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Stock bulls still seem to remain in control to start what will be a fairly quiet week of corporate earnings.
Investors today will continue to monitor the situation in the Middle East where Israel and Hamas still remain at war. Israel appears to be pressing ahead with strikes on the Gaza city of Rafah, saying it is conducting “targeted strikes”, but there is worry on Wall Street that any assault on Rafah could quickly have spillover effects across the region.
In particular, Egypt and other neighboring countries are worried about Hamas terrorists as well as legitimate refugees fleeing across the border and further destabilizing the region. With the conflict so far avoiding any major escalation, oil traders have steadily been reducing the risk premium on oil futures. WTI yesterday settled at just over $78 a barrel vs nearly $87 a barrel less than a month ago and close to $90 following the outbreak of the war. This shift has helped quash some of the recent worries that inflation could reignite, so I have to suspect another ramp up in hostilities could quickly send oil prices higher and ultimately weigh on stocks.
It’s also worth mentioning that Apple is set to hold its first event of the year today at 9 a.m. CST today. The focus of today’s “Let Loose” event is expected to be on the iPad, including new Pro and Air models as well as updated iPad accessories. Most on Wall Street seem neutral about today’s rumored product Apple announcements as they expect the more exciting reveals - ie. artificial intelligence progress - will happen at the company’s annual Worldwide Developers Conference (WDC) in June.
On the earnings front today, BP, Disney , Duke Energy, Electronic Arts, Global Foundries, Occidental Petroleum, Sempra Energy, and Suncor Energy are the main highlights.
The only economic data is Consumer Credit for March. There was data circulating yesterday that the 30-year mortgage is now averaging over +7.2% and at its highest level since late-2000. US housing is not cheap, art and collectibles not cheap, old cars and trucks not cheap, gold not cheap, big tech stocks not cheap
Renters’ Hopes of Being Able to Buy a Home Fall to Record Low: The dream of home ownership has gotten even further away for renters, with higher housing costs and elevated interest rates standing in the way of the American housing dream, according to a New York Federal Reserve survey released Monday. The share of renters as of February who possess hopes of “residential mobility,” or the belief from renters that they one day will be able to afford a home, fell to a record low 13.4% in the central bank’s annual housing survey for 2024. That’s down from 15% in 2023 and well off the 20.8% series high back in 2014. Pessimism about future prospects comes amid a confluence of factors conspiring against the likelihood of renters being able to transition to home ownership. For one, some 74.2% of renters viewed obtaining a mortgage as somewhat or very difficult, which the New York Fed said has “deteriorated substantially” from the 66.5% level in 2023 and 63.1% in 2022. Moreover, mortgage rates have remained high by historical standards. A 30-year fixed-rate mortgage now carries an average 7.22% borrowing rate, the highest since late November 2023, according to Freddie Mac. Despite prospects for the Fed to cut interest rates before the end of 2024, respondents think mortgage rates are only going to go higher. The outlook for a year from now is that borrowing costs will be 8.7%, and 9.7% in three years, both survey records. Source CNBC
Two Fed Presidents Say Current Rates Should Be Enough to Bring Inflation Down: Neither New York Fed president John Williams nor Richmond Fed president Thomas Barkin raised the prospect of rate hikes while speaking Monday, offering more assurances to investors who are still hoping for rate cuts from the central bank in 2024. Williams, in fact, said at the Milken Institute Conference that he thinks we'll have rate cuts while also emphasizing that policy is in a very good place now and we have the time to collect more, so steady as she goes. Barkin, speaking at the Columbia Rotary Club in South Carolina, said he is optimistic that current rates will be enough to eventually bring inflation down and that the Fed can afford to be patient due to a strong job market. The recent data whiplash has only confirmed the value of the Fed being deliberate, Barkin said. The economy is moving toward better balance, but no one wants inflation to reemerge, he added. Barkin, a voting member of the Fed’s interest rate-setting committee, seemingly echoed the view that the Fed is not looking at hiking rates right now but does need greater confidence inflation is moving back toward the goal of 2%. Source YahooFinance
Largest 3D Printer Can Now Create Massive Objects in Minutes: The University of Maine has revealed the largest 3D printer in the world. Named rather grandly "Factory of the Future 1.0", it can print objects almost the size of 40 standard containers, and it can even use wood dust. This colossal printer can produce items measuring up to 96 feet long, 32 feet wide, and 18 feet high, at a rapid pace of 500 pounds per hour. Factory of the Future 1.0 was revealed by UMaine to representatives from a number of agencies, including the Department of Defense, and the Department of Energyn. Video Here
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US Pandemic Savings Have Finally Been Spent: US households have exhausted the pile of cash squirreled away during the pandemic, according to research from the Federal Reserve Bank of San Francisco. “The latest estimates of overall pandemic excess savings remaining in the US economy have turned negative, suggesting that American households fully spent their pandemic-era savings as of March 2024,” San Francisco Fed economists Hamza Abdelrahman and Luiz Oliveira said in a blog post. Pandemic-era excess savings — the difference between actual savings and the pre-pandemic trend — swelled to $2.1 trillion from March 2020 to August 2021. From that point, households drew on those savings at an average monthly pace of $70 billion, and that spending accelerated to $85 billion per month last fall before dropping to -$72 billion in March, according to the researchers. Americans were able to build up extra savings while stuck at home during the pandemic, in part due to extraordinary government support. The reserves are widely thought to have helped the US economy continually defy forecasters’ expectations for a downturn. However, there are sings that cracks may be forming. New York Fed President John Williams said Monday the bank has heard from retailers that many consumers are being “much more careful about their spending and we’re seeing some slowing there.” Source Bloomberg
Property’s Waiting Game is Getting Harder: Higher-for-longer rates are forcing commercial property owners to rethink their options. Last year’s motto in real-estate circles was to “survive until ’25.” Property owners thought the Fed would cut interest rates throughout 2024. If borrowers could just sit tight, it would soon be easier to refinance troubled loans. The one-month forward curve shows that investors now think the secured overnight financing rate, or SOFR, which is closely related to the federal-funds rate, will be 4.825% at the start of 2025. This implies up to two small cuts this year. Back in January, six cuts were expected. One immediate consequence is that the cost of hedging has shot up again. Lenders require borrowers of floating-rate debt to hedge their interest-rate exposure, often through interest-rate caps. The cost of these caps has become a major headache for property owners, according to Carol Ng, a managing director at risk-management firm Derivative Logic. The price of a one-year extension for an interest-rate cap on a $100 million mortgage at a 3% strike rate is now $2.1 million. Back in January, when the market expected more rate cuts, the same extension cost $1.3 million. It isn’t just borrowers who are in a tight spot. The longer rates stay high, the greater the weight of unresolved property loans on lenders’ books as commercial real-estate loans get rolled over. According to the Mortgage Bankers Association, $929 billion of outstanding property loans will mature in 2024—a 41% increase on MBA’s earlier estimate. This is because many loans that were due to be paid off in 2023 were extended, adding to this year’s pile of maturities Source WSJ |
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Citigroup Says Low-Income Consumers Turning More Cautious: Citigroup CEO Jane Fraser said Monday that consumer behavior has diverged as inflation for goods and services makes life harder for many Americans. Fraser, who leads one of the largest U.S. credit-card issuers, said she is seeing a “K-shaped consumer.” That means the affluent continue to spend, while lower-income Americans have become more cautious with their consumption. “A lot of the growth in spending has been in the last few quarters with the affluent customer,” Fraser told CNBC’s Sara Eisen in an interview. “We’re seeing a much more cautious low-income consumer,” Fraser said. “They’re feeling more of the pressure of the cost of living, which has been high and increased for them. So while there is employment for them, debt servicing levels are higher than they were before.” Source CNBC
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