub could soon be home to the first large-scale oil refinery constructed in the U.S. in nearly 50 years. If the project actually does get built, it could potentially help reduce U.S. gasoline and diesel prices. But building a U.S. refinery is so complicated that at least one analyst is skeptical it will actually happen. Privately held Southern Rock Energy Partners says it will build a refinery capable of producing 250,000 barrels per day of oil products in Cushing, Okla., a city that’s already a major oil hub. It’s where the U.S. benchmark for oil prices, West Texas Intermediate, is measured. The company says its refinery will cost $5.6 billion, open in 2027, and will have some special characteristics appropriate for the cleaner-energy age. That includes operations powered by solar panels and geothermal energy and the use of recycled water. The facility will also be able to produce hydrogen, an element that’s expected to become a key fuel for low-carbon power, and use that hydrogen to replace natural gas in parts of the process. Source Barrons

Debt-Ceiling Relief May Be Short as Focus Turns to T-Bill Deluge: Bond traders look set to pivot from worrying the US wouldn’t raise its debt limit to fretting about what the increase means for money markets. The concern is that with a tentative deal pending, the Treasury will soon replenish its cash balance by selling more than $1 trillion of bills through the end of the third quarter, according to recent estimates. The US cash stockpile currently sits at $39 billion, the lowest since 2017. A deluge is likely to suck a significant amount of liquidity out of financial markets. That could add pressure to a financial system that’s still showing signs of strain after several banks collapsed with the Federal Reserve raising interest rates and shrinking its balance sheet. With the Treasury competing with banks for cash, lenders may see their own short-term funding rates rise, forcing them to boost the borrowing costs they impose on businesses and households. Bank of America Corp. analysts have estimated that would have the same economic impact as a quarter-point interest rate hike, a squeeze which would come as traders are already predicting the Fed could lift its benchmark another 25 basis-point rate rise by July. Source Bloomberg

Consumers Will be Forking Over Less for Summer Barbecues: Memorial Day weekend traditionally kicks off the prime season for backyard barbecues, and Americans are forking over quite a bit less for a few key cookout supplies. Propane, the gas used to heat many grills and camping stoves, is down -46% from last year, to 64 cents a gallon from $1.19, according to S&P Global Commodity Insights. This month, it hit its lowest level since December 2020. The biggest reason for the decline: supply and demand. Propane has been building up in storage after a very mild winter because homes just didn’t need to be heated as much. In general this year, prices of fossil fuels from crude oil to natural gas have dropped because of slow economic growth worldwide.But if you buy propane at a store or have it delivered to your home, you may not see discounts anywhere near the 46% drop in the benchmark price, which is measured at a storage hub in Texas. Retail prices, in general, don’t tend to fall as much as commodity prices, given the cost of transporting and marketing fuel. Government inflation data from April shows a 3.5% drop in retail prices for the category that includes “propane, kerosene, and firewood.” Propane isn’t the only barbecue essential that’s getting cheaper. Familiar cookout foods have come down in price, too. Beef and pork prices have dropped from last year’s levels, according to the latest inflation statistics. Pork chops are -2.4% cheaper, and ground beef is off by -2.1%. That said, some grilling fans will have to reach deeper into their pockets to stock up. Frankfurters are still steaming, up +2.2% year over year. And poultry prices haven’t lost their sizzle either, rising +5%. Source Barrons

Just 20 Stocks Have Driven S&P 500 Returns So Far in 2023: The below graphic from Truman Du shows which stocks are making up the vast majority of S&P 500 returns. Just 20 firms—mainly AI-related stocks—are propping up the S&P 500 and driving it into positive territory. The problem with the strong gains seen in a few select AI-related stocks is that it clouds wider stock market performance. Without the AI-led rally, the S&P 500 would be returning -1.4%. as of May 17, 2023. When more companies experience positive returns it is less risky than a small handful seeing the majority of the gains. This form of steep divergence, known as market breadth, often signals higher risk in the market. Today market breadth is very narrow, and these companies make up over 29% of the entire index’s market capitalization. Source Visual Capitalist

Ritz Carlton Launches New Line of Super Yachts for People Who Hate Cruises: Constructed in Spain and christened in Lisbon last November, "Evrima" is the firstborn of the Ritz-Carlton Yacht Collection, a sleek blue barracuda at 623 feet long. "Evrima" is a cruise ship for people who hate cruises. She also represents a new trend: luxury hotel brands fishing for a piece of the global cruise industry, which is expected to grow 11% a year and cross $15 billion by 2028, according to a 2022 report. It’s a sector that has proved preternaturally resilient, weathering nasty norovirus outbreaks, criticism of its horrendous environmental record, and labor abuse exposés—all before the global COVID pandemic wrought headlines like “Stranded at Sea” and “Hell of a Cruise.” For the legions of cruise devotees, it’s all water under the captain’s bridge. By 2026, Four Seasons, Orient Express, and Aman will debut superyacht cruises, but for now Ritz-Carlton owns the waters. Currently in the Mediterranean and Aegean ($7,900 to $15,500 for five to 11 nights), Evrima returns to the Caribbean in November. Her voyages include some ports that larger lines visit (Nassau, Barbados), but mostly she anchors off lesser-known isles Source Fortune

Nvidia Unveils More AI Products: In a two-hour presentation in Taiwan, Nvidia Corp. Chief Executive Officer Jensen Huang unveiled a new batch of products and services tied to artificial intelligence, looking to capitalize on a frenzy that has made his company the world’s most valuable chipmaker. The wide-ranging lineup includes a new robotics design, gaming capabilities, advertising services and a networking technology. Perhaps most central to his ambitions, Huang took the wraps off an AI supercomputer platform called DGX GH200 that will help tech companies create successors to ChatGPT. Microsoft Corp., Meta Platforms Inc. and Alphabet Inc.’s Google are expected to be among the first users. The flurry of announcements underscores Nvidia’s shift from a maker of computer graphics chips to a company at the center of the AI boom. Last week, Huang gave a stunning sales forecast for the current quarter — almost $4 billion above analysts’ estimates — fueled by demand for data-center chips that handle AI tasks. That sent the stock to a record high and put Nvidia on the brink of a $1 trillion valuation — a first for the chip industry. Source Bloomberg

Retail Investors Aren't Buying Into the AI Hype Yet: Artificial intelligence-related stocks like Nvidia have soared this year, but according to one research firm there's a portion of financial markets that hasn't heavily jumped into the buying frenzy: individual investors. "Our in-house US equity positioning shows retail investors remain on the sidelines despite the recent AI craze," Vanda Research said in a note last week, adding that institutional investors were the primary drivers of demand for AI stocks. Its note arrived during a big week for Nvidia that underscored the broad interest in AI set off by ChatGPT's launch late last year. So far this year, Nvidia stock has shot up 167%. Meanwhile, the Global X Robotics & Artificial Intelligence ETF has soared 33%, and the ROBO Global Robotics & Automation Index ETF is up 19%. But that hasn't spilled over to the retail side. Net retail flow into the buzzy pocket of the equity market reached roughly $250 million on a 10-day moving average late last year as news mentions of AI ramped up. Since then, that flow has slowed to roughly $100 million on a 10-DMA through May. Source Insider

Restaurants Expect Strong Sales this Summer but Consumers Not So Sure: Warmer weather usually boosts restaurant sales, but diners may hold back for the second straight summer as inflation weighs on consumers’ minds — and wallets. Last year, consumers pulled back on their restaurant visits in May, June and July amid inflation concerns. In addition to higher restaurant bills, diners were also paying more at the gas pump and in grocery stores. Restaurant sales snapped back in August, which Black Box Intelligence attributed to higher consumer confidence levels as gas prices fell. Inflation may be easing this year, but prices are still rising, adding to worries about regional bank failures and a potential recession before year-end. U.S. consumer sentiment fell to a six-month low in May, fueled by concerns about the debt limit standoff, according to a University of Michigan consumer survey. Roughly a third of consumers surveyed by Datassential plan to dine out less over the next month, and about half plan to maintain their current restaurant-spending habits. Source CNBC

Deaths Soar on Everest After Record Number of Climbers Attempt Summit: The latest climbing season on Mount Everest, the world’s highest peak, is set to become one of the deadliest ever, raising questions about whether Nepal is issuing too many permits to maximize tourist dollars. The director of Nepal’s tourism department, Yubaraj Khatiwada, told Bloomberg News the death toll currently stood at eight, and that five other people are missing. The deadliest year in Everest’s climbing history was 2014, when at least 17 local staff were killed, mostly from a major avalanche. Permits for foreigners to climb Everest cost $11,000 and have already raised more than $5 million for Nepal’s economy this year. The government has resisted making significant changes to cap the number of permits issued. Khatiwada said this year's death rate is "quite high...because of the climate and climate change," adding that climbing itself is "risky." Climbers on Everest are also getting older, which has heightened the risks. The median age of mountaineers attempting Everest is now 42, compared to 34 in 1982. Source Bloomberg

We have alternatives that are low in correlation to traditional stock & bond portfolios. They are liquid and transparent. Minimums and fee structures vary and some are performance based only. Returns we can share are NET of Fees.

If you want to learn more, just let me know what works to learn more about your needs.

Schedule A Call Now

Futures trading is speculative and involves the potential loss of investment. Past results are not necessarily indicative of future results. Futures trading is not suitable for all investors.

Nell Sloane, Capital Trading Group, LLLP is not affiliated with nor do they endorse, sponsor, or recommend any product or service advertised herein, unless otherwise specifically noted.

CTG Daily Commentary is published by Capital Trading Group, LLLP and Nell Sloane is the editor of this publication. The information contained herein was taken from financial information sources deemed to be reliable and accurate at the time it was published, but changes in the marketplace may cause this information to become out dated and obsolete.

It should be noted that Capital Trading Group, LLLP nor Nell Sloane has verified the completeness of the information contained herein. Statements of opinion and recommendations, will be introduced as such, and generally reflect the judgment and opinions of Nell Sloane, these opinions may change at any time without written notice, and Capital Trading Group, LLLP assumes no duty or responsibility to update you regarding any changes. Market opinions contained herein are intended as general observations and are not intended as specific investment advice.

Any references to products offered by Capital Trading Group, LLLP are not a solicitation for any investment. Readers are urged to contact your account representative for more information about the unique risks associated with futures trading and we encourage you to review all disclosures before making any decision to invest. This electronic newsletter does not constitute an offer of sales of any securities. Nell Sloane, Capital Trading Group, LLP and their officers, directors, and/or employees may or may not have investments in markets or programs mentioned herein.