Morning Reads

Morning Reads







Riddled with rates

What goes on six in the morning, three at midday, one in the evening, and possibly none at night? Traders trying to play the legendary Oedipus are up against that riddle posed by the Federal Reserve as rate cut predictions continue to dwindle for 2024. The latest Consumer Price Index has reinforced more hawkish expectations after accelerating to an annualized 3.5% in March, or an amplified 0.4% M/M, while elevated core figures are also a cause for concern.

Decipher me or be devoured: Each successive number is adding to the picture being assessed by the data-dependent Federal Reserve. It's now looking increasingly likely that the "last mile" of the inflation fight will be the most challenging, with a higher for longer theme coming into view due to "sticky" inflation. Economic growth is also strong at the moment, so the central bank doesn't feel intense pressure to cut rates. However, policymakers also don't want to risk falling behind the curve again, like they did at the beginning of the latest cycle, and may have to act earlier than expected to pull off a so-called soft landing.

Some Fed officials even warned that recent increases in inflation "had been relatively broad-based and therefore should not be discounted as merely statistical aberrations," according to the minutes of the last FOMC meeting on March 19-20. That indicates there were at least some policymakers who didn't hold the view that the hot January and February inflation data was a "bump" on the path to the Fed's 2% inflation goal. With regards to quantitative tightening, officials also started discussing a process to slow the balance sheet runoff, which the Fed has indicated would be "fairly soon."

Market movement: As inflation continues to run hot and rate cut expectations get pushed further out, Treasuries all over the curve made some big moves on Wednesday. The yield on the 2-year note soared more than 22 basis points to trade near 4.97%, while the 10-year yield climbed 19 bps to top 4.55%. Stock market indices fell back, with the Dow Jones Industrial Average shedding over 400 points, as well as losses for the S&P 500 and Nasdaq. It can also mean some choppy trading for the near future, just as the first-quarter earnings season kicks off on Friday. Check out the latest SA commentary on the CPI report here.

Water standard

Compliance with the first-ever U.S. rule to limit "forever chemicals" in drinking water is expected to cost about $1.5B annually, according to the EPA, although an industry body expects the cost to be more than three times the amount. While American Water Works (AWK) and California Water Service (CWT) are prepared to meet the new standards, they are both pursuing government funding to mitigate compliance costs. Also a great call by Investing Group Leader Courage & Conviction Investing, who flagged Arq (ARQ) last August and how it can benefit from the proposed framework. Since then, the stock has returned over 250%. (3 comments)

Swipe away

Credit card delinquency rates reached their highest level on record in Q4 2023, according to the Federal Reserve Bank of Philadelphia. "Firms recording the worst 30+, 60+, and 90+ account-based days past due levels," the report said, warning that stress among cardholders was underscored in payment behavior and further performance deterioration could be on the horizon. Meanwhile, mortgage originations declined to a series low as market headwinds continued to stifle demand, including housing affordability. (14 comments)

Mideast tensions

Barreling through the $80-level only two weeks ago, WTI crude oil (CL1:COM) is on watch as it heads closer to $90/bbl. The upward march was sparked in part by reports that an attack on Israel by Iran and its proxies was imminent, though things got a little wobbly after a hot CPI and a build in U.S. crude oil stockpiles. The head of the U.S. Central Command, General Michael Kurilla, will land in Israel today to hold consultations with Defense Minister Yoav Gallant. Yesterday, President Biden said the U.S. commitment to "Israel's security against these threats from Iran and its proxies is ironclad." (42 comments)

Today's Markets

In Asia, Japan -0.4%. Hong Kong -0.3%. China +0.2%. India closed.
In Europe, at midday, London -0.3%. Paris -0.2%. Frankfurt -0.6%.
Futures at 7:00, Dow -0.3%. S&P -0.3%. Nasdaq -0.2%. Crude -0.7% to $85.60. Gold +0.3% to $2,354.90. Bitcoin +2.1% to $70,362.
Ten-year Treasury Yield +2 bps to 4.56%.

Today's Economic Calendar

8:30 Initial Jobless Claims
8:30 Producer Price Index
8:45 Fed's Williams Speech
10:30 EIA Natural Gas Inventory
12:00 PM Fed's Collins Speech
1:00 PM Results of $22B, 30-Year Bond Auction
1:30 PM Fed's Bostic Speech
4:30 PM Fed Balance Sheet

Companies reporting earnings today »

What else is happening...

President Biden still expects a rate cut before the end of the year.

Report: DOJ opens probe into Nippon's deal for U.S. Steel (X).

Meta (META) unveils latest custom-made chips for AI workloads.

TikTok's divestiture timeline may undergo extension in Senate.

Jack Ma backs Alibaba (BABA) restructuring efforts in rare memo.

Safety officials interview Boeing (BA) again on 737 door plug blowout.

Fitch flags Medicare utilization trends ahead of managed care earnings.

DOJ files complaint against Regeneron over Eylea Medicare pricing.

Paramount (PARA) directors to exit the board amid merger talks.

Big boost: Costco (COST) raises quarterly dividend by 13.7%

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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