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 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 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 XOM
Chevron CVX
Sony Group SONY
Colgate CL
Charter Communications CHTR
TC Energy TRP
W.P. Carey WPC
Ares Management ARES
Cameco CCJ
Avantor 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.