Fed Could Hike Further Than Expected

• 3 min read
Fed Could Hike Further Than Expected

MARKET MOVERS

  • U.S. durable-goods orders and business investment rise again. Orders at U.S. factories for long-lasting goods such as machinery and electronics rose a solid 0.4% in April, signaling the economy was still growing at a steady pace in the early spring. factories are working at full tilt and business investment is still robust, but high inflation and rising interest rates are starting to cause erosion. Read more here.

  • Export curbs spread globally, adding to food-inflation pressures. Countries around the world have enacted a wave of export curbs on food since the start of the Ukraine war, a trend that economists say risks aggravating shortages and global food-price inflation. Restrictions on food exports inevitably push global prices up further as importers buy what they can from reduced supplies.

  • Lyft to slow hiring and cut costs in the face of market volatility. The company said that they are focused on accelerating profitable growth. They want to be also responsible regarding costs and will significantly slow hiring. President John Zimmer told employees on Tuesday that the company isn’t planning to lay off staff even as it reins in hiring.

  • Housing affordability continues to weaken as the savings rate has collapsed. Median home prices (new homes/existing homes) continue to increase at double-digit % rates. Off the boil but +19.6% year-over-year and +14.8% year-over-year, respectively, are still strong relative to history.

  • Lower mortgage rates fail to rekindle homebuyer interest. Rates for most types of mortgages continued to retreat last week from highs set during the first week in May but it remains well above what borrowers were used to over the past two years. The purchase index remained close to lows last seen in the spring of 2020 when a significant portion of activity was put on hold due to the onset of the pandemic. Read more here.

  • Coinbase joins the Fortune 500 list. The first crypto company to do so. Coinbase in the fiscal year 2021 generated $7.8 billion of revenue to come in at number 437 on the list. While joining the Fortune 500 list does not necessarily increase liquidity as joining an index would, it's still good exposure for the company. It will be interesting to see if Coinbase makes this list again next year.

WHAT TO WATCH

  • Fed minutes point to quicker rate hikes than the market anticipates. The minutes released Wednesday indicated that officials are prepared to move ahead with multiple 50 basis points interest rate increases. In addition, the Federal Open Market Committee said policy may have to move past “neutral” and into “restrictive” territory. Members are hopeful they can bring down inflation, but also concerned about financial stability risks. Read more here.

  • TotalEnergies to buy a stake in a U.S. wind and solar company. The French energy giant is acquiring the stake from Global Infrastructure Partners for $1.6 billion in cash plus interest in a TotalEnergies unit that owns about half of U.S. residential solar business SunPower Corp. The Clearway deal will expand TotalEnergies’ reach in the U.S. green-power sector and comes as companies seek to transition away from oil and gas. Read more here.

  • Wendy’s biggest shareholder Trian explores a takeover. A potential transaction could include an acquisition, business combination, or other deal that would result in control of Wendy’s, according to the filing. Wendy’s said in a statement that its board “will carefully review any proposal submitted by Trian Partners”. Trian owns 19.4% of Wendy’s stock, making it the company’s largest shareholder.

  • A major shift in the economic narrative could be underway. Signs emerge that inventories are correcting and labor shortages are easing. The idea the next recession will be caused by a Federal Reserve that does too much, and hikes rates too far are not credible. Inflation will end when aggregate supply and aggregate demand balance but we’ll reach that state despite what the Fed does.

  • The market is ‘within 5%’ of the bottom, says Wharton's Jeremy Siegel. He says that company earnings reports have replaced inflation as the primary driver of market weakness. The recent weakness is what he calls the numerator, and that is earnings because the price of stocks is earnings over interest rates. He added that he still thinks earnings are going to come in well. Read more here.
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