Markets rise ahead of important inflation data tomorrow

Dow rise 126, advancers over decliners 2-1 & NAZ climbed 122.  The MLP index added 1+ to the 279s & the REIT index gained 3 to the 274s.  Junk bond funds inched higher & Treasuries continued in demand, bringing lower yields.  Oil was up 1 to 78 & gold advanced 19 to 2362 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Federal Reserve Chair Jerome Powell reiterated that inflation is falling more slowly than expected & will keep the central bank on hold for an extended period.  The central bank leader noted that the rapid disinflation that happened in 2023 has slowed considerably this year & caused a rethink of where policy is headed.  “We did not expect this to be a smooth road. But these [inflation readings] were higher than I think anybody expected,” Powell said.  “What that has told us is that we’ll need to be patient and let restrictive policy do its work.”  While he expects inflation to come down thru the year, he noted that hasn't happened so far.  “I do think it’s really a question of keeping policy at the current rate for longer than had been thought,” he added.  However, Powell also repeated that he does not expect the Fed to be raising rates.  The Fed has been holding its key overnight borrowing rate in a targeted range of 5.25%-5.50%.  Though the rate has been there since Jul, it is the highest level in some 23 years.  “I don’t think that it’s likely, based on the data that we have, that the next move that we make would be a rate hike,” he said.  “I think it’s more likely that we’ll be at a place where we hold the policy rate where it is.”  Powell's comments mirrored sentiments he expressed during his May 1 news conference after the most recent Federal Open Market Committee meeting.  The committee unanimously voted to hold the line on rates while also expressing that it had seen a “lack of further progress” on getting inflation back to the Fed’s 2% target, despite a series of 11 interest rate increases.  Today brought a fresh round of discouraging inflation data, when the Labor Dept's producer price index, a proxy for wholesale costs, rose a higher-than-expected 0.5% in Apr on the back of a surge in services prices.  Though the index on its surface indicated further price pressures, Powell called the report “mixed” as some of the components showed easing movement.  “Is inflation going to be more persistent going forward? ... I don’t think we know that yet. I think we need more than a quarter’s worth of data to really make a judgement on that,” he continued.

Fed Chair Powell says inflation has been higher than thought, expects rates to hold steady

Google (GOOG) is using its annual developer conference to showcase what the company is calling its lightest & most efficient artificial intelligence models.  The company announced Gemini 1.5 Flash, the newest addition to the Gemini model series.  “We heard from developers that they wanted something faster and even more cost effective,” said Demis Hassabis, CEO of Google DeepMind.  The unveiling comes as tech companies increasingly refocus their product development & rollouts around generative AI, which is of particular importance to GOOG because the new tools give consumers more advanced & creative ways to access online information compared to traditional web search.  OpenAI launched a new AI model & desktop version of ChatGPT, along with a new user interface.  The new model, GPT-4o, is twice as fast as GPT-4 Turbo & ½ the cost.  Google (GOOG) is using its annual developer conference to showcase what the company is calling its lightest & most efficient artificial intelligence models.  The company announced Gemini 1.5 Flash, the newest addition to the Gemini model series.  “We heard from developers that they wanted something faster and even more cost effective,” said Demis Hassabis, CEO of Google DeepMind.  The unveiling comes as tech companies increasingly refocus their product development & rollouts around generative AI, which is of particular importance to GOOG because the new tools give consumers more advanced & creative ways to access online information compared to traditional web search.  OpenAI launched a new AI model & desktop version of ChatGPT, along with a new user interface.  The new model, GPT-4o, is twice as fast as GPT-4 Turbo & ½ the cost.  GOOG also announced an improved Gemini 1.5 Pro model, which has the ability to make sense of multiple large documents, 1500-pages total, or summarize 100 emails, according to a VP working on Gemini.  Gemini 1.5 Pro will soon be able to handle an hour of video content, or codebases with more than 30K lines, Hsiao said.  With 35 languages, Gemini 1.5 Pro has a 2M token window, which measures context & indicates how much information the model is able to process at once.  The new model has improved local reasoning, planning & image understanding, company execs said.  “You can quickly get answers and insights about dense documents, like figuring out the details of the pet policy in your rental agreement or comparing key arguments of multiple long research papers,” Hsiao said.  GOOG stock rose 1.03.

Google rolls out its most powerful AI models as competition from OpenAI heats up

Americans racked up more debt at the beginning of 2024 & a growing number of households fell behind on payments for several types of loans, according to a New York Federal Reserve report.  In the first 3 months of 2024, total household debt surged to a fresh record of $17.7T, an increase of $184B, or 1.1% from the previous qtr.  The increase mostly stemmed from a jump in mortgage balances, which rose $190B from the previous qtr to $12.4T at the end of Mar.  Auto loan balances rose slightly by $9B, continuing the upward climb seen since 2020 & now stand at $1.62T.  But credit card balances fell by $14B to $1.12T, near a record high, as consumers worked to pay down their debt following the holiday shopping season.  The report also showed a notable increase in the number of borrowers who are struggling with credit card, student & auto loan payments.  As of Mar, about 3.2% of outstanding debt was in some stage of delinquency, up from the 3.1% recorded the previous qtr but still down from the average 4.7% rate seen before the COVID-19 pandemic began.  The transitions into delinquency, particularly serious delinquency in which a balance is more than 90 days overdue, rose across all debt types.  "In the first quarter of 2024, credit card and auto loan transition rates into serious delinquency continued to rise across all age groups," said Joelle Scally, regional economic principal within the Household & Public Policy Research Division at the New York Fed.  "An increasing number of borrowers missed credit card payments, revealing worsening financial distress among some households."  Credit card delinquencies continued to rise from their pre-pandemic levels in the first quarter.  The percentage of credit card balances in serious delinquency climbed to its highest level since 2012.  The rise in debt is particularly concerning because interest rates are astronomically high right now.  The average credit card annual percentage rate, or APR, is hovering around 20.66%, near a record high, according to a Bankrate database that dates back to 1985.  The previous record was 19% in 1991.

Americans are carrying a record amount of household debt

Gold traded higher as the $ & treasury yields weakened even after another measure showed US inflation continued to run hot last month.  Gold for Jun was last seen up $17 to $2360 per ounce.  The Bureau of Labor Statistics reported the producer price index rose by 0.5% in Apr from Mar, up from a revised rise of 0.2% in Mar & ahead of the consensus estimate for a 0.3% monthly rise.  Core PPI, which excludes volatile items like food & energy, rose 0.4%, up from 0.2% in Mar & above the 0.2% estimate.  The report is the latest to show US prices continue to rise above the Federal Reserve's 2% target, again cutting into hopes the central bank will be able to lower interest rates from a 23-year high before year end.  The Apr consumer price index will be released tomorrow, with the estimate calling for a rise of 3.4% annualized, down from 3.5% in Mar.  The $ moved lower after briefly spiking following the data & the ICE dollar index was last seen down 0.18 points to 105.04.  Treasury yields also moved lower after rising sharply following the PPI release, bullish for gold since it pays no interest.  The US 2 year note was last seen paying 4.834%, down 4.2 basis points, while the yield on the 10-year note was down 3.3 basis points to 4.46%.

Gold Moves Higher as the Dollar and Yields Fall Even as a US Inflation Measure Rose More than Expected

West Texas Intermediate (WTI) crude oil closed at a 2-month low as a US inflation measure rose more than expected, further dimming hopes for the stimulus of a US interest-rate cut, while OPEC reiterated its optimistic 2024 demand forecast.  WTI crude for Jun closed down $1.10 to settle at $78.02 per barrel, the lowest since Mar 12 & Jul Brent crude, the global benchmark, was last seen down $1.02 to $82.34.  The Bureau of Labor Statistics reported the producer price index (PPI) rose by 0.5% in Apr from Mar, up from a rise of 0.3% in Mar & ahead of the estimate for a 0.3% monthly rise.  Core PPI, which excludes volatile items like food & energy, rose 0.4%, up from 0.2% in Mar & above the 0.2% estimate.  The report is the latest to show US prices continue to rise above the Federal Reserve's 2% target, again cutting into hopes the central bank will be able to lower interest rates from 23-year highs before year end.  The US Apr consumer price index will be released tomorrow, with the estimate calling for a rise of 3.4% annualized, down from 3.5% in Mar.

WTI Oil Closes at a Two-Month Low as a US Inflation Measure Rose More Than Expected in April

Today was a sluggish day for stocks until the last 2 hours when the bulls returned & took the Dow higher.  Dow is back hovering near its record reach a month ago while nervous investors seeking safe haven investments bought gold & Treasuries.

Dow Jones Industrials 

Markets are little changed following the latest US inflation data

Dow went up 20, advances over decliners 5-2 & NAZ added 69.  The MLP index added 1 to the 278s & the REIT index rose 2+ to the 374s.  Junk bond funds were mixed & Treasuries saw a little buying which reduced yields.  Oil was off 1 to the low 78s & gold gained 15 to 2358.

AMJ (Alerian MLP Index tracking fund)

Inflation at the wholesale level rose much more than expected in Apr, the latest sign that price pressures within the economy remain elevated & difficult to tame.  The Labor Dept said that its producer price index (PPI), which measures inflation at the wholesale level before it reaches consumers, rose 0.5% in Apr from the previous month. On an annual basis, prices remain up 2.2%, the highest level since Apr 2023.  While the monthly gain is notably higher than the 0.3% increase forecast, the headline figure is in line with expectations.  In another sign that points to the stickiness of high inflation, core prices, which exclude the more volatile measurements of food & energy, rose 0.5% for the month.  That is higher than both the 0.2% estimate & the gain recorded the previous month.  The figure was up 2.4% on a 12-month basis, in line with expectations.  The data comes one day before the Labor Dept will release the more closely watched consumer price index (CPI), which measures the prices paid directly by consumers.  That report is expected to show inflation rose 0.4% in Apr from the previous month & climbed 3.4% from the same time last year.  Both releases are considered to be important measurements of inflation, with the PPI believed to be a leading indicator of inflationary pressures as costs work their way down to consumers.  The different gauges point to inflation that is still running above the Federal Reserve's preferred 2% target.  The Fed has signaled it is closely watching the inflation reports this week after an increase in price growth during the first qtr of the year forced policymakers to hold interest rates at a 23-year high.  Central bank officials have signaled they expect to cut interest rates this year, but indicated they will not do so until they are confident that inflation is conquered.

Wholesale inflation unexpectedly jumps again to highest level in a year

Home Depot (HD), a Dow stock, posted quarterly revenue below expectations, as shoppers postponed bigger discretionary projects like bath & kitchen remodels because of higher interest rates & made spring purchases late.  Still, the home improvement retailer reaffirmed its full-year guidance, which includes an additional week from the prior year.  It expects total sales to grow about 1% in fiscal 2024, including those extra days.  However, the retailer said it anticipates comparable sales, which take out the impact of store openings & closures, to decline about 1%, excluding that additional week.  CFO Richard McPhail said customers are in a waiting game that began in the 2nd ½ of last year, as they responded to mortgage rates climbing.  He said the company anticipated those trends would continue.  “The home improvement customer is extremely healthy from a financial perspective,” he said.  “And so it’s not the case of not having the ability to spend. What they tell us is they’re just simply deferring these projects as given higher rates, it just doesn’t seem the right moment to execute.”  Fiscal first qtr EPS was $3.63, down from $3.82, in the year-ago period.  Net sales fell 2.3% from $37.2B.  Comparable sales dropped 2.8% in the fiscal first qtr across the business & declined 3.2% in the US.  HD is contending with a tougher housing backdrop, which has dampened demand for do-it-yourself projects.  About ½ of sales come from DIY customers & the other ½ come from pros like roofers & landscapers.  As interest rates remain high, consumers have been reluctant to move out of their homes ½ into new ones, the kind of turnover that often inspires home projects.  Higher interest rates have also dinged the desire for larger-scale projects that can require financing.  For the past several qtrs, HD has seen customers buy fewer big-ticket items & take on more modest projects, a trend that persisted in the most recent qtr.  In the fiscal first qtr, customers made fewer visits to its stores & website & tended to spend less when they did.  Customer transactions declined 1% to 386.8M & average ticket fell 1.3% to $90.68.  To overcome slower sales, the home improvement retailer has revved up its strategy to attract pros, since they tend to buy larger quantities & offer a steadier source of sales.  HD has a growing network of distribution centers across the country that can store & deliver roofing shingles, insulation & other supplies straight to job sites.  The stock fell 2.30.

Home Depot misses on revenue, as high interest rates hurt sales

The 10-year Treasury yield wavered after wholesale inflation data came in stronger than expected.  The yield on the 10-year Treasury slipped 2 basis points to 4.463% after initially popping above the 4.5% level following the new data.  The 2-year Treasury yield was last at 4.832% after sliding by nearly 3 basis points.  Yields & prices have an inverted relationship & 1 basis point is equivalent to 0.01%.  The closely followed consumer price index for Apr is due tomorrow.  The forecast is expected to show a 3.4% increase in prices from a year ago & a 0.4% rise on a monthly basis.  Following today's PPI reading, Federal Reserve Chair Jerome Powell said that central bank will need to practice patience in the face of inflation that has persisted at higher-than-expected levels.  That comes after the Fed said at its last meeting that there has been “a lack of further progress” in bringing inflation down to its 2% target.  Policymakers have also repeatedly said that they are looking to data for evidence about inflationary pressures cooling before they feel ready to cut interest rates.  The data could, therefore, affect investor expectations about when rates may be cut and how many cuts could come this year.

10-year Treasury yield wavers after release of fresh inflation data

Investors are digesting comments made by Powell after PPI data was disappointing.  One thing is clear, the higher prices will work their way into consumer prices in the comping weeks.

Dow Jones Industrials 

Markets waver on uncertainty about rate cuts coming in 2024

Dow slid back 84 (ending its 8 day winning streak), advancers over decliners about 5-4 & NAZ went up 42.  The MLP index fell 2 to the 278s & the REIT index added 1+ to the 371s.  Junk bond funds were weak & Treasuries still had modest buying which brought lower yields.  Oil was still almost 1 higher into the 89s & gold sold off 32 to 2342 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Americans are bracing for high inflation to stick around over the next few years, according to a key Federal Reserve Bank of New York survey.  The median expectation is that the inflation rate will be up 3.3% one year from now, according to the New York Federal Reserve's Survey of Consumer Expectations, an increase from the 3% rate recorded the previous month.  Consumers also anticipate that inflation will remain abnormally high in the coming years, projecting that it will hover around 2.8% 3 years from now & remain there 5 years from now – an increase from Mar's 2.6%.  That remains above the Fed's 2% target, indicating that sticky inflation could be here to stay.  By comparison, central bank policymakers projected in their latest economic forecasts that inflation will fall to 2.1% by 2025 & eventually settle at around 2% in 2026.  Americans expect the cost of gasoline, food, medical care, college & rent to rise in the year ahead.  They also anticipate that median home price growth will rise to 3.3%, the highest reading in the series since Jul 2022.  The survey, based on a rotating panel of 1300 households, plays a critical role in determining how Fed policymakers respond to the inflation crisis.  That is because actual inflation depends, at least in part, on what consumers think it will be.  It is sort of a self-fulfilling prophecy – if everyone expects prices to rise by 3% in the year, that signals to businesses that they can increase prices by at least 3%.  Workers, in turn, will want a 3% pay raise to offset the rising costs.  Fed Chair Jerome Powell has repeatedly stressed that policymakers are committed to wrangling inflation back to the Fed's 2% target goal before they start to reduce interest rates.  "We've stated that we do not expect that it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2%," Powell said earlier in May.  The survey also pointed to mixed sentiments about the labor market.  The mean perceived probability of losing one's job in the next 12 months jumped by 0.6 percentage points to 15.1%.  But mean unemployment expectations, the probability that US unemployment will be higher one year from now, rose by 1 percentage point to 37.2% in Mar.  At the same time, Americans were more downbeat about their ability to find a job if they were to lose their existing one.  The mean perceived probability of finding a job if one's current job was lost fell for the 4th straight month, to 50.9% in Mar. 

Americans expect high inflation to stick around in latest NY Fed survey

Shares of Novavax (NVAX) jumped after the company's new multibillion-dollar deal with French drugmaker Sanofi that sparked a dramatic turnaround for the struggling vaccine maker.  NVAX's stock almost doubled on Fri after it announced the licensing agreement with Sanofi.  NVAX said the deal allows the company to remove its “going concern” warning, which it first issued in Feb 2023 due to major doubts about its ability to stay afloat.  “It really does help our business.  It keeps us well capitalized, it takes the going concern off, it gives us the chance to pivot our strategy more towards what we’re best at — to bring additional value to all of our stakeholders, including our shareholders,” NVAX CEO John Jacobs said.  Under the agreement, Sanofi will take a less than 5% stake in NVAX.  The deal also entitles NVAX to an upfront cash payment of $500M    future payments contingent on certain milestones, as well as royalties.  Sanofi, one of the world's largest vaccine makers, will co-market NVAX's Covid vaccine in most countries starting in 2025.  The deal also allows Sanofi to use NVAX's Covid shot & flagship vaccine technology, Matrix-M adjuvant, to develop new vaccine products.  The shots include combination jabs targeting Covid & the flu.  NVAX stock jumped a massive 4.23 (48%).

Novavax stock jumps 50% as Sanofi vaccine deal kicks off a turnaround

Disney (DIS), a Dow stock, is asking guests to "drop on in" this summer after officially announcing the opening date of Tiana's Bayou Adventure at Walt Disney World.  The ride, which was formerly Splash Mountain, will begin taking guests on a "musical adventure" at Orlando's Magic Kingdom on Jun 28, DIS said.  The new attraction features "dozens of Audio-Animatronics figures, a foot-tapping soundtrack, & a celebration where everyone's welcome."  Princess Tiana from the 2009 "Princess and the Frog" movie will be joined by characters Mama Odie, Louis & "adorable critters" playing musical instruments.  "Their spirited stylings will turn the bayou into a party with Zydeco, Rara & Afro-Cuban music authentic to the region of New Orleans," DIS said.  The famed water ride, which features a steep drop, came under fire on social media because it features characters & music from "Song of the South," a 1946 animated film that has been accused of employing racist tropes about the post-Civil War South.  Despite backlash, the ride that opened in 1992 was one of DIS's most recognized landmarks for decades.  The stock was off 4¢.

Disney unveils woke replacement for 'canceled' landmark ride

Gold traded lower even as the $ & yields dipped, as the price of the metal fluctuates amid a correction after setting a record high last month.  Gold for Jun was last seen down $20 to $2354 per ounce.  The drop comes even as the $ & treasury yields weakened ahead of US inflation data coming this week.  The US will release its Apr producer price index tomorrow, with the core rate expected to rise of 0.2% from Mar.  The Mar consumer price index comes a day later, with the core rate expected to ease to 3.6% annualized from 3.8% in Mar, still well ahead of the Federal Reserve's 2% target.  Gold rose to a record $2413 per ounce on Apr 19 but has mostly moved lower since then despite Middle East violence as hopes for a near-term cut to interest rates by the Federal Reserve dim.  This week's inflation data will undeniably serve as a beacon on the possible Fed action, but the current sentiment is anything but sanguine.  Lowering of the borrowing costs is more likely to occur in the UK & in Europe ahead of the US.  The $ eased despite the dimming outlook for rate cuts from the Federal Reserve.  The ICE dollar index was last seen down 0.18 points to 105.12.  Treasury yields also weakened, bullish for gold since it offers no interest.  The 2 year note was last seen paying 4.84%, down 3.2 basis points, while the yield on the 10-year note was down 2.9 basis points to 4.473%.

Gold Trading Lower Even as the Dollar and Yields Ease Ahead of Coming US Inflation Data

West Texas Intermediate (WTI) crude oil closed with a gain on expectations stimulus measures from China will support the country's economy despite a debt crisis in its real-estate sector, while the market awaits US Apr inflation data coming this week & next month's OPEC+ meeting.  WTI crude oil closed up 86¢ to settle at $79.12 per barrel, while Jul Brent crude, the global benchmark, was last seen up 52¢ to $83.31.  The United States will release its Apr producer price index tomorrow, with the core rate expected to remain flat at a rise of 0.2% from Mar.  The Mar consumer price index comes Wed with the core rate expected to ease to 3.6% annualized from 3.8% in Mar, still well ahead of the Federal Reserve's 2% target.  China on Fri said it is issuing $138B of long-dated bonds to support infrastructure spending, as the country's gov tries to reach its target for a 5% rise in GDP this year.

WTI Crude Oil Closes Higher as China Takes Steps to Stimulate its Economy; US Inflation Data Awaited

Stocks have come back strong in May on the back of better-than-expected earnings & a revival of optimism for a Federal Reserve easing in monetary policy.  The Dow recorded its 8th straight daily win streak in a row on Fri, though a shortage of economic releases likely played a part.  After recent hot inflation data, markets have been more skittish as investors are pricing in doubts about rate cuts this year.

Dow Jones Industrials 

Markets hesitate ahead of inflation data this week

Dow crawled up 22, advancers over decliners better than 2-1 & NAZ added 44.  The MLP index barely budged at 281 & the REIT index was up 1 to 371.  Junk bond funds were mixed & Treasuries had limited buying which lowered yields.  Oil traded up about 1 to the 79s & gold retreated 24 to 2350.

AMJ (Alerian MLP Index tracking fund)

Fewer homeowners have been taking on remodeling projects, reports show.  But don't mistake it for a slow market.  The Leading Indicator of Remodeling Activity (LIRA), an outlook measuring home improvement & repair spending on own & re-occupied homes, peaked at 17.3% in the 3rd qtr of 2022.  The LIRA has been declining since slid 1.2% in the first qtr of 2024 compared to the prior qtr.  The NAHB/Westlake Royal Remodeling Market Index (RMI) by the National Association of Home Builders (NAHB) reflects a similar decline.  The RMI, which measures remodelers’ sentiment about the market, peaked at 87 points in the third quarter of 2021, & like the LIRA, has been consistently declining since. In the first qtr of 2024, the measure fell to 66 points, down 1 point from the previous qtr.  However, the RMI is still in territory where more remodelers see the conditions as “good” rather than “poor,” said Robert Dietz, chief economist of NAHB.  In the group's first qtr report, NAHB Remodelers Chair Mike Pressgrove noted that “demand for remodeling remains solid, especially among customers who don’t need to finance their projects at current interest rates.”

Fewer homeowners are remodeling, but demand is still ‘solid’

McDonald's (MCD), a Dow stock & Dividend Aristocrat, working to introduce a value meal in US stores to help offset an increasingly challenging environment for consumers.  A $5 meal could include 4 items: a McChicken or McDouble, 4-piece chicken nuggets, fries & a drink.  The potential new offering comes at a time when low-income consumers are beginning to pull back on spending, particularly at fast-food brands.  Mentions of low-income consumers on company earnings calls are at their highest levels in nearly 2 years, according to data from Bank of America.  Execs from have all noted the restraint in spending.  MCD's recently reported a mixed first qtr, with US same-store sales slightly missing expectations.  Higher prices helped grow average checks, but some consumers pulled back as a result of the steeper costs.  “Consumers continue to be even more discriminating with every dollar that they spend as they faced elevated prices in their day-to-day spending, which is putting pressure on the [quick-service restaurant] industry,” CEO Chris Kempczinski said.  He added that MCD's has to be “laser-focused” on affordability to attract diners.  Kempczinski said the company is working on a national value deal in the US, & the company's CFO Ian Borden said the US leadership team was working closely with owner-operators in this environment.  The corp & franchisees, who run 95% of MCD's locations & weigh in on such offerings, are often at odds over promotions that could eat into owners’ profits.  The stock rose 44¢.

McDonald’s is working to introduce a $5 value meal

Asia-Pacific markets were largely lower as investors assessed China's stronger-than-expected Apr inflation data.  China's consumer price index climbed 0.3% year on year, beating estimates of a 0.2% rise.  The producer price index, however, fell 2.5% year on year, more than the estimated 2.3% drop.  The data highlight for the week will be Japan's first-qtr GDP, which is expected to have contracted an annualized 1.5%, to poll, likely jeopardizing the Bank of Japan's plans to raise interest rates.  India's inflation figures will also be out later today, with estimates expecting inflation in the world's 5th largest economy to slow slightly to 4.8% in Apr, down from Mar's 4.85%.  Japan's Nikkei 225 closed 0.1% lower at 38,179 & the broad-based Topix fell 0.2% to end at 2724.  South Korea's Kospi ended flat at 2727, while the small-cap Kosdaq fell 1.1% to close at 854.  The Australian S&P/ASX 200 closed flat at 7750 & Hong Kong's Hang Seng index rose 0.8%, while mainland China's CSI 300 index fell marginally to finish at 3664.  China's finance ministry said it would start sales of long-term special treasury bonds worth 1T yuan ($138B) this week.

Asia markets largely lower as investors assess China inflation data, await Japan GDP print

New inflation data this week will likely be key drivers for stocks.  Meanwhile interest rates linger at multi month highs.

Dow Jones Industrials 

Markets mixed with Dow reaching its eighth straight win

Dow rose 125, advancers over decliners over advancers 4-3& NAZ was off 5.  The MLP index declined 3+ to 280 & the REIT index dipped 1+ to the 369s.  Junk bond funds remain mixed & Treasuries continued to be sold, raising yields.  Oil was off 1 to the 78s & gold soared 34 to 2375 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Consumer sentiment slumped as inflation expectations rose, despite otherwise strong signals in the economy, according to a closely watched survey.  The University of Michigan Survey of Consumers sentiment index for May posted an initial reading of 67.4 for the month, down from 77.2 in Apr & well off the forecast for 76.  The move represented a one-month decline of 12.7% but a year-over-year gain of 14.2%.  Along with the downbeat sentiment measure, the outlook for inflation across the 1-5 year horizons increased.  The one-year outlook jumped to 3.5%, up 0.3 percentage point from a month ago to the highest level since Nov.  Also, the 5-year outlook rose to 3.1%, an increase of just 0.1 percentage point but reversing a trend of lower readings in the past few months, also to the highest since Nov.  “While consumers had been reserving judgment for the past few months, they now perceive negative developments on a number of dimensions,” said Joanne Hsu, the survey's director.  “They expressed worries that inflation, unemployment and interest rates may all be moving in an unfavorable direction in the year ahead.”  Other indices in the survey also posted substantial declines.  The current conditions index fell to 68.8, down more than 10 points, while the expectations measure fell to 66.5, down 9.5 points.  Both pointed to monthly drops of more than 12%, though they were higher from a year ago.  The report comes despite the stock market riding a strong rally & gasoline prices nudging lower, though still at elevated levels.  Most labor market signals remain solid, though jobless claims last week hit their highest level since late Aug.

Consumer sentiment tumbles as inflation fears surge

The number of household staples Americans can buy for a $100 bill has been eroded by nearly a 3rd over the past 5 years, according to data pointing to the pressure consumers are facing due to the compounding effects of high inflation.   NielsenIQ's 2024 Consumer Outlook shows the cost of fast-moving consumer goods (FMCG) including groceries & other necessities like toiletries has soared by 31% since 2019, & indicates the problem will get worse, as wage growth is expected to lag behind the consumer price index (CPI) this year.  To put it in perspective, the Daily Mail, which first reported on the data, noted that in 2019, a shopper with $100 to spend could purchase a 32-item cart full of items like milk, bathroom tissue & cereal.  But today, a customer with the same amount would have to put 10 of those items back on the shelf to stay on budget.  Calculations from Moody's 'Analytics chief economist Mark Zandi show Americans are paying on average $784 more each month compared with the same time 2 years ago, & $1069 more compared with 3 years ago, before the inflation crisis began.  Inflation has remained above the Federal Reserve's 2% target rate for years, ravaging household budgets.  The CPI ballooned from 1.4% in Jan 2021 to a peak of 9.1% in Jun 2022, & the last reading in Mar came in at 3.5%.  The price hikes over the past handful of years are adding up, not just on consumer goods but on other necessities.  From Jan 2021 to Mar 2024, overall inflation (seasonally adjusted) increased 18.9%.  During the same period, all food costs rose 21%, while shelter costs were up 20.5% & energy costs went up 36.9%.

Inflation reduces buying power as $100 goes a lot less far these days

Moderna (MRNA) said the Food & Drug Administration (FDA) as delayed the approval of its vaccine for respiratory syncytial virus to the end of May due to “administrative constraints” at the agency.  The FDA was expected to make a decision on the RSV shot on Sun.  The agency has not informed MRNA of any issues related to the vaccine's safety, efficacy or quality that would prevent its approval.  Investors are watching the upcoming approval closely as MRNA tries to rebound from the rapid decline of its Covid business last year.  If cleared, the RSV shot would become the company's 2nd product to launch in the US after its once-blockbuster Covid vaccine.  It would also be the 3rd RSV vaccine to enter the market last year.  MRNA said its RSV vaccine is still on track to be reviewed by an advisory panel to the Centers for Disease Control & Prevention during a meeting on Jun 26-27.  That panel will vote on recommendations for the shot’s use and intended population, which is necessary before it enters the market.  MRNA has been testing the shot in older adults, who are more vulnerable to severe cases of RSV.  The virus kills 6-10K seniors every year & results in 60-120K hospitalizations, according to CDC data.  “Moderna is very grateful to the FDA for their continued efforts and diligence,” said Dr Stephen Hoge, pres of MRNA, said.  “We look forward to helping the agency complete the review of our application, and to the June [advisory] meeting.”  The approval would demonstrate the versatility of its messenger RNA platform beyond treating Covid.  The biotech company is using that technology to tackle a range of diseases.  Those include RSV, cancer & a highly contagious stomach bug known as norovirus.  The stock

Moderna says FDA delayed RSV vaccine approval to end of May

Gold traded higher for a 2nd day, regaining ground lost to a price correction after the precious metal set a record high last month.  Gold for Jun was last seen up $34 per ounce to $2374 per ounce, still below the Apr 19 record of $2413 but recovering from the month low of $2302 on Apr 30.  The rise comes on hopes the Federal Reserve will begin cutting interest rates this year, lowering the carrying cost of owning gold.  Higher than expected US initial jobless-claims data released yesterday raised hopes the central bank will soon be able to turn dovish, though inflation has yet to return to its 2% target.  The $ edged higher, making gold more expensive for intl buyers.  The ICE dollar index was last seen up 0.04 points to 105.27.  However treasury yields also rose, bearish for gold since it offers no interest.  The 2-year note was last seen paying 4.87%, up 4.4 basis points, while the yield on the 10-year note was up 4.2 basis points to 4.502%.

Gold Higher Midafternoon, Regaining Lost Ground as Weak U.S. Data Raises Rate-Cut Hopes

West Texas Intermediate (WTI) crude oil closed lower, giving up early gains that came on signs of improving demand from China as the prospect of US interest-rate cuts diminish.  WTI crude oil for Jun delivery closed down $1 to settle at $78.26 per barrel after falling off a session high of $79.96, while Jul Brent crude, the global benchmark, was last seen down 90¢ to $82.98.  Demand concerns took hold during the session amid expectations the Federal Reserve will delay introducing the stimulus of rate cuts until at least Decr, according to the CME Fedwatch tool, as comments from members of the central bank's policy committee turn hawkish on the prospect of cuts.  The drop came even as China, the #1 oil importer, yesterday released bullish economic data, showing imports & exports rose by 1.5% in the first qtr, though much of the growth came in the first 2 months of the period & slowed in Mar.  OPEC+ will stage a ministerial meeting on Jun 1 to decide whether to extend into the summer 2.2M barrels per day of voluntary production cuts that are set to expire at the end of the qtr.  An extension would squeeze inventories & keep prices high during the high-demand summer season.

Gold Higher Midafternoon, Regaining Lost Ground as Weak U.S. Data Raises Rate-Cut Hopes

Stocks lost some steam after consumer sentiment hit a 6-month low.  Also, Federal Reserve Governor Michelle Bowman said she believes interest rates need to stay where they are "for a bit longer," echoing similar sentiments made by other Fed officials in recent weeks.  Dow finished up 837 this week, closing near its recent record high while safe haven gold is also close to its record made 3 weeks ago.

Dow Jones Industrials 

Markets stumble after 7 straight advances for the Dow

Dow rose 75, decliners over advancers about 3-2 & NAZ slid back 22.  The MLP index was off 3+ to 280 & the REIT index drifted back 1+ to 370 following recent strength.  Junk bond funds hardly budged & Treasuries saw selling which increased yields.  Oil added pennies in the 79s & gold jumped 26 to 2366.

AMJ (Alerian MLP Index tracking fund)

Hong Kong led Asia-Pacific stocks higher as markets tracked US gains, with renewed hopes for rate cuts by the Federal Reserve bolstering market sentiment.  The Hang Seng index hit its highest level in 10 months, up 2.3% after a report that regulators were considering a proposal to exempt individual investors from paying taxes on divs earned from Hong Kong stocks bought via Stock Connect.  Mainland China's CSI 300 marginally rose to hit its highest level since Oct 2023, ending at 3666.  Meanwhile, Japan's overall household spending in Mar fell 1.2% year on year, less than the 2.4% expected.  However, on a month-on-month basis, household spending rose 1.2%, compared with estimates of a 0.3% drop.  Japan’s Nikkei 225 rose 0.4% to end at 38,229, while the broad-based Topix gained 0.5% to close at 2728.  South Korea's Kospi closed 0.6% higher at 2727, but the small-cap Kosdaq fell 0.7%, ending at 864.  The Australian S&P/ASX 200 ended up 0.4% at 7749.  Overnight in the US, all 3 major indices climbed as fresh weekly jobless claims data came in at the highest level since Aug, raising expectations that central bankers might cut interest rates at some point this year.  The 30-stock Dow jumped 0.9% to notch its longest win streak since a 9-day run in Dec & the S&P 500 added 0.5%, while NAZ gained 0.3%.

Asia markets track Wall Street gains amid renewed U.S. rate cut hopes; Hong Kong stocks hit 9-month high

A new report finds that the percentage of US mortgages considered to be "seriously underwater" rose in the first qtr of 2024, while the proportion of "equity-rich" mortgages fell for the 3rd consecutive qtr.  The report by property & real estate data firm ATTOM found that the portion of mortgaged homes that were seriously underwater rose slightly in the first qtr of 2024 from 2.6% to 2.7% of all residential mortgages.  It defines "seriously underwater" as mortgages with a loan-to-value ratio of 125% or more, meaning property owners owe at least 25% more than the estimated market value of the property.  The trend of seriously underwater mortgages increasing prevailed in 37 states during the first qtr.  Among 107 metropolitan areas with populations greater than 500K residents, the metros with the largest shares of mortgages that were seriously underwater were Baton Rouge (13.4%) & New Orleans (7.3%) in Louisiana, followed by Jackson, Mississippi, (6.5%), Little Rock, Arkansas, (6%) & Syracuse, New York (5.6%).  The percentage of residential mortgages that were considered "equity-rich" – meaning that owners had a loan-to-value ratio of 50% or lower, so the owner has at least 50% equity – in Q1 2024 slid to 45.8%, a decline from 46.1% in the prior qtr & 47.2% from Q1 2023.  That means the national proportion of equity-rich mortgages hit the lowest level in 2 years.  Equity-rich levels declined in 26 states on a quarterly basis & 25 states from the same qtr a year ago.  "Homeowner balance sheets continue to benefit in a huge way from the boom times in the form of elevated equity that can be used to finance all kinds of things, from home renovations to business startups," ATTOM CEO Rob Barber said.  "Still, the windfalls are starting to erode bit by bit amid mounting signs that the market is no longer so superheated."  "It's too early to make any broad statements about the market direction, especially coming off the typically slower Fall and Winter months. But amid the recent trends, this year's Spring buying season will be of heightened importance in telling us if there is a new long-term market pattern developing," Barber added.

Percentage of US mortgages considered 'seriously underwater' rises

Federal Reserve Bank of Minneapolis Pres Neel Kashkari said that the US has an ongoing home supply issue that was being complicated by the high rates currently being imposed by the central bank.  The Fed needs these rates to lower inflation & “it’s really a timing issue” where the housing sector will do better when the central bank can eventually lower rates, Kashkari said before a meeting of Minnesota's Technology Advisory Council.  But he noted monetary policy isn't the whole story & given issues faced by the housing sector, even lower rates wouldn’t push up home supply “in a reasonable period of time.”

Fed's Kashkari: High Fed rates complicating supply of housing

Stock markets are heavily overbought, signally a correction is overdue.  Wars around the globe along with high interest rates & inflation will be a drag going forward.

Dow Jones Industrials 

Markets surge as data shows the labor market continues to cool

Dow shot up 331 (near session high), advancers over decliners better than 2-1 & NAZ gained only 43.  The MLP index was little changed in the 284s & the REIT index gained 7+ to 371.  Junk bond funds saw limited buying & Treasuries was in demand which lowered yields.  Oil rose chump change in the 79s & gold advanced 22 to 2344 (more on both below).

AMJ (Alerian MLP Index tracking fund)

General Motors (GM) believes it can regain market share in China after hitting a roughly 20-year low last year amid changing market conditions & increased domestic competition, GM Pres Mark Reuss said.  The longtime GM exec said new all-electric & plug-in hybrid electric vehicles, as well as the redesign of its Buick brand, will help the automaker turn around operations in the region.  GM's market share in China, including its joint ventures, has plummeted from roughly 15% as recently as 2015 to 8.6% last year, the first time it has dropped below 9% since 2003.  Earnings from operations hav also fallen, down 78.5% since peaking in 2014.  Reuss also touted the competitiveness of GM's Chinese joint venture partners such as Wuling Motors.  GM first established operations in China in 1997.  “You can look at it any way you want from a larger geopolitical standpoint, but for us in China, this has been a great advantage for us to be partnered so deeply for so many years with our JV partners there,” Reuss said.  “We have an advantage there with Buick and Wuling, and it goes both ways.”  GM's market share declines in China are the result of growing competition from gov-backed domestic automakers fueled by nationalism & a generational shift in consumer perceptions of the automotive industry and electric vehicles.  The company, along with other American-based automakers, is managing geopolitical tensions between China & the US.  GM's US-based brands such as Buick & Chevrolet have seen Chinese sales drop more than those of its joint venture.  The joint venture models accounted for about 60% of GM's 2.1M vehicles sold last year in China.  The stock went up 26¢.

GM can regain market share in China after hitting 20-year low, executive says

Mortgage rates dipped slightly this week for the first time since Mar, but remain above 7% as a home affordability crisis maintains its grip on the housing market.  Freddie Mac's latest Primary Mortgage Market Survey showed that the average rate on the benchmark 30-year fixed mortgage declined to 7.09% this week from 7.22% last week.  The average rate on a 30-year loan was 6.35% a year ago.  The average rate on the 15-year fixed mortgage dropped to 6.38% from 6.47% last week.  One year ago, the rate on the 15-year fixed note averaged 5.75%.

Mortgage rates tick down to 7.09%

Warner Bros Discovery (WBD) reported first-qtr results, missing expectations on both the top & bottom lines despite strength in its streaming unit.  WBD — which owns streaming service Max, a portfolio of cable TV networks including TNT & Discovery & a film studio — said revenue fell 7% to $9.96B compared with the same qtr last year.  WBD posted a net loss attributable to the company of $966M, 40¢ per share, an improvement from the year-ago qtr when it reported a loss of $1.07B, 44¢ per share.  The company said total adjusted earnings before interest, taxes, depreciation & amortization were down roughly 20% during the first qtr to $2.1B, noting its Suicide Squad: Kill the Justice League video game generated significantly lower revenue.  WBD said that it added 2M direct-to-consumer streaming subscribers during the qtr, bringing its total to 99.6M.  That segment earned an adjusted $86M during the qtr, an improvement of $36M from the prior-year qtr.  It also saw revenue increase “modestly” to $2.46B from the prior-year qtr.  Advertising revenue for streaming proved to be a bright spot, increasing 70%, boosted by higher engagement on Max in the US due in part to subscriber growth in the streaming service's ad-lite tier & the launch of sports on the app.  WBD has been working to reduce its debt load, which now stands at $43.2, stemming from the merger of Warner Bros & Discovery in 2022.  Yesterday the company said it repaid $1.1B in debt during the qtr & also announced a $1.75B cash tender aimed at further reducing its debt.  The stock gained 11¢.

Warner Bros. Discovery misses first-quarter estimates despite streaming growth

Gold advanced after the latest jobless claims pointed to more signs of a cooling labor market, boosting convictions that the Federal Reserve will be able to start cutting interest rates this year.  Initial claims increased by 22K to 231K last week according to Labor Dept data, the highest level since Aug.  The forecast called for 212K applications.  Treasury yields & the $ pushed lower after the print, sending bullion higher by as much as 0.9% before paring some of the gains.  Bullion prices have held in a narrow range for the last couple of weeks as traders weigh the outlook for US monetary policy & tensions in the Middle East.  While the metal has eased from a record high set in mid-Apr, it's still up about 12% this year.  Inflation data due next week will offer further insight into the US economy.  Fed Bank of Boston Pres Susan Collins signaled yesterday that rates will likely need to stay at a 2-decade high for longer than previously thought to reduce price pressures.  Investors are also monitoring developments in the Middle East, with any further escalation potentially bolstering gold's appeal as a haven.  Pres Biden said he would halt additional shipments of offensive weapons to Israel if the country launched a ground invasion of the Gazan city of Rafah.  While gold prices have climbed this year, holdings in global exchange-traded funds have fallen to the lowest since 2019.  Last month, ETF inflows registered in Asia & North America were offset by outflows in Europe, according to the World Gold Council.  Spot gold was up 0.5% at $2319 an ounce.

Gold Edges Higher as US Data Paves Way for Fed Rate Cuts

West Texas Intermediate (WTI) crude oil closed higher, moving up on tight supply amid solid demand as a day-prior report showed a drop in US oil inventories.  WTI oil for Jun closed up 27¢ to settle at $79.26 per barrel, while Jul Brent crude, the global benchmark, was last seen up 10¢ to $83.68.  The rise comes after the Energy Information Administration yesterday said US oil inventories fell by 1.4M barrel per day last week, easing concerns over light demand ahead of the start of the US driving season that begins over the Memorial Day holiday.  The close is within the range Canadian oil execs expect WTI to average over the next 3-5 years, according to an ATB Financial poll reported by Canadian Press.  The poll says the group expects WTI to average above $75.99 over that period.  Geopolitical concerns remain a focus after pres Biden said the US will pause supplying bombs & artillery shells to Israel to prevent the country continuing to push into the city of Rafah in Gaza in order to limit civilian casualties in the crowded city.  Ceasefire talks are continuing in Egypt with little progress reported.  A weaker $ also supported prices, as the US reported initial jobless claims rose by 231K last week, above expectations for a rise of 214K claims & the highest since Aug.  The ICE dollar index fell following the report, last seen down 0.27 points to 105.27.

WTI Closes Higher on Signs of Higher Demand and a Weaker Dollar

At the opening stocks were higher & never looked back.  Then there was additional buying in the PM, making for a special day for stocks.  After a dreary month in Apr, Dow is up over 1500 so far in May.  A possible slowdown in the economy & a few more months of very high interest rates are not deterring investors from buying stocks.

Dow Jones Industrials 

Markets climb following weekly jobless-claims data

Dow rose 189, advancers over decliners 5-2 & NAZ rose 26.  The MLP index added 1+ to the 285s & the REIT index went up 5 to the 368s.  Junk bond funds inched higher & Treasuries were pretty much flat (more below).  Oil crawled up pennies in the 89s & gold gained 13 to 2336. 

AMJ (Alerian MLP Index tracking fund)

Initial filings for unemployment benefits have hit their highest level since late Aug 2023, a potential sign that an otherwise robust labor market is changing.  Jobless claims totaled a seasonally adjusted 231K last week, up 22K from the previous period & higher than the estimate for 214K, the Labor Dept reported.  The increase in claims follows a string of mostly strong hiring reports, though hiring in Apr was light compared with expectations.  Also, job openings have been declining amid expectations that the labor market is likely to slow thru the year.  The report also showed that continuing claims, which run a week behind, increased to 1.78M, up 17K from the previous week.  The 4-week moving average of claims, which helps smooth out weekly volatility in numbers, increased to 215K, up 4750 from the previous week.  Excluding seasonal adjustments, claims totaled 209K, up 10.4% from the previous week.  New York alone saw an increase of more than 10K, accounting for more than ½ the total rise.  “A low number of claims had become almost monotonous, and while this surprising spike could well be a blip, we should expect more volatility and a trend toward higher claims as the labor market normalizes,” said Robert Frick, corp economist at Navy Federal Credit Union.

Weekly jobless claims jump to 231,000, the highest since August

McDonald's (MCD),  a Dow stock & Dividend Aristocrat, US franchisees will start paying into a digital marketing fund next year as the fast-food giant looks to expand its booming digital business.  The change is meant to modernize the company's marketing strategy & widen its competitive advantage, according to the memo, which was written by US Customer Experience Officer Tariq Hassan & Chief Information Officer Whitney McGinnis.  The memo also said that MCD's plans to invest hundreds of Ms of $s over the next couple of years to improve its loyalty program & add ordering channels, including placing web orders without downloading an app, which should also bolster its digital business.  Loyalty program members accounted for more than $6B in system-wide sales globally during MCD's first qtr.  In Dec, MCD's said it aims to reach 100M loyalty program members by 2027.  For now, the franchisor is recommending that franchisees pay for the new fund using their existing marketing contribution, which requires that they spend at least 4% of gross sales, according to the memo.  As a result, the new approach will likely lead MCD's to cut back on legacy marketing tools, such as TV commercials, & focus on areas that tangibly lead to higher sales.  The stock fell 65¢.

McDonald’s is betting on its mobile business with new franchisee digital marketing fund

Treasury yields were mostly higher as investors considered remarks from Federal Reserve officials, scanning them for hints about the interest rate outlook.  The yield on the 10-year Treasury was up nearly 2 basis points at 4.502% & the 2-year Treasury yield was last at 4.83% after losing more than 1 basis point.  Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%.  Investors looked to a series of remarks from Federal Reserve officials as they considered what the path ahead for monetary policy could look like.  Uncertainty about when, if & how often, rates will be cut this year has been persistent in recent weeks.  Boston Fed Pres Susan Collins yesterday became the latest central bank policymaker to indicate that interest rates will likely be steady until inflation is clearly moving toward the Fed's 2% target range.  Collins' comments echoed those made by Minneapolis Fed Pres Neel Kashkari & Richmond Fed Pres Tom Barkin earlier in the week.  They were also all broadly in line with the guidance issued by the Fed after its latest meeting earlier this month.

10-year Treasury yield rises as investors consider remarks from Fed officials

Dow began the day trading around even, then the bulls arrived & gave it a nice gain.  It's about 600 under its record highs in late Mar.  However while rising jobless claims data is good for rate cut prospects, it also suggests economic growth is slowing.  That could make for choppy times in the stock market going forward.

Dow Jones Industrials