Tuesday Morning Reads

Tuesday  Reads

Morning Reads









Inflation watchers this morning will be eyeing the Labor Department's Consumer Price Index, which will be released at 8:30 a.m. ET. The CPI is expected to come in at a whopping 8.4% Y/Y for March and the White House has already warned that the headline figure (which includes volatile food and energy) will be "extraordinarily elevated." America hasn't witnessed inflation levels above 8% since 1981, and the number would mark the thirteenth month it has hit above the Fed's longstanding targeted range of 2%.

Commentary: "It's going to be ugly," said Mark Zandi, chief economist at Moody's Analytics. "It's a perfect storm - Russian invasion, surging oil prices, China locking down, further disruptions to supply chains, wage growth accelerating, unfilled positions. Just a kind of scrambled mess leading to painfully high inflation."

In terms of how traders will react to the report, some feel the figure is priced in, though others say it can confirm a worrisome underlying trend. Recently, there has been a pickup of services inflation, which will be harder to reverse than the pressures seen in the goods sector (that were largely the result of supply and demand mismatches). Those factors are fueling concerns that inflation will become more embedded in the U.S. economy, prompting the Fed to embark on a quantitative tightening cycle and triggering fears of a coming recession.

Signs of a top? There is another cohort of the investing community that sees inflation moving down from here, with oil pulling back from near records and used vehicle prices starting to drop off. "The swing from tight supply to a goods glut could be rapid and dramatic, essentially because the lagged response from the supply chain to the COVID-driven surge in demand is coming on-stream just as consumers want fewer goods," wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics. "This will be the peak, because the anniversary of a sequence of big increases in the spring and early summer of last year creates a hugely favorable base effect." (32 comments)

Metaverse in the making

The development of the metaverse, or the online worlds where avatars interact, play and transact, is heating up among the world's biggest entertainment giants. The latest news from the sector has seen Epic Games, the developer of popular title Fortnite, secure $2B in new funding from Sony (SONY) and Kirkbi, the family-owned group behind the Lego franchise. Until now, Epic's "metaverse" has largely taken place within Fortnite, where third parties have collaborated on items like themed skins or staged virtual events.

Flashback: It was only a week ago that Epic and Lego announced a partnership to co-develop a "family-friendly" metaverse for kids, empowering them to become "confident creators" while delivering amazing play opportunities in a "safe and positive space." In January, Microsoft (MSFT) also agreed to acquire Activision Blizzard (ATVI) for $75B, with CEO Satya Nadella saying the deal would allow it to get a foothold in the "metaverse." Facebook kicked off the trend by renaming itself Meta Platforms (FB) last November, with Google (GOOGGOOGL), Nvidia (NVDA) and Qualcomm (QCOM) also investing in the technology.

"As we reimagine the future of entertainment and play we need partners who share our vision. We have found this in our partnership with Sony and Kirkbi," said Epic founder and CEO Tim Sweeney. "This investment will accelerate our work to build the metaverse and create spaces where players can have fun with friends, brands can build creative and immersive experiences and creators can build a community and thrive."

By the numbers: The deal values Epic at $31.5B. Following the transaction, Sony will hold a 4.9% stake in the company and Kirkbi will own 3%, though it will remain in control of Tim Sweeney. For some time, China's Tencent (OTCPK:TCEHY) has also held 40% ownership of the North Carolina-based developer. (9 comments)

Masks are back

As COVID-19 cases rise across the country, Philadelphia is bringing back its indoor mask mandate for schools, day cares, businesses, restaurants and government buildings. Under the new rules, there will be no vaccine or testing requirements for places that serve food or drink, meaning everyone will be subject to the new order that kicks in on April 18. Most U.S. states and cities that still imposed indoor mask mandates dropped the requirements back in February and early March following new guidelines from the CDC.

Snapshot: While there was only an average of 142 daily new cases in Philly in recent days - with 44 people currently hospitalized with COVID - the city's threshold for an indoor mask mandate (known as Level 2) kicked in as new cases rose by more than 50% over 10 days. "I sincerely wish we didn't have to do this again," announced Health Commissioner Cheryl Bettigole. "But I am very worried about our vulnerable neighbors and loved ones. This is our chance to get ahead of the pandemic, to put our masks on until we have more information about the severity of this new variant."

Many in the hospitality industry are pushing back against the new restrictions, with the Pennsylvania Restaurant & Lodging Association even calling the reinstated mandate "counterproductive" and taken without "input from the mitigated community." "This announcement is a major blow to thousands of small businesses and other operators in the city who were hoping this spring would be the start of recovery. Restaurant workers have suffered severe backlash when enforcing these rules in the past and, unfortunately, this time will be no different."

Response: "Our city remains open," Philly Mayor Jim Kenney said in a statement. "We can still go about our daily lives and visit the people and places we love while masking in indoor public spaces. I'm optimistic that this step will help us control the case rate."

Employment picture

As Americans continue to quit their jobs by the millions, a term called "The Great Resignation" has been trending in the economic lexicon. In fact, 48M people left their jobs voluntarily in 2021, marking an annual record, while a monthly high of 4.5M quits was seen in November 2021. According to the latest data from the Bureau of Labor Statistics, another 4.4M workers decided to leave their jobs in February 2022, and while that figure could be eye-popping, it doesn't factor in the 6.7M people who were hired during that same month.

Quote: "Yes, lots of people are quitting, but they're going someplace else. They're not sitting on their couches," explained Professor Jay Zagorsky of Boston University's Questrom School of Business. "Instead, lots of people are quitting, but they're getting rehired someplace else. They're switching jobs. I would call it not the 'Great Resignation' but the 'Great Job Switch.'"

New research from the San Francisco Federal Reserve also shows that the high rate of "quits" during the pandemic isn't that unusual. Resignations were "driven by young and less-educated workers in industries and occupations that were most adversely affected by the pandemic. This is also where payroll employment growth has been high recently, offsetting the job losses incurred in 2020." Moreover, the resignations were highest in the leisure and hospitality industries, and did not affect all sectors equally.

Be aware: A recent Harris/USA Today poll found 1 in 5 people who quit their jobs over the past two years now regret doing so, while 25% said they miss the job culture at their prior place of employment. A third are already searching for new roles with better working conditions and benefits, and less than 4 in 10 quitters feel valued, successful or happy or in their current positions.

Today's Markets

In Asia, Japan -1.8%. Hong Kong +0.5%. China +1.5%. India -0.6%.
In Europe, at midday, London -0.4%. Paris -0.8%. Frankfurt -1.1%.
Futures at 6:20, Dow -0.1%. S&P -0.1%. Nasdaq -0.1%. Crude +3.2% to $97.32. Gold +0.3% to $1954.70. Bitcoin -4% to $40,165.
Ten-year Treasury Yield +2 bps to 2.80%

Today's Economic Calendar

6:00 NFIB Small Business Optimism Index
8:30 Consumer Price Index
1:00 PM Results of $34B, 10-Year Bond Auction
2:00 PM Treasury Statement
5:30 PM Fed's Barkin Speech

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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