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THE EUPHORIA IN THE MARKET ABOUT THE DEAL MAY BE SHORT-LIVED: THE EMPLOYMENT REPORT AND THE FED’S DECISION ARE ON THE WAY

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THE EUPHORIA IN THE MARKET
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THE EUPHORIA IN THE MARKET ABOUT THE DEAL MAY BE SHORT-LIVED: THE EMPLOYMENT REPORT AND THE FED’S DECISION ARE ON THE WAY
🇺🇸Although everything in Washington points to the conclusion of an agreement on raising the debt ceiling, Wall Street believes that the euphoria from such a deal has already passed or will be short-lived next week.

Similarly, as soon as the euphoria associated with Nvidia’s good forecast of $NVDA for the second quarter and enthusiasm for everything related to AI subsides, investors’ attention will switch to non-agricultural employment data for May, which will be released next Friday (according to Dow Jones estimates, 188,000 new workers are expected places) and the next Fed meeting on June 13-14.

To top it all off, June is usually a bad month for stocks anyway, regardless of what’s going on in Washington and speculation about the Fed’s decision.

“The reason why June is usually weak is that the reporting season is already coming to an end, which means that companies are relatively calm, which means investors depend mainly on political news,” said Jay Hatfield, CEO of Infrastructure Capital Management. “This year, the debt ceiling negotiations, the Fed’s hawkish comments and the banking crisis are looming on the market. It looks like there will be an agreement on the debt ceiling over the weekend, which should help the market stabilize.”

The problem for many on Wall Street is the dynamics of the S&P 500 Tech, which has grown by more than 5% this week; the Nasdaq Composite is ahead by 2.5%, and the S&P 500 is up by 0.3%, which may mask the non-obvious weakness of the market, which is growing only at the expense of certain assets. The S&P 500 indices of consumer goods, materials, healthcare and utilities declined 2.4%-3.2% this week, while the Dow Industrials index declined 1%.

“Although the S&P 500 is up 9.5% in 2023, only a few stocks are performing well. The number of stocks trading above their 200-day moving average has been falling since mid-April,” Liz Yang, head of investment strategy at SoFi, wrote on her blog on Thursday.

“The ‘summer rally’ in most years is the weakest rally of all four seasons,” Stock Trader’s Almanac says.

“Unfortunately, the market background “remains alarming and sets up for further sideways movement and a likely pullback or correction during the weak summer months, especially after mid-July in the worst two months of the year – August and September,” Jeffrey Hirsch, editor-in-chief of Stock Trader’s Almanac, wrote on Thursday. @ESG_Stock_Market

When Little Pent-Up Demand Is Left

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When Little Pent-Up Demand Is Left
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Morgan Stanley, Sarah Wolfe on behalf of (chief economist) Ellen Zentner:

When Little Pent-Up Demand Is Left

An extraordinary rise in spending on services, combined with a modest recovery in the consumption of goods, led to a decrease in the personal savings rate by a ten-year minimum. Now the recovery of real spending on services is almost complete, which means that the growth of spending on services should slow down, while spending on goods continues to return to its pre-Covid share of income and PCE. Since spending on services accounts for 65% of the share of consumer wallets, the slowdown in growth contributes to lower inflation in the service sector. We expect that a further return (to past levels) of goods consumption, combined with weak growth in the services sector, will allow the Fed to approach the 2% inflation target without causing a recession.

Let’s rewind 2.5 years ago. It’s January 2021, and households are gradually coming out of the hibernation caused by Covid, but the widespread spread of the vaccine is still a few months away. Consumers allocate 5% more funds from their wallet for goods than before Covid, which contributes to record consumption of consumer electronics, household and repair goods, sporting goods and recreational vehicles. Also 2.5 years ago, we made a highly competitive forecast that the spread of the vaccine in the spring of 2021 would lead to a sharp increase in costs for services and payback of goods.

This return has occurred, but paired with greater-than-expected demand, thanks to unprecedented fiscal stimulus, excess savings and a substantial supply shortfall. Thus, we observed not only a shift from goods to services, but also an increase in total spending. The result was a 13 percent increase in goods inflation for almost three years, an acceleration in services inflation and a return to pre-Covid spending habits, which are much larger in real rather than nominal terms. (Figure 1). The biggest gain from Covid was received by stay-at-home products….
..and we have seen the most sustained recovery in discretionary services, including catering, accommodation, public transport and recreational services.

The increase in interest rates led to a decrease in spending on durable goods, which contributed to a slowdown in core goods (2.1% YoY as of April 2023 compared to 9.7% yoy a year ago and we expect that further deflationary pressure will reduce it to -0.2% YoY by December 2023 and to -1.3% YoY by December 2024.). As the supply of labor increases and deferred demand decreases, the pressure on inflation in the service sector begins to weaken. Inflation of basic goods is projected to decline further, and core-core services (core services excluding housing and medical prices) inflation has begun to slow down and as of April 2023 increased by 6.6% YoY, down from a peak of 7.4% in February 2023. The greatest impact on core-core services should occur in the second half of 2023 (5.4% YoY by December 2023 and 4.2% YoY by December 2024).

The growing savings rate leads to a reduction in the overall “pie” of spending, and households have a reduced need and desire to spend on goods and services. This makes it easier for the Fed to achieve the 2% inflation target without causing a recession. There is a potential to reduce the consumption of goods due to reduced needs and rising prices, as well as opportunities to slow down the consumption of services without it becoming negative. Real consumption of services, which increased significantly in 2021 (6.3% YoY) and 2022 (4.5% YoY), is expected to return to pre-Covid levels in the future. @ESG_Stock_Market

Nomura Securities, Charlie McElligott – My opinion about NVDA

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Nomura Securities, Charlie McElligott (in his note to clients by mail)
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Nomura Securities, Charlie McElligott (in his note to clients by mail):

“My opinion about NVDA: when you see how the 4th largest stock in SPX and QQQ rallies at one point by +28% after-hours (vs an options implied move of ~7.5%) on the shock of profit growth, it’s just an absolutely brutal demonstration of strength, saying that that this generative AI boom is a “Real Thing”… when revenue exceeded $11.0 billion. compared to the previous forecast of $7.2 billion (+53% compared to the previous forecast – WUT?!) … when the excess of the forecast > the market capitalization of 93% of Russell 2000 shares … and while the EPS estimate for 2024 was $4.60 before the publication of profit, and now some analysts are throwing numbers, almost twice as high as these forecasts for the next year…and after the company added 1.5 Intels on cap’y per night…It’s just a fool’s mistake – trying to pick the top and short MegaCap Tech or the US stock index as a whole on the “valuation” thesis alone (this, in my opinion, will require a likely “inflation surprise/escalation of policy tightening” additionally), as these companies prove again and again the old thesis of “secular growth”, which made these stocks incredibly popular at this stage: they don’t need a hot economic cycle to surpass revenues and profits, as they are simply liquid, money-generating machines.” @ESG_Stock_Market

USA: bidding for the limit

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USA bidding for the limit
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USA: bidding for the limit. As the US Treasury is running out of money, and the April taxes do not yet give hopes for a large budget surplus, politicians are stirring. Republicans in the House of Representatives of Congress are ready to raise the debt limit by $1.5 trillion, or within this amount by the end of March 2024. But with the condition of budget cuts on topics sensitive to Democrats, which will almost certainly lead to Democrats “wrapping up” the draft in the Senate, even if Republicans can get it through the House. The Democrats themselves have already said that the ceiling should be raised without any conditions, but the political fuss has begun.

How much time Biden and Yellen have left… As of April 18, the cash on Treasury accounts was $252.6 billion, which is $75 billion more than it was at the end of March. The situation is worse than in 2022, when by April 20 it was possible to increase the cache by ~ $190 relative to March, i.e. while Yellen is rather closer to the lower limit of expectations of a $150-200 billion surplus in April. The US Treasury can get up to $300 billion more by borrowing as part of the implementation of emergency measures, i.e. in the amount of ~ $0.5-0.6 trillion should still remain at the end of April – this should be enough for May-July and maybe for part of August this year. Some people say that June is already “everything”, but for now it’s more like speculation, although we need to wait until the end of April.

The Republicans’ proposal pushes the ceiling issue right under the election, and the proposed debt growth limit of $1.5 trillion, of which most will go to interest on the debt, does not give Yellen the opportunity to restore the cache to skip the election. The Democrats, of course, cannot allow this, but at least the subject trade has begun. We are watching the continuation of the show with curiosity … @ESG_Stock_Market

P.S.: annual CDS on the US national debt are confidently at historical highs
​​#USA #inflation #Finance Ministry #debt #rates #dollar

Dollar LIQUIDITY what is happening now, everyone is already confused

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Dollar LIQUIDITY what is happening now, everyone is already confused
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Dollar liquidity measures the ability of the dollar to be used for transactions and activate other forms of financial assets. Currently, this presents a confusing situation for investors. Let’s take a closer look

LOANS

Curiously, at the end of March the volume of reverse REPOs for non-residents halved

LOANS

But foreign companies have increased loans, and quite aggressively

But foreign companies have increased loans, and quite aggressively

This could indicate a shortage of dollars outside the U.S. financial system.

FRS BALANCE

Fed’s balance sheet shrank by $17 billion in the week, a steady trend relative to last year The Fed's balance sheet shrank by $17 billion in the week

The blue line is the annual dynamics of the Fed balance sheet, the green and red are the mortgage bonds and treasuries on the Fed balance sheet. As we can see, all indicators are below zero, i.e. below last year.

DOLLAR LIQUIDITY

The Ministry of Finance account decreased by $54 billion, with about $80 billion remaining in the account of the Ministry of Finance, which is a historically low value – this is marked by the blue line on the chart

The red line is non-resident reverse repos, which rose by $12 billion during the week and returned to historic highs.

The red line is non-resident reverse repos, which rose by $12 billion during the week and returned to historic highs.

EXCESS RESERVES

EXCESS RESERVES

Excess reserves that are not generating income (blue) are down $34 billion and those that are generating income (red) are up $78 billion,

 

The growth of reverse repos continues to generate losses for the Fed, with $48 billion in losses already accumulated.

LIQUIDITY DYNAMICS

Liquidity in the system decreased by $40 billion (blue line) due to absorption from reverse repos, and also in a sideways trend after the start of the banking crisis

LIQUIDITY DYNAMICS

The U.S. stock market (the red one is the S&P500) has gotten off the ground, and the accumulated divergence is quite significant.

FINANCIAL CONDITIONS

According to the Federal Reserve Bank of Chicago, credit conditions have begun to tighten (blue line), but for some reason the dollar is not feeling it and continues to weaken (red line is the annual trend of the dollar) - suggesting that the dollar market is "long-covered" before rising.

According to the Federal Reserve Bank of Chicago, credit conditions have begun to tighten (blue line), but for some reason the dollar is not feeling it and continues to weaken (red line is the annual trend of the dollar) – suggesting that the dollar market is “long-covered” before rising.

FOREIGN EXCHANGE BALANCES

U.S. financial system currency balances are unchanged for the week (blue line), remain at the levels of the beginning of the year

The red line is a reversal of the dollar, last week's data, but we know that the dollar has remained under pressure this week, which locally does not fit with the dynamics of the volume of currency balances.

The red line is a reversal of the dollar, last week’s data, but we know that the dollar has remained under pressure this week, which locally does not fit with the dynamics of the volume of currency balances.

CONCLUSION

1) The picture with the dollar is interesting: increased demand from non-residents in two of the three considered directions, as well as flat dynamics of currency balances and reduced liquidity, combined with tightening credit conditions – suggesting that the current dollar decline is the final one before the start of growth.

2) The Treasury bill also looks curious, and if tax revenues are lower than expected because of lower corporate earnings, everybody will be talking about a liquidity shortage at one of the guarantors of stability in the U.S. financial system.

3) There is also an expressive divergence accumulated between the S&P500 index and the volume of free liquidity in the system, which can be interpreted as potential pressure on the stock market, especially since the cycle of liquidity withdrawal by the Ministry of Finance is ahead, i.e. the liquidity indicator will start to decline steadily.

4) I continue to believe that a new risk-off wave is coming, which will be heavier relative to the spring 2022 wave, which will end in the summer with a move to control the yield curve or lower rates, I am leaning towards the first instrument. @ESG_Stock_Market

World inflation data. Inflation in the US, what has changed? Inflation in Europe #inflation

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World inflation data. Inflation in the US, what has changed? Inflation in Europe #inflation
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World inflation data. Inflation in the US, what has changed? Powell’s inflation indicator. Inflation in Europe. I’ll give you a couple of tips

1️⃣ US labor market: still hot. The situation with vacancies remained very aggressive, the number of open vacancies even increased and is 1.9 times higher than the number of unemployed, which is a lot. Weekly applications for unemployment benefits remain below 200 thousand. The salary fund is growing by 7.7% YoY – this is a couple of tenths less than it was a quarter earlier, but still significantly higher than what would meet the Fed’s 2% inflation target. The flow of nominal income remains quite aggressive.

2️⃣ Excess savings remain high, but their “eating through” has accelerated. The volume of deposits and money market funds in households is ~ $3.0 trillion, although it has dropped to 95% of disposable income, but it is much higher than the docklike ~80%. This allows American households to save less and spend more – the savings rate of Americans has increased slightly, but still remains at extremely low levels of 4.4%. Although the banking crisis accelerates the processes in the first quarter, but there is still a long way to normalize here – there is something to spend.

3️⃣ The debt burden is low, but it has become more difficult to borrow. The amount of debt of the population relative to their disposable income of 99% is even slightly lower than in previous quarters. The decrease is due to the slowdown in mortgages (the main part of the debt) against the background of increased rates, the growth of nominal incomes and, of course, the write–off of student loans at the expense of the budget – this played a major role. Americans spent 9.7% of their income on debt servicing, which is very, very little by historical standards. There is still enough stock here, although high mortgage rates limit the possibilities of borrowing, but writing off student debts allows you to borrow several hundred billion extra. Mortgage debt has remained at lows since the 1960s and is 28.8% of the value of real estate in the United States.

4️⃣ Wealth Effect: The value of US household assets remains high. The total asset value of American households remains extremely high at 874% of disposable income. This is still above the docklike levels, but the situation varies for different income groups. The situation in the TOP10 is much better, both due to the increase in the value of financial assets and real estate. At BOTTOM90 – mainly due to the growth in the volume and value of real estate, deposits, pension plans and long-term goods. In general, the situation here is not yet conducive to Americans starting to save.

In general, we can say that the growth potential of Americans’ consumer spending remains high 6-8% YoY, which is much higher than what the Fed would like to see. At the same time, the budget incentive has rather increased, both due to the write-off of loans, and due to various kinds of social payments. In general, all this supports a fairly high potential for maintaining the increased growth rates of nominal expenditures, and as a result, inflation. The first “explosions” in the financial market may somewhat accelerate the processes (tightening of financial conditions), but given that history was immediately flooded with money, the impact will be limited.

​​#USA #inflation #economy #Fed #debt #rates #dollar

Powell ‘s inflation indicator is stability …

The report on the consumer spending deflator came out slightly better than market expectations, prices rose by 0.3% mom and 5.0% YoY. And even core inflation came out not so bad 0.3% mom and 4.6% YoY – the market was waiting for 4.7% YoY. Commodity inflation against the background of migration of consumption into services is modest and amounted to 0.2% mom and 3.6% YoY. Although the disinflationary effect of prices for used cars continued here (-2.8% mom and -12.3% YoY) – the dynamics is strange, because wholesale prices for them have been rising for several months in a row, and earlier prices were correlated. Prices for short-term goods increased by 0.3% and 5.4% YoY.

The main inflation in services, although not to say that it is huge here, is stable 0.3% mom and 5.7% yoy. Housing is getting more expensive by 0.7% mom and 8.2% yoy, but the Fed is turning a blind eye to it, because there is inertial growth. The most important thing is where J. is looking.Powell and Co. are services inflation excluding housing and energy prices – they added 0.3% mom and 4.7% YoY – stability, in January it was also 4.7% YoY. The increase in these prices for three months amounted to 5.0% in annual terms. In this part of inflation, nothing actually changes, something is accelerating, something is slowing down, but the index has been dead in the range of 4.2-5% annual growth for two years now. With a neutral real rate of about 0.5%, the Fed’s policy is clearly not up to the “restrictive policy” (the real rate is 1-2%)…

​​#eurozone #inflation #ECB #rates #economy #EUR

Euroinflation

Euroinflation

Inflation in the eurozone in March was 0.9% mom, although annual inflation slowed to 6.9% YoY, this slowdown is mainly due to the high base of last year. The only factor slowing price growth was energy (-2.2% mom and -0.9% YoY), everything else was actively getting more expensive.

Food products produced 1.3% mom and 15.4% YoY. Without energy and food, core inflation is 1.2% mom and a record 5.7% YoY. Although the price growth for goods without energy slowed down a bit (6.6% YoY), but the price growth in services accelerated to 5% YoY. The influence of energy has gone, but inflation has remained.

At the same time, unemployment is at historical lows of 6.6%.
With the economy, everything is not particularly positive – real retail sales in Germany fell by 1.3% mom and collapsed by 7.1% YoY, although nominal sales increased by 2.6% yoy. Real sales were 1.6% lower than three years ago.

Consumption of goods in France fell by 0.8% mom and 4.1% YoY in real terms. First of all, this applies to food (-1.5% mom and -9% yoy). Consumption in France is at the levels of a decade ago, but this is in real terms. Protests against the background of pushing pension reform will add additional negativity to the French economy.

Low unemployment and labor shortage are side by side with a drop in living standards against the background of high inflation – such an entertaining reality. So the real strikes are still ahead here.

​​#Germany #inflation #Eurozone #economy #rates #Crisis

Inflation in Germany is not retreating

Inflation in Germany is not retreating

The growth of consumer prices in March, according to preliminary data, amounted to 0.8% mom and 7.4% yoy. Although annual inflation has slowed down, this is only the effect of the base of last year, when prices jumped by 2.4% mom in a month.

According to the Eurostat methodology, consumer prices in Germany are growing by 1.1% mom and 7.8% YoY. The growth of energy prices has slowed down sharply (+3.5% YoY compared to 19.1% yoy in February) – there are a lot of subsidies. But the growth of food prices accelerated even more (+22.3% YoY versus +21.8% in March). The growth of prices in services accelerated to 4.8% YoY, even though rents in Germany continue to rise by a modest 2% (but much is administratively regulated here).

In Spain, it is also interesting, inflation was 0.4% mom and due to the effect of the base collapsed to 3.3% yoy. But core inflation in Spain was 0.7% mom and 7.5% YoY.

So the ECB, as some Eurobankers say, “still has a lot of work to do”, it is unlikely that monthly prints of 0.7-1% mom correspond to the ECB’s goal. The reaction of the markets rather indicates that they continue to believe in the story that rates will rise and everything will be fine… and there will definitely be no SVB in Europe … well , we ‘ll wait )

#germany #sentiment #recession #crisis #economy

Despite the depressive information background associated with the ECB rate hike, high inflation, the likelihood of a recession and problems in the banking sector, a positive mood prevails in German business circles in March. However, it is worth remembering that the more expectations are inflated, the deeper the disappointments will be

#recession #europe #ecb #rates #economy

recession in Europe has reached 100%

The MacroMicroMe team used the ECB 2019 model to estimate the likelihood of a recession in the EU. This model is based on the real money supply and the state of the yield curve. The results showed that the probability of a recession in Europe has reached 100%, which is an exceptional event over the past 40 years.

And remember: #Fed #rates #qt #prep #finance #economics

The Fed is in the toughest monetary policy tightening cycle since 1983

The Fed is in the toughest monetary policy tightening cycle since 1983: rates are rising faster and have reached historically high values, which is reflected in the red line on the chart.
However, the worst thing is that the financial system is already under stress, and inflationary pressure in the US economy remains stable. The monthly increase in core inflation corresponds to the average rate of the 80s of the last century, which indicates that even such a strict policy of the Fed is not able to effectively combat inflation. Moreover, business activity revived in March, which is a signal of sustained inflation. @ESG_Stock_Market

UBS Acquires Credit Suisse in Response to Financial Crisis

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UBS Acquires Credit Suisse in Response to Financial Crisis
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UBS Acquires Credit Suisse in Response to Financial Crisis. The first full week of the banking crisis was dynamic. The Fed poured a record amount of loans ($303 billion) into the system, of which the FDIC added $143 billion, the US Treasury added $40 billion, the FDIC itself had ~$128 billion mainly in state funds, the total pool of FDIC capabilities was $300-310 billion with marginal payments of ~$260 billion for two banks. But there may be more on the way… Yellen’s capabilities are limited (the “ceiling” of the national debt is tight), the FDIC does not have much money, so they are trying to sell Signature Bank, and First Republic Bank was actually asked to save the largest banks, which will provide $30 billion.
 
Yellen, who has no extra money, has already stated that she will not save everyone (it was more correct to say “she will not be able”), had to gather the largest bankers (JPM, BofA, Citi, etc.) and push them to save the sinking $200-billion California bank. FRB has a lot of uninsured deposits of wealthy clients (who are fleeing), and the loan portfolio is mainly related to real estate (and in 2022 they increased it by 23.6%). In fact, the same story: “large” deposits without insurance, a loan portfolio with a large duration, but I can’t put a lot of securities in the Fed) t (little). There is another nuance – in addition, the bank has a large wealth management portfolio worth $ 270 billion... In California, the fall will be loud…with Hollywood passions, and then dozens of medium-sized banks. The story will continue, and Yellen‘s options are limited...
 
For Credit Suisse, the main option = this takeover by UBS is increasingly realistic. Although the banks themselves do not really want this, but there are not many options here – with the current blow to trust. The outflow of client money can be temporarily blocked by liquidity from the NBSH, but only temporarily, large banks are already actively cutting limits on the bank. The fall of CS, which is embedded in many instruments and mechanisms of the global financial system by thin threads, is the new Lehmann. In this sense, they will not let it fall at all (at least they will do everything to prevent it), but even without this, the withdrawal of capital from such structures can lead to the unwinding of complex derivative structures and possible sales/volatility in almost any market segment. UBS will get a pig in a poke that can bury it, because it will require exorbitant guarantees. It could be nationalized, but I’m afraid it can’t be solved in Switzerland without a referendum).
 
The markets are chaotic, in reality, the movements of any assets may be due simply to the fact that someone is forced to urgently close existing positions. Stocks in the United States, especially tech stocks, have grown, but I think this is not only because of expectations of easing by the Fed (although this is also), but also because of attempts to shove fleeing deposits at least somewhere ($300 billion from the Fed mostly goes to the outflow of deposits… they need to go somewhere other than deposits in large banks). Gold/ silver and bitcoin have gone to the ceiling – also on this story of flight from banks. Gold is clear and without comments. Considering that the deposits of IT/ creative sectors that are on the “you” with the crypt are largely affected, some of them go there, and there may also fall... but without the risk of instant zeroing. The crypt does not need much – $ 1-2 billion of inflow will give ~ $100 billion of market capitalization growth. It is clear that expectations of a reversal of the Fed and other Central banks are the engine of this movement.
 
There is also enough chaos in the public debt markets: liquidity is low (spreads have parted), volatility has increased sharply – flights by dozens of points in one direction or the other. There are also distortions in the money market. All this is directly related to the banking crisis – investors have moved powerfully from deposits to government debt, including. As a result, for example, the yield of the 4-week Treasury bill collapsed from 4.6% to 4%, while SOFR 4.6% and Fed rate futures also 4.6%. Of course, no one expects a rate cut to 4%… just a wild demand for bills of exchange. The crisis of liquidity and confidence in medium-sized banks is adjacent to the excess of liquidity in large ones (no one went to REPO with the Fed, and the reverse REPO began to grow, but $153 billion was crammed into the discount window)...
 
Deeds - thoughts
... I think it is necessary to make allowances for the fact that a significant part of the movements in the markets are due to throwing deposits into "something else", part - hopes that the Fed will reverse course. On Wednesday, there will be a very entertaining meeting of the Fed on rates, and forecasts will also have to be published... Powell will have to go through the blade, they have already essentially softened the approaches of pouring liquidity. It will turn around too sharply and lose face (but what about inflation!) and the market will scare (it means everything is very bad!) ... it will continue to put pressure on the gas (the rate forecast is important) – it will also scare, because there is an increase in losses and new victims ahead. Therefore, it may rather be an attempt to portray something in between... so we'll see, although everything can change in a day today.
 

Credit Suisse Total

 
UBS buys Credit Suisse for >$2 billion (at the closing of the CS market it cost > $7 billion) and traded $100 billion in liquidity to the Swiss National Bank. Switzerland is ready to rewrite the laws to circumvent the shareholder vote in the deal.
 
UBS managed to bargain for very good conditions in general, although no one fully knows how many CS skeletons there are in the closet.
 
At the very least, this may ease the tension a little, but it is not a fact that history will not eventually encounter resistance from shareholders... we‘ll see
 
@ESG_Stock_Market

Inflation Rate in US now Hits 6% YoY in February despite Used Car Drop

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Inflation Rate in US now
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❗️US inflation in February was 0.4% mom, 6.0% YoY, core inflation 0.5% mom, 5.5% YoY. And this despite the fact that used cars unexpectedly gave out a drop again – 2.8% m/m…

The banks’ opinions on the Fed’s further actions are divided, some believe that the Fed will cut rates in March… someone that leave unchanged… someone who will raise (1-3 times by 25 bps). The market has calmed down a little and is waiting for a 25 bps rate increase (69% probability) rather than remaining unchanged (31%), and another increase in May … but since July, he has been betting on a reduction in rates. The Fed needs to save face…

According to the current decisions on SVB and Signature, $264 billion of deposits need to be returned, of which about $30 billion and about $234 billion should be given by the Fed as collateral for assets (there are not enough securities on the balance sheets of both banks for collateral). The FDIC itself had $128 billion at the end of 2022, mainly in government bonds (for $126 billion of government bonds at face value). In 2021 and 2022, they managed to consolidate ~ $5 billion a year into the insurance fund. One way or another, the Fed will simply “print” about a quarter of a trillion dollars, which the FDIC will receive at 5% + per annum and distribute to depositors. The $25 billion that the US Treasury will provide is an amount close to the difference between the nominal and market value of collateral assets (a guarantee for the Fed).

At the weekend, J. Yellen refused to comment on the Fed’s further actions, saying on duty about the Fed’s independence and that they would evaluate it in the coming days and weeks. At the same time, she actually admitted that bankruptcies are a consequence of high rates: “The problems of this bank, from reporting about its situation, suggest that because we’re in a higher interest rate environment…”. There is no doubt that Yellen and Powell discussed this issue, but most likely no decisions have been made yet.
It is already obvious to everyone that what is happening is a consequence of the increase in rates, it is not obvious to everyone… but these are only the first signs of the consequences of the rate hike cycle, the losses of the financial system from the rate increase will continue to accumulate. For Powell, the situation is extremely unpleasant, a couple of days ago he went “hawk” (and not only he, but also other representatives of the Fed)… whether something has changed with inflation – not significantly. And just like that, to turn around right away is an epic failure and a blow to trust (which is so not very high). The market is already showing what it thinks – the growth of gold / bitcoin, the fall of the dollar, etc.

If inflation had slowed down on Tuesday, it would have been easier for the Fed to justify a reverse move. But no …


​​#USA #inflation #economy #Fed #debt #rates #dollar

Looking more closely at American inflation…

Externally, the report has no large deviations from expectations, total inflation is 0.4% mom and 6.0% YoY, without energy and food 0.5% mom and 5.5% yoy. But in reality, only one–time stories saved from a sharper price increase: used cars (-2.8% mom disinflation after a rapid takeoff), gas (-8% mom – heat), eggs (-6.7% mom disinflation) and medical insurance (-4.1% mom to the current inflationary reality has a very distant relationship). Together, these factors reduced monthly inflation by ~0.2 percentage points – too much.

Grocery inflation slowed down slightly by 0.4% mom and 9.5% YoY, but remains aggressive. Goods without energy, food and used cars added 0.4% mom and 4.2% YoY, growth decently slowed down from highs amid the migration of consumption from goods to services, but in the last three months the price increase has stabilized around 4-5% YoY. The main drive remains in services (0.5% mom and 7.6% yoy), active growth in housing continues (0.8% mom and 8.1% yoy), although this is an inertial growth, transport has accelerated (1.1% mom and 14.6% yoy), but mainly due to air travel (6.4% m/m).

If we discard various one–time emissions, inflation accelerated in February rather, various inflation indices cleared of volatile components remained at the ceiling of 6-7% YoY and even accelerated at the moment. I would still estimate the steady inflationary momentum as 4.5-5%, the New York Federal Reserve estimates at 4.9%. This means that even a neutral rate is 5-5.5%… and a restrictive policy means the rate is even higher. However, the same New York Fed published data on inflation expectations – annual expectations decreased from 5% to 4.2% than the Fed may try to justify caution. But the inflationary history as a whole speaks for an increase further.

PS: If anyone remembers, a couple of years ago, the Fed approved a new strategy and switched to targeting the average inflation rate (the average for 5 years is already 3.5%, for example), so if you approach it quite formally, then in order to fulfill your goals, Powell should lower inflation below 2% and keep it for a long time

@ESG_Stock_Market

 

Joe scares the stock market

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Joe scares the stock market
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Employment has grown quite well

USA: employment has grown well, unemployment – too

The number of people employed in the US non-agricultural sector increased by 311 thousand in February, of which 265 thousand in the private sector and most in the service sector (245 thousand). The negative dynamics were in the IT (-25 thousand) and transport/logistics (-21.5 thousand) sectors, but the leisure, medicine/education/trade industries more than compensated for the reductions. The unemployment rate increased from 3.4% to 3.6%, although the share of employed remained virtually unchanged at 60.2%, but labor force participation increased slightly (62.5%). So far, these are only local changes within the framework of ordinary fluctuations.

The markets were very happy about something else: the growth of hourly wages slowed down to 0.2% mom and 4.6% yoy. But it’s not so simple here, the dismissal of higher-paid workers and the hiring of less well-paid ones can quite objectively affect the average pay. If we look at the salaries of non-managerial production personnel, then in February, on the contrary, the growth accelerated to 0.5% mom and 5.6% YoY. However, at the same time, the average number of hours worked decreased, which somewhat adjusted the total wage fund (-0.1% mom) after its sharp rise in January (+1.2% mom). The annual growth of the wage fund has slowed down to 7.4% YoY, but it is still much higher than the pre-crisis ~4%, and the slowdown is rather due to the base effect. The increase in three months was 1.8%, which is slightly higher than the average observed in the last six months (1.7%), i.e. the short-term trend remains the same.

The report is generally ambiguous, on the one hand, it gives certain hints of a slowdown, but the number of employed is actively growing, and the slowdown in the growth of s/p is largely due to the cuts of higher-paid workers. The data can be interpreted quite broadly, the report is rather neutral for making a decision on the rate, but still allows the Fed not to rush back to the 50 bp step.

Yellen continues to spend

Yellen continues to spend “stash”, but there are still reserves

The Fed paused this week – the securities portfolio has practically not changed, in 4 weeks the reduction of the portfolio of government bonds is $61 billion, but the chronic shortage of MBS is only $15 billion reduction in 4 weeks. If Powell is on pause, then Yellen cannot do this and continued to spend “cash” from accounts, adding new dollars to the system: the deposits of the Ministry of Finance in the Fed decreased by $39 billion to $311 billion in a week, in 4 weeks the Ministry of Finance poured $184 billion into the financial system from its account in the Fed. It can add up to $50-100 billion more in March, but in April it will begin to actively withdraw through taxes (~$250..300 billion) – it will be interesting to see how the markets behave.

The banks returned dollars to the Fed through the reverse repo mechanism, the volume of which increased by almost $60 billion to $2.56 trillion in a week, because, despite the operations of the Ministry of Finance, there was a little less liquidity. Banks use reverse repos with the Fed to hedge – the inversion of the debt curve has intensified again. At the same time, corporate bond spreads were rather declining, although the “rout” of bank stocks on Thursday may indicate that there is a clear underestimation of risks.

Biden’s budget, which is $5.5 trillion in tax exemptions, is extremely negative for the stock market, because it will decently reduce capital inflows to the stock market, but it is unlikely to be missed by Republicans in Congress. Ahead of a stormy showdown with the debt ceiling and the budget… The annual CDS on the US national debt continues to grow (76 points).

The US Treasury will continue to add dollars to the system, but in April it will absorb a lot, which may add headaches to the markets along with a shake-up of banks if the Fed does not smooth the situation.

And what does Joe offer us?

US President Joe Biden has proposed a new budget plan for 2024

What is important for us there?

▫️Increase in corporate tax to 28%. Well, thank you, of course, that it is not up to 35% as it was before 2017, but it is still very unpleasant.

▫️Increase in the tax on baibek from 1% to 4%. They say there is nothing to return the value to shareholders here — invest in the development of business and jobs. It seems logical, but there are businesses that are in a cycle of peak development, and according to all norms of corporate finance, they need to give money to shareholders.

▫️The income tax abroad will be raised from 10.5% to 21%. Companies in the USA export services abroad and earn worldwide. Now they will pay “like at home”.

The tax on the rich will be raised from 8% to 25% with a fortune of $100 million. The richest stratum — 0.01% of all taxpayers — will suffer the most.

Cancellation of benefits for oil and gas companies and Big Pharma. For neftegaz, this means literally “pay taxes”, and for pharmaceutical companies, that many medicines can be made available to Medicare, which will lead to negotiations to reduce their cost.

So far, this is only a Biden Administration proposal, but the market reacted accordingly yesterday.

@ESG_Stock_Market

U.S. Labor Market Remains Hot Despite Drop in Job Openings

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U.S. Job Market Remains Overheated
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U.S.: labor market remains overheated

U.S. job openings fell by 410,000 in January, but the 2022 data was revised upward to 11.23 million, bringing the total to 10.82 million openings in January. That’s 1.9 times the number of unemployed, up 1.96 times in December after the revision. In the private sector, 9.77 million job openings remain. But still there are hints of the market cooling, for the first time in many months less than 4 million Americans have changed jobs in search of a better life (wage), and the employer-initiated layoffs are more common. True, more Americans are hiring than firing – not much has changed.

The ADP counted a job gain of 240,000 in February, with small businesses cutting and medium and large businesses hiring. Considering the past reports, the ADP data should be treated rather cautiously, they used to count crookedly, after the change of methodology something may improve, but it is too early to say. That said, they now have data on wage changes: growth slowed down a bit but from 7.3% y/y to 7.2% y/y, and with job changes you can expect a gain of 14.3% y/y (was 14.9% y/y). This is still very aggressive and so far the job market remains extremely overheated. Weekly jobless claims <200k and a total of <2 million on benefits is telling.

The head of FRS J. Powell on Wednesday did not bring much joy to the markets, though he tried to smooth the signal a little bit by saying that they have not made a decision yet (25 or 50) and will look at the data… but so far the data is more in favor of a harder reaction… although the labor market report and inflation reports are still to come – they will be decisive. That said, the Fed, based on the data, continues to show that it just doesn’t know where the ceiling will be and is even technically almost guaranteed to overreact.

In Congress, the head of the Fed was very nervous this time with questions like “You’re trying to put people out of work… That’s your job, isn’t it?”… “you want to put 2 million Americans out of work,” etc. Powell, of course, fought back that they were trying to restore price stability… telling them that this time things might be “different”… I recall how “different” it already was when inflation was “temporary”). Unemployment is not yet rising, elections are a year and a half away, and the Fed has already begun to actively “press” politicians… It’s going to get worse…

@ESG_Stock_Market

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