All Eyes On Fed Decision, Powell Presser

It’s FED day. Will they raise interest rates or pause? Here’s what Wall Street thinks:

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Market

Prices as of 4 pm EST, 6/13/23

Macro

Annual headline and core inflation in May fell to their lowest levels since March 2021 and November 2021, respectively.

The former rose by 0.1% MoM (vs. 0.2% expected) to 4% YoY (vs. 4.1% expected).
The latter increased by 0.4% MoM (in-line) to 5.3% YoY (in-line).
Supercore prices—which are closely watched by the Fed and measure core services excluding rent—rose 0.24% in May (slightly above the pre-pandemic average of 0.23%).

Shelter is still the biggest driver for inflation and remains stubbornly high.

That’s good news, however, because the index tends to be a lagging indicator and is expected to ease in the coming months.
Based on real-time gauges, shelter prices are already coming down:
- According to Zillow’s All-House Rent Index, rental inflation has fallen below 5% for the first time since 2021.
- By Redfin’s measure, nationwide rents declined 1% from a year earlier in May for the largest drop and first annual decline since March 2020.

WSJ

All of this suggests the Fed will announce a pause to rate hikes this afternoon.

In fact, traders are now pricing in a ~95% chance rates remain untouched this month.
Looking out further, futures markets predict there will be no net cuts for the rest of 2023.
As for FOMC members, here’s how they lean:

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Stocks

UBS has downgraded Apple AAPL to neutral from buy.

Analysts cited softness in developed markets which suggests growth will remain under pressure.
They point to slowing demand for iPhones and Macs in the second half as well as sluggish growth in its services business.
They did, however, raise their price target to $190 from $180.
Even so, the downgrade leaves Apple with the lowest number of buy ratings from analysts (67%) since late 2020.

Meta Platforms META has released a pair of AI-powered tools in recent days.

MusicGen is a controllable music generator trained on 20k hours of music that turns text descriptions into 12 seconds of audio.
I-JEPA is a “human-like” AI model designed to analyze and complete unfinished images more accurately than existing models by using background knowledge about the world to fill in missing pieces.
Like the rest of its AI research, the tools are open-sourced with an aim towards improvement and innovation.

BofA published its monthly Global Fund Managers Survey yesterday—here are some highlights:

Long Big Tech is by far the most crowded trade.
59% believe the Fed isn’t done hiking interest rates.
63% expect a worsening economy ahead.
Allocations to commodities reached a 3-year low.
Cash levels are at the lowest since January 2022.
Investors are net 32% underweight equities.

Energy

Oil prices got a boost after a cut to short-term interest rates by China’s central bank.

The surprise cut was also accompanied by the possibility of broad stimulus measures.
The moves are aimed at strengthening the country’s faltering post-pandemic recovery.
China is the world’s largest crude oil importer.

Meanwhile, a new report from the International Energy Agency (IEA) predicts global oil demand in 2024 will grow at half the rate of previous years, dropping to 860,000 barrels per day.

By 2028, the agency expects demand growth will fade to just 400,000 barrels per day.
Fueling (pun intended) the pullback in future demand are increasing production capacity, the shift towards clean energy, and a decrease in Chinese consumption.

IEA/Bloomberg

Earnings

What we’re watching today:

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Top Headlines

Pipeline plot: The CIA warned Ukraine not to attack the Nord Stream pipeline last summer.
RTO: Office occupancy rates in New York topped 50% last week for the first time since the start of the pandemic.
Live-stream: Netflix is preparing to enter live-stream sports with a celebrity golf tournament this fall.
AI chip: AMD announced the upcoming release of its most-advanced GPU for AI which will challenge Nvidia’s dominance.
AI trust: Salesforce is introducing the “Einstein GPT Trust Layer” to protect proprietary data and address concerns about data control and ownership.
Global inequality: As measured by the Gini coefficient, global inequality has reached its lowest level in 150 years.
Beer me: With sales down 24% YoY in the week ending June 3, Bud Light is no longer the US’ top-selling beer.
UK GDP: The UK economy returned to growth in April thanks to rebounds in the retail and creative industries sectors.

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