The uber dove turned hawk, non voting member Neel Kashkari, is saying he would be fine with a pause but not an end to the rate hikes. Speaking Friday he said “I’m open to the idea that we can move a little bit more slowly from here…If the committee chooses to skip a meeting because we want to get more information, I could make the argument why that makes sense. A skip to get more information is very different in my mind than saying, ‘Hey, we think we’re done’…I would object to any kind of declaration that we’re done.” So, even when done, higher for a while will be their ongoing messaging and those who think in the next recession the Fed is just going to cut down to zero I think is a bad assumption. They’ll only be able to get away with maybe 200 bps of rate cuts before the dollar tanks and oil goes to double digits and thus squeezing their ability to continue on cutting.
Mary Daly speaks today and maybe she’ll touch upon the bank failures that her district oversaw.
In case you didn’t see it in my late Friday note, here is what Foot Locker said on their earnings call Friday, “since our Investor Day, in the face of increasing macro headwinds, our sales trends have slowed significantly just in the past month and a half, which will have an impact on our near term results…the recent softness has resulted in us taking a more aggressive promotional stance to drive demand and to effectively manage our inventory, and we’re reducing our guidance for the year to reflect that. To give you some greater color on what we’re seeing, following a much better than expected holiday season, we’ve seen the consumer retrench as they continue to face pressure from rapid inflation, which we see squeezing their ability to spend on discretionary items including athletic footwear.”
And how are things now? “As part of our guidance, we had forecasted a pickup in growth in April as we move past the tax refund drag and benefited from a more favorable launch calendar during the month, and while trends did improve, they did not improve nearly to the extent we expected and that weakness has continued into May.”
From Ross Stores, the off-price retailer, “As noted on our last earnings call, we had expected fiscal 2023 to be another challenging year. This was especially true given the continued uncertainty in the macroeconomic, geopolitical and retail environment. As a result of today’s uncertain external landscape, especially the prolonged inflationary pressures negatively impacting our customers’ discretionary spend, shoppers are seeking even stronger values when visiting our stores.”
This week really wraps up earnings season and after going through countless conference calls and transcripts, the recession debate is semantics at this point. ‘Challenging economic environment’ is what I heard many times. I’ve heard many times that business slowed in late March and into April and gets to my continued point of the 2 part economy this year, one pre SVB and the one we’re in now, post SVB. Manufacturing and freight is in a recession and capital spending is slowing in line with the trajectory of earnings which is down. So in 2022 the US economy grew 1%. It grew 1% in Q1 2023 and where is the puck now going? It seems too obvious that it’s going to further soften from the 1% pace. Yes, there are some pockets of strength, particularly in consumer spending on restaurants, bars, travel, leisure and other things like concerts (Taylor Swift packed it in again over the weekend at Gillette Stadium in the pouring rain and there were thousands of people outside the stadium during the show and singing to the songs) but offsets stated and the consumer otherwise is not spending much on discretionary goods. And to my point on semantics, will the economy feel any different if it grows 1%, is flat or declines by 1%? Likely not.
In Friday’s loan data, C&I loans outstanding fell for a 4th straight week by $3.5b and taking it to the least since last October, a sign of further slowing in economic activity as bank deposits continue to shrink and loan officers get tougher with what loans are extended. Bank deposits by the way declined by another $26.4b in the week ended 5/10 to the lowest amount since last July.
C&I Loans Outstanding
Taiwan’s exports in April fell 18.1% y/o/y, worse than the forecast of down 13.8%. A drop in electronic products led the way. As for the first 20 days in May, South Korea said its exports dropped by 16% y/o/y also driven by a slowdown in semi exports which were down by 36% y/o/y. The positive was the jump in shipments of autos which were up 55% y/o/y as inventories continue to be reset.