Morning Brew May 16 2024

Good morning,

As expected, yesterday was quite the day! While the CPI was only slightly lower than feared and some numbers were actually rather worrying, the data was enough to boost dovish sentiment and shift the expectation for this year’s rate path a good deal. Before yesterday, traders were expecting 40 basis points in cuts, but now we are at above 50, and the first rate cut is seen to come before the election at the September 18th meeting.

Peter pointed out some warning signs in yesterday's data that were widely ignored:

• US services core inflation is still running hot at 6% annualized.
• US super core inflation is at 6.5% annualized (annualizing the 6-month average in MoM changes).
• Latest Redbook sales figures YoY rose to 6.3%, suggesting demand is not cooling.

US Retail Sales came out unchanged but failed to spook traders. Yields dropped (10 Years to 4.32), the USD Index fell to the lowest in more than a month at 104.24, while equities celebrated by hitting new records at huge volumes. The US 30 is just shy of 40,000 at 39,940 – up 6% for the year, the US 500 is at 5,314, up 11.5% for the year, and the US Tech 100 NAS is at 18,626, up 10.75% YTD. Also, the GER40 broke to new highs at 18,860, or +12.5% YTD.

Meme Stocks took a beating yesterday with GME, AMC, and KOSS all down approximately 20%. Tech was the largest contributor to the gains, with Nvidia up 3.6% and Super Micro Computer gaining 15.8%.

EURUSD is approaching 1.09 after breaking the 1.08 just earlier this week, GBPUSD is at 1.2680, and USDJPY fell to 154.26. Gold and Silver are strong at 2390 and 29.50, while Bitcoin and Ethereum are also higher at 65,650 and 3,003. Many precious metals traders noted that the Gold Silver Ratio broke a 3-year support line – possibly calling for a further outperformance of Silver vs. Gold – even if the ratio has already declined by more than 6%.

Today, I would not be surprised if we saw a digestion phase where traders adjust to the new levels before either continuing the move or taking some profits. After the disappointing retail sales yesterday, the earnings of Walmart before the opening will be closely watched, and the US Jobless claims will have an impact if there is a significant deviation from the expectations.

In terms of economic news, China seems to be the place to focus on at the moment:

• Vladimir Putin is visiting China.
• China is looking to inject USD 1 trillion into the economy by purchasing apartments from suffering developers.
• Microsoft is asking employees in China to consider relocating out of China.

Key Data: Thursday

• Data JP GDP, AU Unemployment Rate, Initial Jobless Claims & Philly Fed, Michael Barr, R. Bostic & Patrick Harker Speak
• Earnings: Walmart, JD.Com, Under Armour Friday
• Data China Retail Sales, EU HICP