September 21, 2023

Fed Leaves Rates Unchanged, Signals Another Hike This Year

📰 News Organizations

  • Goldman Nears Deal to Sell Greensky to Sixth Street Group. The sale talks are part of Goldman’s pullback from consumer unit. Bank had been in deal talks with multiple bidding groups. No final decision has been made and discussions could fall through.

  • Ford Averts Second Strike, Secures New Labor Contract in Canada. Ford Motor reached a new tentative labor deal late Tuesday with Canadian labor union Unifor, avoiding what could have been a second strike at the automaker’s operations in less than a week.

  • General Mills’ Earnings Show Inflation, Supply-Chain Issues Easing. Revenue rose 4% for the quarter ended Aug. 27, boosted by price increases. The CEO said the quarter was characterized by moderating inflation, stabilizing supply chains, and a resilient but increasingly cautious consumer.

  • FedEx Posts Profit That Tops Estimates, Raises Forecast on Cost Cuts. FedEx posted profit that topped analyst estimates and raised its earnings forecast thanks to cost cutting, strong pricing and customers who switched to the courier from its main rival on concern over a potential strike.

  • UK Inflation Dips To 6.7%, Below Expectations As Food Prices Ease. U.K. inflation surprised with a dip to 6.7% in August, below expectations and sparking increased bets on a pause in interest rate hikes from the Bank of England on Thursday.

  • Dollar Holds Fast Ahead of Fed Decision, Sterling Falls on Cool UK Inflation. The U.S. dollar index, which measures the currency against a basket of rivals, stood firm at 105.10 with traders awaiting the Fed's rate decision. The pound was volatile, last down 0.26 percent.

🐦 Twitter

  • TReal money & retail investors are all-in overweight tech and meaningfully underweight energy. Elevated tech valuations, rising long-end yields, and rising oil prices are setting up this positioning for a squeeze. Source.

  • We're in the biggest Housing Bubble ever in 2023. Home prices, adjusted for inflation, are 85% overvalued compared to their 130-year average. The only other time the overvaluation came close was in 2006. Source.

  • Fannie Mae says US housing market is headed for the largest sales slowdown since 2011. According to Fannie Mae, a government sponsored mortgage company, total home sales this year will fall to 4.8 million. Source.

  • The Russell microcap index (the bottom 1000 of the Russell 2000) is down 2.5% YTD and is only 5% above its cycle low. The Fed’s tightening campaign is having a predictable effect on most equities, except for the big growers, which are dancing to their own tune. Source.

  • The 10-3 inversion is slowly un-inverting, in from -1.89 in May / June to -1.17 yesterday, the tightest it's been since March. 10-3 inversions have preceded the last eight recessions, but it is the un-inversion that most immediately precedes the declaration of a recession. Source.

  • Multi-family housing starts are rolling over at rapid pace. 3-month % decline of 43% typically consistent with recessions when looking at history. Source.

What's even more concerning than the federal debt surpassing $33 trillion for the first time in history is the fact that it has been growing at an annualized rate of 18.5% since June.

Tavi Costa

📓 Online Publications

  • The Fed Is Pausing Interest Rates. Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated.

  • Intel Stock Dipped by More Than 2%. Intel's CFO warned investors that it may take another year for the company to break even on operating cash flow. The revenue from the company's data center unit is still declining.

  • Demand for Purchase Loans Picks Up, But So Do Mortgage Rates. Applications for FHA mortgages and conforming loans backed by Fannie Mae and Freddie Mac were up last week even as rates crept back toward 2023 highs seen in August.

  • U.S. Housing Starts Drop to Lowest Level Since June 2020. Construction of new U.S. homes fell 11.3% in August—falling short of Wall Street expectations—as builders scaled back new projects to focus on completions.

  • Homebuilder Confidence Tanks As Mortgage Rates Rise. Builder sentiment for newly built single-family homes slid five points to a score of 45, the second straight month of steep decreases.

🎧 Podcasts

  • Oil Price Exceeds $95 A Barrel On Fears Of Supply Shortfall. People are traveling a lot so the use of jet fuel and jet fuel demand has really risen this year. So these factors have driven record oil demand in 2023 along with tighter supply. Source(1:32)

  • Instacart Popped and then Cooled. Instacart listed on the Nasdaq Tuesday and shares went up 40 percent shortly after trading. But things cooled down after that. Shares ended the day up more than 10 percent, so still high but significantly lower than the initial pop. Source(0:53)

  • Disney Spending $60 Billion On Theme Parks. The Walt Disney Co. is planning to invest approximately $60 billion into its theme parks and cruise lines over the next decade, as the company looks to continue growing one of its more successful business segments. Source(2:01)

  • We’re Entering An Era of Scarcity. Tracy Shuchart says we're entering a period of prolonged higher rates, transitioning from decades of abundance to scarcity, particularly affecting natural resources and potentially leading to sustained higher inflation rates, presenting a challenge for the Fed. Source(15:20)