Morning Reads

Morning Reads





The Federal Reserve minutes of the May meeting gave investors a pretty clear roadmap for the summer. The minutes, out Wednesday afternoon, painted a picture of an FOMC strongly focused on inflation, with rate hikes of 50 basis points in the June and July meetings. But some members also indicated that price pressures may not be getting worse.

Stocks rally: The market appeared to take the minutes as more dovish than hawkish. Half-point hikes were already priced in for the next couple of meetings and there was no mention of 75-basis-point moves that had become the base case for a few Wall Street banks at the end of April.

The S&P 500 (SPY) rose about 1% to finish out the session and S&P futures (SPX) are up again this morning. Treasury yields (SHY) (TBT) (TLT) continue to creep lower today.

Data dependence: "We think that after the July meeting the Fed is likely to become more 'data dependent' with regard to rate hikes, which essentially means that the policy path after July will depend upon the trajectory of inflation and progress toward correcting the supply/demand imbalances in the labor market," BlackRock fixed income strategist Bob Miller said.

There are already signs that the U.S. economy is weakening. Of the last 19 major economic indicators, 13 have missed economists' expectations, Nomura noted. The question is whether that will bring about a Fed pause, which stock bulls are hoping for, or will it stiffen the central bank's resolve.

If there are signs of falling inflation and improved labor market imbalances "the Fed gains some breathing room and can shift policy adjustments to 25 bps increments, while still pursuing something in the estimated range of neutral," Miller said.

Pantheon Macro economist Ian Shepherdson says the door is still open to a smaller hike in July given the minutes show policymakers "appear utterly oblivious ... to the rollover in housing demand, which has been evident in the mortgage applications data since the turn of the year." That will change in the June minutes, he added.

But Nomura strategist Charlie McElligott says those hoping for a Fed pause will likely be disappointed, noting Fed chief Powell's willingness to endure "some pain" in getting price stability.

"I think that if anything, the Fed is seeing the results of their (financial conditions index) tightening campaign through these broad measures 'slowing' and could actually become incrementally 'emboldened' to keep PUSHING on their hiking path until they see the 'whites of the eyes' of sustainably lower inflation as opposed to the notion of 'pausing and hoping' for the inflation data to move lower - a view that is increasing held by some in the market," he said. (7 comments)

Elon equity

Twitter (TWTR) is higher premarket after a newly amended ownership filing from Elon Musk stating that he's raised his aggregate equity commitment for a proposed $44B takeover of the company.

Musk had previously received a commitment letter for up to $12.5B in margin loans. On May 4, according to the SEC filing, Musk let some of those commitments expire, committing another $6.25B in equity financing. On Tuesday, he let the rest of them expire with commitments for another $6.25B in equity financing.

That brings the aggregate principal amount of the equity commitment in the $44B deal to $33.5B. Tesla stock (TSLA), which is ultimately backing Musk's equity commitments (and backed the margin loans) for the Twitter deal, is little changed premarket. (84 comments)

GameStop déjà vu

GameStop echoed the meme heyday and soared more than 29% on Wednesday to record its best session of the year. The stock is down about 4% premarket.

The big gain coincided with an increase in online buzz about another short squeeze setting up on the stock. Volume on GameStop (GME) was over 9.9M shares, which was more than double normal trading activity.

According to financial analytics firm ORTEX, short interest on the stock grew to its highest level in over a year prior to Wednesday’s open, while the cost to borrow surged as well. These metrics attracted significant interest on Twitter, Stocktwits, and more as eager meme stock investors eye another opportunity to attack short positions. The company reports earnings next week. (33 comments)

Nvidia issues

Nvidia (NVDA) shares dropped sharply in extended trading after the chipmaker reported strong first-quarter results but issued weak guidance for the upcoming quarter.

However, the company said it expects second-quarter sales to be $8.1B, well below the $8.44B analysts were expecting. Nvidia attributed the shortfall to roughly a $500M decline due to Russia's invasion of Ukraine and COVID-related lockdowns in China. (255 comments)

Today's Market

In Asia, Japan -0.27%. Hong Kong -0.27%. China +0.5%. India +0.54%.
In Europe, at midday, London -0.03%. Paris +0.30%. Frankfurt +0.33%.
Futures at 6:20, Dow -0.02%. S&P -0.11%. Nasdaq -0.43%. Crude +0.69% to $111.07. Gold -0.10% to $1844.44. Bitcoin -2.72% to $29,004.6.
Ten-year Treasury Yield -2 bps to 2.72%

Today's Economic Calendar

8:30 GDP Q1
8:30 Initial Jobless Claims
8:30 Corporate profits
10:00 Pending Home Sales
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
1:00 PM Results of $42B, 7-Year Note Auction
4:30 PM Fed Balance Sheet

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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