While the Fed is going to hike rates another 25 bps next week as widely expected and we debate whether it’s the right move or not, the fed funds futures market is saying who cares whether it’s one more time or not as the December 2024 contract is saying, as of today, the Fed will CUT rates by about 200 bps by then as it yields 3.20%. I think the key question for the Fed is whether in the next economic downturn, will the Fed have learned any lessons about the poison of zero rates and QE. Will they just rely on the old playbook or is a desire to have at the minimum, a zero real rate and an understanding the dangers of QE? Understand that the spike and now plunge in bank deposits is following all the liquidity that QE injected over the years and which is now slipping away. While banks fail in every economic cycle, the Fed is directly responsible for the current vulnerabilities.
I forgot to mention yesterday that the Swedish Riksbank raised rates by 50 bps and hinted at another raise at the next meeting but likely only 25 bps. Governor Thedeen said “It is important for confidence in the inflation target that inflation falls clearly this year. To ensure that this happens, the policy rate needs to be raised further.”
Keep your eye on the Russell 2000 as yesterday it closed less than 1% away from its lowest close since October 20th. On that day the S&P 500 closed at 3666 and thus reflecting now how narrow and how much the mega cap names are keeping the S&P 500 afloat at current levels. In just two days the Transportation index has given back almost all of its year to date gains.
After a modest change seen in the wide spread between Bulls and Bears in the weekly II data, the AAII measure of the mood of the individual investor is much more subdued. Bulls fell 3.1 pts to 24.1. After the past few months it got as high as 37.5 and as low as 19.2. Bears rose by a similar amount, up by 3.4 pts to 38.5. Its range has been 48.9 in late March and was as low as 25 in mid February. The Neutral side is almost as high as the Bear camp at 37.4. The CNN Fear/Greed closed yesterday at just about dead smack in Neutral at 51 vs 63 one week ago and vs 40 one month ago.
Ahead of the Q1 GDP report today, the Atlanta Fed cut its estimate to 1.1% yesterday from 2.5% in the last forecast.
On to some earnings calls.
Meta
“Our community reached the milestone that now more than 3 billion people use at least one of our apps each day.” Pretty amazing. “
“So far, we’ve gone through two of the three waves of restructuring and layoffs that we have planned for this year in our recruiting and our technical groups. In May, we’re going to carry out our third wave across our business groups.”
And now the newly obligatory commentary, “Now a key theme that I want to discuss today is AI”…
“On a user geography basis, ad revenue growth was strongest in rest of world at 9%, followed by North America and Asia-Pacific at 6% and 4% respectively. Europe declined 1%.”
“In terms of the Q1 revenue performance and the acceleration relative to Q4, we certainly saw stronger demand, including the impact of lapping the Ukraine was which began in Q1 of 2022. And in particular, we saw acceleration among advertisers in China targeting users in other markets, which, we believe, was due in part to dropping shipping costs and easing Covid lockdowns for those advertisers. And then you’ve seen FX play a part there as well. Looking forward to Q2 and the back half of the year, it’s certainly an easier compare there as there are tailwinds to y/o/y growth coming from lapping a weaker demand period.”
“With that said, there’s a broad range of expectations captured in our Q2 outlook, and it reflects that we feel it remains a volatile macro environment. The market has absorbed a lot of new developments over the last year with inflation, higher interest rates, banking instability, etc… and it’s hard to have perfect visibility on how those dynamics will impact the broader economy and specifically the advertising markets for Q2 and for the rest of the year. It also continues to be a challenging regulatory environment, so that’s something that we’re continuing to monitor closely.”
HLT
We know spending on travel, leisure and hospitality has been a bright spot in the economy. “We’re pleased to report that demand for travel remains strong, maintaining the trend that we saw in the back half of last year.”
“Globally, all segments outperformed expectations and the lifting of Covid restrictions in China drove significant recovery in demand across Asia-Pacific throughout the quarter. As a result, RevPAR in the month of March exceeded 2019 levels across all regions and segments for the first time since the pandemic began.”
In light of the economic uncertainty that was also mentioned, “we’re not seeing any cracks in terms of demand patterns. There is a lot of momentum. I sit at this very table (said the CEO) every Monday morning with my entire Executive Committee representing every region of the world and the first question I ask, are you seeing any cracks, any issues with demand broadly, any issues regionally, any issues from a segment point of view. And the truth it, we’re just not seeing it.”
CHRW
We know manufacturing and transportation is in a recession and the leading logistics broker said this in their press release:
“Our first quarter financial results reflect the softening market conditions that have transpired in the freight transportation market over the past 12 months. With shippers continuing to manage through elevated inventories amidst slowing economic growth, the balance of supply and demand has shifted from a tight market a year ago to one that is now oversupplied. As spot rates approach the breakeven cost per mile to operate a truck, the market is likely at or near the bottom of the industry cycle, which typically results in capacity existing the market. Contract rates are also declining as transportation providers adjust to the changing market.”
Moving overseas, the April Eurozone Economic confidence index was little changed at 99.3 vs 99.2 in March and below the estimate of 99.9. For context, it was 105.2 in February 2020. Improvement in service, retail and consumer confidence was offset by a drop in manufacturing and no change in construction.
Eurozone Economic Confidence index