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.

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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.

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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.

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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.

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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