Economic Growth Slows, Inflation Persists, Stocks Rally

The economy is slowing. The financial system is wobbly. The FED is raising rates next week into a (likely) recession. Companies are laying people off and replacing them with AI.

What a time to be alive.

Market

Prices as of 4 pm EST, 4/27/23

Macro

In its first meeting under new governor Kazuo Ueda, the Bank of Japan (BOJ) decided to keep interest rates ultra-low.

• As expected, the central bank kept its yield curve control policy unchanged.

• It also scrapped guidance and announced a plan to review past monetary policy, setting the stage for future policy changes.

• The yen fell sharply on the announcement while government bonds reversed course higher.

Pending home sales in the US dropped unexpectedly in March, falling by 5.2%.

• It was the largest decline since September.

• Inventory is failing to keep up with demand as homeowners with low mortgage rates remain reluctant to sell.

The US economy expanded at a slower pace than expected in the first quarter with GDP rising just 1.1%.

• Despite the strongest increase in consumer spending (3.7%) in 2 years, a sharp decline in business investment and a drop in inventories were a drag on growth.

• Meanwhile, the personal consumption expenditures index—the Fed’s preferred measure of inflation—increased by 4.2% (from 3.9% in Q4), well above the central bank’s 2% target.

Stocks

Cost-cutting measures across US companies continue by way of layoffs.

• After laying off 700 workers in November, Lyft announced it will eliminate over 1,000 additional jobs (~26% of its workforce).

• Dropbox said it plans to cut 500 jobs (~16% of employees) to combat slowing growth and economic headwinds.

• Gap Inc—which cut 500 corporate positions in September—said it would eliminate another 1,800 jobs as a part of a broad restructuring to become more nimble.

US stocks rallied yesterday as investors looked past a weak first-quarter GDP report.

• Fueled by better-than-expected earnings from Big Tech, equities enjoyed their best day since January 6.

• The S&P 500 and Nasdaq rose 2% and 2.4%, respectively.

BofA’s Michael Hartnett, however, thinks the rally could soon come to an end as corporate profits drop and the labor market fizzles.

• He warns that despite the risk of a hard landing for earnings, markets are currently pricing just a 4% decline in profits.

• Hartnett expects interest rates will remain high and advised clients to sell the S&P 500 above 4,200, which is less than 2% higher than yesterday’s close.

Energy

OPEC is at odds with the International Energy Administration (IEA).

• The group claims the agency is stoking volatility after warning production cuts risked fueling inflation.

• The cartel also criticized the IEA for its call to halt investments in new oil and gas projects.

• Meanwhile, oil prices are on track for the 6th straight month of losses.

• That’s the longest such streak in more than 8 years.

Earnings

Here are some of yesterday’s highlights:

Amazon (NASDAQ:AMZN): $0.31 EPS (vs. $0.20 expected), $127.36 billion in sales (vs. $124.7B expected).

• Sales for Amazon Web Services topped analysts’ estimates but marked a deceleration from the previous quarter.

• Shares initially popped but reversed course after a warning over ongoing weakness in cloud revenue growth.

Intel (NASDAQ:INTC): -$0.04 EPS (vs. -$0.15 expected), $11.7 billion in sales (vs. $11.04B expected).

• Earnings and revenue dropped 133% and 36% YoY, respectively.

• It was the 5th straight quarter of declining sales and the largest quarterly loss in company history.

What we’re watching today:

• Exxon Mobil (NYSE:XOM)

• Chevron (NYSE:CVX)

• Sony Group (NYSE:SONY)

• Colgate (NYSE:CL)

• Charter Communications (NASDAQ:CHTR)

• TC Energy (NYSE:TRP)

• W.P. Carey (NYSE:WPC)

• Ares Management (NYSE:ARES)

• Cameco (NYSE:CCJ)

• Avantor (NYSE:AVTR)

Top Headlines

• Chinese distrust: A campaign by Chinese authorities could raise risks for Western companies operating in the region.

• Smartphones: Sony’s president predicts weakness in the smartphone market will continue over the next year.

• SAFE Banking Act: Cannabis firms could get a boost from the reintroduction of a bill that would provide much-needed banking services to the industry.

• Punked: Jerome Powell spent 16 minutes on a call with Russian pranksters posing as Ukrainian President Volodymyr Zelensky.

• AI disclosures: The EU plans to require AI tools to disclose copyright materials used in building their systems.

• Fed talk: According to a language processing model, Fed sentiment is increasingly dovish.

• Egg relief: Wholesales egg prices are expected to drop to $1 in the coming weeks for the first time since 2021.

• China housing: Individual mortgages in China grew by the smallest amount on record in Q1.

Crypto

Prices as of 4 pm EST, 4/27/23

• Compliance: Without a hint of irony, SEC chairman Gary Gensler said “the law is clear” for crypto exchanges.

• Crypto-friendly: Hong Kong regulators are urging banks to work with and provide financial services to properly licensed crypto firms.

• HODL: Long-term Bitcoin holders are profitable for the first time in nearly a year.

• Record fine: The CFTC imposed a $3.4 billion civic penalty in the largest-ever fraud case handled by the agency.

• Binance Japan: Binance will begin operations in the Japanese market in July.

Deals

• Oil sands: Suncor will buy TotalEnergies’ Canadian oil sands operation for $4.1 billion.

• Fitness IPO: Personal training and hardware startup Forme has priced its US IPO at $8 per share, the top end of its marketed range.

• British boutique: Deutsche Bank will buy UK broker Numis for $511 million in a surprise deal.

• Sportsbook: FanDuel owner Flutter won shareholder support for a US listing.

• Russian exit: Mercedes-Benz completed its exit from Russia this week after selling shares in its Russian subsidiaries to a local car dealer chain.

Meme Of The Day