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%).

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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

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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.

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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.

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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.

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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.

Crypto

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

• CZ pushes back: Changpeng “CZ” Zhao says Binance has not been selling Bitcoin BTC/USD, despite the rumors.

• Compromise: Binance.US and the SEC are working on a deal to prevent a complete asset freeze.

• Undecided: The SEC has not made a decision on whether it will respond to Coinbase’s COIN petition for clarity.

• Definitions: House Republicans are opposing the SEC’s proposed rule to change the definition of “exchange”.

• Outflows: Digital asset investment products have seen 8 straight weeks of outflows totaling $417 million.

Deals

• Temporary block: A federal judge in California has temporarily blocked Microsoft’s $69 billion acquisition of Activision Blizzard.

• Sports betting: Entain will buy Poland-based sports betting operator STS Holdings for $946 million.

• Wait, what?: Zyus Life Sciences, a cannabis company, will go public via a reverse merger with Phoenix Canada Oil, an oil producer.

• AI unicorn: A Nvidia-backed AI startup, Synthesia, has reached unicorn status after raising $90 million in a Series A.

• Auto SPAC: Auto software firm LeddarTech is going public via SPAC with Prospector Capital.

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