Good Wednesday Am, this best day of the week,
Big data day today.
CPI came in tamer than expected at the headline number with the core right on target. Monthly CPI in at 0.1 vs 0.3 expected, yearly in at 5.0% on expectation of 5.2%. Core Monthly CPI on target at 0.4 annual at 5.6%. Core did tick up a bit on the shelter costs but the simple reason for that was the jump in housing costs from last April 2022 (vs last March 2022). Next month when April 2022 falls off the calculation (we look at the rolling last 12 months), shelter costs will come down.
Markets had a very positive initial reaction seeing a slowdown in inflation and the economy with a nod to the Fed pause on May 3rd. But.. since then, markets refocused on Treasury Secretary Yellen and San Francisco Fed President Daly clamoring that there is no forthcoming recession. If you take monetary policy literally, with the idea that higher rates are designed to shrink the supply of money by tightening credit, and that tightening credit leads to slowing activity and that slowing activity is how you get prices lower, then what we may be seeing that show up in the data. They are both incredibly bright and have access to better data, but I don’t know how in the wake of slowing production, retail sales, employment, inflation, money supply, etc., we avoid a very natural part of the economic cycle. I would rather acknowledge it is coming, welcome it in and get through it as soon as possible than deny its existence.
Markets turned a bit on the commentary (although Chicago Fed President Goolsbee did also speak today and called for a Fed pause, the voice of reason) and with that and the 10-yr treasury auction which didn’t go well pushing the 10-yr yield up to 3.45% from 3.36 earlier in the day, we are now waiting on the minutes of the Fed meeting (about 30 minutes away). Those Fed minutes could have a big impact on price. If the minutes demonstrate that most of the Fed members are hawkish, the market will fall hard! If the minutes show moderation, we should see some improvement. Tomorrow, we get the PPI numbers and those could help the rally if they come in low.
On banking and lending.
U.S. banks’ lending capacity will decline by 1% this year because of the fall in the value of many bank stocks as investors reassess the health of midsize banks, the International Monetary Fund said in a report on global financial stability. That reduction in lending is expected to dent U.S. gross domestic product in 2023. There seem to be at least some ominous clouds forming, particularly around commercial real estate and credit availability in the wake of the SVB implosion. For example, the latest NFIB Small Business Optimism survey, and one measure of loan availability showed its largest one-month drop since 2003.
There was also a Dallas Fed survey showing a meaningful decline in loan volume.
And how about Robot dogs? I loved this piece however, I am admittedly a bit intimidated by a 5 foot robot dog.
The police ‘digidogs’ are remote-controlled, four-legged units that can climb stairs and could be used to approach barricaded suspects. PHOTO: MICHAEL APPLETON/OFFICE OF THE MAYOR OF NEW YORK CITY
NYPD plans to deploy robotic dogs.
The New York Police Department will use more robots to fight crime, Mayor Eric Adams said Tuesday. The initiative includes the deployment of a “K5” unit in Times Square that will help beat officers with surveillance. The city also acquired two robotic dogs—which the NYPD calls “Digidogs”—that will be used at incidents such as hostage situations, officials said. Another device will shoot tracking devices onto suspect vehicles, WSJ’s Jimmy Vielkind reports. The city will lease one K5—which moves similar to a Roomba and looks like a 5-foot R2-D2—and is manufactured by Knightscope. The so-called digidogs are remote-controlled, four-legged units that can climb stairs and are manufactured by Boston Dynamics, Inc.
Please remain safe and stay healthy, make today great!