Don't Call It A "Skip"

Jerome Powell said the FED’s forecasts have been wrong on inflation the last 2 years. Now he’s saying rate cuts aren’t going to happen for another couple years.

Can we really depend on these projections anymore?

Market

Prices as of 4 pm EST, 6/14/23

Macro

Mortgage demand picked up last week.

• Applications for mortgages jumped 7.2% in the week ended June 9 marking the first increase in over a month.

• The rise coincides with a pullback in mortgage rates (to 6.77% from 6.81%) which have now declined for 2 straight weeks.

• However, with rates still a full percentage point higher than a year ago—and more than double what they were prior to the pandemic—purchase activity is down 27% YoY.

Wholesale prices in the US declined by more than expected in May.

• Headline PPI dropped 0.3% (vs. +0.2% expected) while core PPI increased 0.2% (in-line).

• The drop in the former was driven by large decreases in the costs of energy goods (mostly gas prices) and food.

• On a YoY basis, headline and core PPI are up 1.1% (lowest since December 2020) and 2.8% (lowest since February 2021), respectively.

After 10 consecutive increases, the Fed kept interest rates unchanged in June.

• The pause (don’t call it a skip), however, was of the hawkish variety as most FOMC members believe further tightening is necessary to bring down inflation.

• By their forecast, rates will need to rise to 5.6% by the end of the year which implies two more hikes.

• While markets are coming around to the belief that the Fed will not cut rates this year, they’re not entirely buying the FOMC’s message: Fed Funds futures are pricing in a peak rate of just 5.25-5.50 for 2023.

Yahoo Finance

Stocks

The European Union (EU) has accused Google of abusing its dominance in the advertising tech industry.

• Charges set out by the European Commission allege the company has leveraged its position to give itself an unfair advantage while charging competitors high fees for its services.

• The commission’s view is that Google must sell off parts of its adtech business to address the anti-competitive practices.

• Advertising was responsible for 79% of Google’s total revenue last year.

Elsewhere in the EU, lawmakers voted in favor of stricter rules for artificial intelligence (AI).

• New draft legislation includes a ban on using AI in biometric surveillance and requires generative AI systems (like ChatGPT) to disclose AI-generated content.

• It also calls for companies using generative tools to disclose copyrighted material used for training.

• Additionally, “high-risk applications” would need to undergo fundamental rights and environmental impact assessments.

Staying on topic, a new McKinsey report suggests the AI boom could potentially add up to $4.4 trillion–or about 4.4% of output–to the global economy annually.

• Their research predicts productivity increases could range between 0.1% and 0.6% over the next 20 years, depending on how the tech is adopted and implemented.

• They estimate current technologies have the potential to absorb 60-70% of employees’ time today.

• Industries that would benefit most from generative AI include high tech, retail, banking, and pharmaceuticals.

McKinsey

Energy

US crude inventories rose unexpectedly last week, rising by nearly 8 million barrels.

• Analysts were expecting a 510,000 barrel draw.

• Strategic Petroleum Reserves, meanwhile, were drained (by 1.9 million barrels) for the 11th straight week.

• The draw comes after reports the White House is seeking to buy 12 million barrels to refill reserves this year.

Zero Hedge

Earnings

Yesterday’s highlights:

Lennar Corp LEN: $3.01 EPS (vs. $2.33 expected), $8.05 billion in sales (vs. $7.22B expected).

• The homebuilder raised its forecast for home deliveries in 2023 to 68,000-70,000 from previous guidance between 62,000-66,000.

• It also expects gross margins to increase from the current quarter’s 22.5% to between 23.5% and 24% in Q3.

What we’re watching today:

• Adobe ADBE

• Kroger KR

• Jabil JBL

• John Wiley & Sons WLY

Top Headlines

• Semiconductor spying: US chipmaker Applied Materials is accusing a Chinese rival of a 14-month espionage campaign.

• Twitter faces the music: Twitter is being accused of copyright infringement by music publishers in a $250 million lawsuit.

• Super app: ByteDance has plans to create an “everything app” to rival WeChat.

• Consumers cut back: A new CNBC and Morning Consult survey revealed 92% of Americans are pulling back on spending.

• Corporate debt: Interest costs at US companies increased by 22% YoY in Q1.

• Hydrogen electricity: New US and EU government policies are boosting investor confidence in hydrogen projects.

• Canadian housing: Mortgage growth in Canada dropped to a 20-year low in Q1 thanks to rising rates.

• US-Iran: The Biden administration has resumed talks with Iran to secure the release of American prisoners and address the country’s nuclear plans.

• Crypto

Prices as of 4 pm EST, 6/14/23

• Cyprus pullback: Binance is looking to deregister its Cyprus unit as a crypto service provider to focus on its larger European businesses.

• Market share: Binance.US’ market share in the US fell to just 2.7%, the lowest since December 2020.

• Advisers’ takes: Here’s what wealth management pros think about the SEC’s crackdown on crypto.

• USDT: Tether’s USDT/USD stablecoin is under pressure as liquidity platforms like Curve and Uniswap see an influx of USDT sellers.

• BTC vs. TradFi: Bitcoin’s unpredictable correlation with traditional finance has inverted.

Deals

• UK mobile: Vodafone and CK Hutchison have agreed on a $19 billion merger to create the largest mobile operator in the UK.

• Restaurant IPO: With shares expected to begin trading today, Cava has priced its IPO offering at $22 per share, a ~$2.45 billion valuation.

• Chinese IPOs: Investment banks are backing out of potential listing in China as international investors sour on the country’s IPO market.

• Bid rejected: SoftwareOne’s board unanimously rejected Bain Capital’s $3.2 billion takeover offer as too low.

• LNG stake: TotalEnergies has acquired a 17.5% stake in LNG developer NextDecade for $219 million.

Meme Of The Day