Inflation Gets Hotter at 8.5%

MARKET MOVERS

• Consumer prices rose 8.5% in March, slightly hotter than expected and the highest since 1981. Surging food, energy, and shelter costs helped account for the gain. Real worker earnings fell by another 0.8% during the month as the cost of living outpaced otherwise strong pay gains.  Excluding food and energy, the CPI increased 6.5%, in line with the expectation. Read more here.
  
  
• Beyond Meat expands meatless chicken distribution to 8,000 new retail locations. Customers will now be able to buy Beyond Chicken Tenders at select Albertsons, Sprouts, Whole Foods Market, and CVS locations nationwide. All Kroger locations also will carry the item by the end of the month. The expansion comes after several quarters of weak retail sales for the plant-based product maker.
  
  
• Ukraine war drives shortage in pig iron, pushing steel prices higher. Pig iron, a raw form of the metal used in the production of steel, has grown scarce in the weeks following Russia’s invasion of Ukraine, industry executives said. Two-thirds of the 6 million metric tons of pig iron imported by the U.S. last year came from those two countries, according to the U.S. Census Bureau, but the fighting brought Ukrainian shipments to a halt.
  
  
• Digital ad revenue jumped 35% in the U.S. last year. The biggest gain since 2006. Advertising has followed shopping online during the pandemic at a breathless rate. The ad spending was concentrated at 78.6% at just 10 top digital publishers and platforms and the proportion is creeping higher. E-commerce, now a cornerstone of the economy, will continue to drive ad investment in digital channels. Read more here.
  
  
• Real inflation is much higher. Shelter is the single biggest component of CPI (33% of Index) and is still being wildly understated (at +5% YoY) with rents up 17% over the last year and home prices up 19%. The actual inflation rate is much higher than 8.5%.
  
  
• Demand for vacation homes dropped sharply in March. For the second straight month, a decline was recorded as mortgages ramped up above 5%, according to an analysis by Redfin. While demand for vacation homes was still 13% above pre-pandemic levels and will likely remain that way for some time, Redfin experts forecasted an end to the huge flurry of demand, as high rates and prices push out some buyers, and make others reconsider whether a second home is a wise investment.
  
  
• More sellers are lowering asking prices. As a result of mortgage rates nearing 5%, the number of sellers dropping their asking price is growing at a faster clip than in the recent past. About 12% of homes for sale had a price drop during the four weeks ending April 3, according to Redfin. That marks a jump from 9% a year ago. Price drops are still rare, but the fact that they are becoming more frequent.

• Higher rates are starting to impact the housing market. Mortgage applications were down 41% from a year ago. We are seeing slowing sales in existing homes this year and some of that is also related to the low supply. Real estate super apps Zillow and Redfin are poised to suffer in a slow or declining housing market. As transactions decline, it cascades throughout their business. Source(26:12)
  

WHAT TO WATCH

• Elon's Twitter board reversal came with suggestions. This paves the way for him to press for changes and speak out freely as an activist investor or do a hostile takeover. He spent the weekend tweeting policy proposals and criticism of the platform. Among his ideas, Twitter blue should cost $2 per month, he thinks users should be able to pay in Dogecoin, and there should be no ads. Source(12:50)
  
  
• An economic slowdown is inevitable. The Pomp says the Fed, our elected officials, and business leaders globally have no ammunition left to curb inflation without forcing the United States and other global economies into recession. Every tool that can be used to address the high inflation will only accelerate slowdowns in the economy. The tools are too little and too late now. Read more here.
  
  
• Mark Zuckerberg says Meta will test selling virtual goods in the metaverse. In a video published late Monday, the tech billionaire said that Meta is testing new tools that allow creators to sell virtual assets and experiences within the worlds they build on Horizon. Users could make and sell attachable accessories for a fashion-focused environment or offer paid access to a new part of a particular world, for example.
  
  
• Biden administration to suspend summer E15 gasoline sales ban. The Biden administration is planning to allow sales of higher-ethanol gasoline blends throughout the summer months as part of measures to address the increasing fuel costs driven by Russia’s invasion of Ukraine. Adding more ethanol to gasoline blends could potentially reduce prices at U.S. gas pumps because ethanol, which is made from corn, is currently cheaper than straight gasoline.
  
  
• Apple is working on sleep, women's health, and fitness features. An updated version of the Health app on the iPhone this year is expected to add expanded sleep tracking functionality, medicine management, more workouts, and new women’s health features. The company is planning to add a body-temperature sensor to the watch as early as this year. The feature would initially be designed to help with fertility planning. Read more here.
  
  
• Honda plans 30 EV models by 2030. In a statement on Tuesday, Honda said it aims to produce 2 million electric vehicles (EVs) per year over the next decade. Of the planned $64 billion investment, $40 billion will be used to ramp up Honda’s electrification and software technologies. Honda will introduce two-mid to large-size EVs in North America and a commercial-use mini-EV in Japan in the $8,000 price range in 2024.
  
  
• Record high office lease expirations pose a new threat to landlords and banks. A record amount of U.S. office space is hitting the market this year due to a jump in lease expirations. Leases for 243 million square feet of U.S. office space are set to expire. The expiring leases represent about 11% of the nation’s overall leased office space. The rise in office space hitting the market this year is a direct result of the pandemic.