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MAY 14, 2024

POTENTIAL ROADBLOCK

In April, wholesale prices surged more than anticipated, posing a potential obstacle to imminent interest rate cuts. The producer price index (PPI), which measures the prices received by producers for their goods, increased by 0.5% for the month, surpassing the Dow Jones estimate of 0.3%. Notably, the revised March figures showed a shift from an initially reported 0.2% gain to a 0.1% decrease, and after excluding the volatile food and energy prices, the core PPI also experienced a 0.5% rise, contrasting with the 0.2% Dow Jones estimate. Furthermore, excluding trade services from this core group revealed a 0.4% increase monthly and a robust 3.1% surge over a 12-month period, the highest level since April 2023. The wholesale inflation was predominantly driven by services prices, which spiked by 0.6%, accounting for a significant portion of the headline gain. Concurrently, the final demand goods index displayed a 0.4% increase. Moreover, the increase in services costs was primarily fueled by a substantial 3.9% rise in portfolio management. On the other hand, goods prices, as indicated by the PPI, escalated by 0.4%, propelled by a 2% surge in the energy index, including a notable 5.4% jump in gasoline prices, while the final demand index for food experienced a 0.7% decline.

TREASURY YIELDS SOARED

Following the release of stronger-than-expected wholesale inflation data, the 10-year U.S. Treasury yield ticked up on Tuesday. Initially surpassing 4.5%, the yield settled at 4.487%, while the 2-year Treasury yield slightly decreased to 4.846%. Market attention now turns to the upcoming consumer price index report for April, where economists anticipate a 3.4% year-over-year price increase and a 0.4% monthly rise. Despite concerns from the Federal Reserve about inflation failing to meet the 2% target, interest rate cuts may not be imminent, pending further data. Investor expectations regarding possible rate cuts and their timing this year are contingent on the data. Additionally, more insights into the monetary policy outlook are expected as additional Fed officials, including Chair Jerome Powell, are set to speak this week, offering potential clarity on the Fed’s stance on inflation and interest rates.

BOOST IN CONFIDENCE

The National Federation of Independent Business (NFIB) has reported that in April small-business confidence in the U.S. increased, as there was a rebound of the small business optimism index to 89.7 after a dip to the lowest level in nearly a decade in March. This slight upturn was accompanied by a decrease in the proportion of owners planning to raise prices, with only 26% indicating such intentions, the lowest percentage seen in a year. However, it is important to note that high labor shortages continue to exert cost pressures on small business owners, with 40% reporting job openings they could not fill in April. In addition, despite optimism surrounding slower price increases, concerns about inflation linger, with 22% of owners identifying it as their top operational challenge. Nevertheless, economists are hopeful that a cooling labor market might help alleviate some of these challenges, and although there is still uncertainty about rate cuts, there is still a lingering hope that the Federal Reserve may intervene to support businesses.

RETAIL TRADERS RETREAT

The army of retail traders who were once at the forefront of driving Bitcoin’s biggest rallies have noticeably reduced their activity as in the first quarter of this year, U.S. crypto exchange Coinbase reported a decrease in consumer trading volumes compared to previous highs, and while there has been a modest recovery in retail interest, it still falls short of the levels seen during the exuberant 2021 rally. It is worth highlighting that the recent surge in Bitcoin prices was primarily fueled by institutional investors, particularly with the introduction of U.S. bitcoin exchange-traded funds. Nonetheless, despite this, retail investors remain cautious due to past challenges, including the prolonged crypto winter and the collapse of prominent companies in the industry. Moreover, as Bitcoin experiences fluctuations and alternative cryptocurrencies gain traction, market observers wait to see if speculative traders will re-enter the scene. The hope is that hitting a price milestone, like $100,000, may reignite retail interest in the cryptocurrency market.

SALES SLUMPED

Home Depot’s recent earnings report revealed a decrease in sales as consumers are scaling back on DIY projects. The company’s revenue fell by 2.3% compared to the previous year, with adjusted earnings per share exceeding expectations. Factors such as a late start to spring and softness in larger projects contributed to this decline. In addition, consumer demand within the home improvement retail sector remains challenging due to inflation, interest rates, and a slow housing market. Nevertheless, despite these challenges, Home Depot plans to acquire a roofing and building supply distributor, aiming to expand its market reach. Moreover, professionals like contractors are boosting the business, and the company remains optimistic about its future growth prospects, as CEO Ted Decker expressed confidence in their inventory position for 2024. Thus, although Depot is facing tough comparisons from previous years, it is still positioning itself for continued growth in the complex pro market.

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