Didn't Expect That, Eh?

Ray Dalio, founder of the world’s biggest hedge fund, says the U.S. is going to issue a large amount of government debt and there is a shortage of buyers.

He calls this the beginning of “big cycle debt crisis”.

Market

Prices as of 4 pm EST, 6/7/23

Macro

The Bank of Canada (BoC) surprised markets with a 25bps rate hike yesterday.

• At 4.75%, its benchmark interest rate is now at its highest since 2001.

• The central bank had held borrowing costs at 4.5% since January as it assessed the impact of previous hikes.

• Yesterday’s move was made in response to an overheating economy and inflation that seems intent on remaining above the BoC’s 2% target.

• Traders are now anticipating more hikes to follow with another 25bps increase already fully priced in for September.

The Organization for Economic Cooperation and Development (OECD) published its updated global Economic Outlook yesterday.

• Like the World Bank, the OECD sees limited growth for this year and next, predicting global growth of 2.7% in 2023 (up from 2.6% in March) and 2.9% in 2024 (unchanged).

• Excluding the pandemic, this year’s growth is expected to be the slowest since the global financial crisis.

• The organization warned that stubborn inflation remains a major headwind for central banks, whose subsequent rate hikes could stunt growth further.

According to Indeed’s Wage Tracker, at the current rate of deceleration, wage growth could return to pre-pandemic levels by the end of the year or early 2024.

• Wages grew 5.3% YoY in May, down from 5.7% in April but still well above the pre-pandemic average of 3.1%.

• Wage growth has, however, come down significantly off its January 2022 peak of 9.3%.

• Today, just 29% of occupational sectors are experiencing wage growth equal to or above its pace from 6 months earlier—that’s down from 90% at the peak.

Indeed

Stocks

Bernstein wrote an open letter to Amazon CEO Andy Jassy and the board.

• In it, analysts state that Amazon is pursuing too many ideas and needs to focus on its best opportunities.

• The letter recommends the company refocus on its core businesses and divest or trim spending in areas like healthcare and Project Kuiper (satellites).

• Separately, Amazon announced plans to launch an ad-supported tier of its Prime Video streaming service as it looks to generate more revenue from entertainment.

Relative to large-cap tech, the Russell 2000 has been flirting with extreme lows last seen during the height of the pandemic and the early 2000s.

• Is a rotation in order?

• With asset managers, leveraged funds, and CTA positioning at or below neutral levels, it may be.

• Tuesday saw a record amount of IWM (Russell 2000 ETF) call options traded as call open interest sits at its highest level since 2007.

• The result has been the biggest stretch of outperformance for the Russell 2000 relative to the S&P 500 in more than 2 years.

Goldman Sachs

Energy

🛢️ US commercial petroleum inventories increased by 12.8 million barrels last week.

• Crude saw a modest 425k barrel draw while gasoline and distillates saw their biggest builds since February 2023 and December 2022, respectively.

• Meanwhile, the White House drew on Strategic Petroleum Reserves for the 10th consecutive week, draining 1.8 million barrels and bringing its balance to a 40-year low.

Earnings

Yesterday’s highlights:

GameStop GME: -$0.14 EPS (vs. $-0.12 expected), $1.237 billion in sales (vs. $1.36B expected).

• In a surprise move, GameStop fired its CEO and appointed Ryan Cohen as the new executive chairman.

• The company provided no reason for the decision as it watched shares drop as much as 20% in after-hours trading.

What we’re watching today:

• DocuSign DOCU

• Toro Company TTC

• Vail Resorts MTN

• Braze BRZE

• Signet Jewelers SIG

• Duckhorn Portfolio NAPA

• Planet Labs PL

• FuelCell Energy FCEL

Top Headlines

• Consumer debt: Credit card debt has risen to fresh all-time highs as interest rates also reach record levels.

• Mortgage demand: US mortgage applications declined for the fourth consecutive week as mortgage rates remain close to 7%.

• Used vehicles: Prices for used cars fell 2.7% MoM in May and are down 7.6% from a year ago.

• Transportation warning: The Logistics Managers’ Index fell to a record low for the third consecutive month.

• Curious VIX1D: Wall Street’s new One-Day Volatility Index has consistently opened lower every day since its creation.

• Air quality crisis: Smoke from Canadian wildfires has covered the US East Coast and brought the worst air quality on Earth to New York City.

• Military coordination: The US, Taiwan, and Japan are planning to share real-time data from drones to strengthen coordination in the event of a Chinese attack on Taiwan.

• Eurozone recession: The Eurozone entered a recession in the first quarter after high energy and food prices hit household spending and hurt GDP.

Crypto

Prices as of 4 pm EST, 6/7/23

• Binance losses: According to financial records released as part of the SEC’s lawsuit against it, Binance.US lost $181 million last year.

• Gensler shocker: Binance lawyers claim Gary Gensler offered to serve as an advisor to the firm in 2019.

• DeFi resilience: Despite the recent classification of tokens as securities, value locked on DeFi applications remains mostly stable.

• First timers: The UK’s Financial Conduct Authority is finalizing new crypto rules that include a 24-hour “cooling-off period” for first-time investors.

• Positive sentiment: Positive funding rates for both Bitcoin BTC/USD and Ether ETH/USD suggest bullish sentiment in the market.

Deals

• Listing switch: Shareholders of the world’s largest building materials group, CRH, have approved plans to switch its primary listing to New York from London.

• Takeout: Toshiba’s board recommends shareholders support a $14 billion buyout from a group led by Japan Industrial Partners.

• Messi to the US: Lionel Messi inked a deal with Inter Miami of Major League Soccer, as well as Apple and Adidas.

• Red Devils: Qatar’s Sheikh Jassim bin Hamad al-Thani has put in his final offer for Manchester United while threatening to walk away from the bidding war.

• PGA x LIV: Senate Democrats are calling for investigations into the merger between LIV Gold and the PGA Tour due to monopoly concerns and human rights issues.

Meme Of The Day