“Soros is the best loss taker I’ve ever seen. He doesn’t care whether he wins or loses on a trade. If a trade doesn’t work, he’s confident enough about his ability to win on other trades that he can easily walk away from the position.” — Druckenmiller

1. Fed’s Powell Says Interest-Rate Pause Is Expected to Be Temporary — Fed officials left rates unchanged last week after lifting them at 10 straight policy meetings to combat inflation. But investors, consumers and borrowers shouldn’t think they were done, Powell told the House Financial Services Committee on Wednesday. Inflation and economic activity haven’t slowed as much as many officials anticipated this year, casting more uncertainty over how high they might lift rates this year.
Fed officials see a risk that their past rate increases, together with recent banking-industry stresses, will eventually create a sharper-than-anticipated slowdown. They are trying to balance that against the risk that the economy proves more resilient than expected and inflation stays too high, requiring them to increase rates higher than otherwise.
2. Submersible Passengers Died in Implosion — the five men onboard the missing submersible in the North Atlantic died in a catastrophic implosion, the U.S. Coast Guard said, after searchers found debris from the craft near the Titanic shipwreck that ended a desperate search to find them alive. The submersible, known as the Titan, had left Sunday morning for what was supposed to be an hours long excursion to the Titanic site more than 2 miles underwater, but it lost contact with the outside world. The disappearance set off an urgent international search effort to find them alive. The Coast Guard said earlier Thursday that crews had identified debris near the Titanic shipwreck about 900 miles off Cape Cod.
3. Bank of England Outpaces Peers With Rate Rise of Half Percentage Point — The Bank of England raised its key interest rate by half a percentage point Thursday, a more aggressive rate rise than its peers as it seeks to curb the highest inflation rate in the Group of Seven wealthy countries.
The move to raise the lending rate to 5%, its highest level since April 2008, revived fears that the central bank may have to push the U.K. economy into a recession later this year in an effort to contain price increases. Across rich economies, inflation has proved tougher to tame than central banks had expected only months ago, dashing hopes that borrowing costs might stop rising soon. Norway’s central bank also increased its core lending rate by half a percentage point Thursday, while Switzerland hiked its benchmark rate by a quarter point. Both warned of further increases in the coming months.
4. Higher Interest Rates Hit Home Prices Again — U.S. existing-home prices posted their biggest year-over-year decline in more than 11 years last month as rising interest rates continued to weigh on the housing market. The national median existing-home price fell 3.1% in May from a year earlier to $396,100, the largest drop since December 2011, the National Association of Realtors reported.
Existing-home sales, which make up most of the housing market, increased 0.2% in May from the prior month to a seasonally adjusted annual rate of 4.3 million, the National Association of Realtors reported. May sales fell 20.4% from a year earlier.

The week ahead — Economic data from Econoday.com:

“Success if getting what you want. Happiness is wanting what you get.” — Dale Carnegie

1. Inflation rose at a 4% annual rate in May, the lowest in 2 years — The consumer price index, which measures changes in a multitude of goods and services, increased just 0.1% for the month, bringing the annual level down to 4%. That 12-month increase was the smallest since March 2021, when inflation was just beginning to rise to what would become the highest in 41 years. A 3.6% slide in energy prices helped keep the CPI gain in check for the month. Food prices rose just 0.2%.
However, a 0.6% increase in shelter prices was the biggest contributor to the increase for the all-items, or headline, CPI reading. Housing-related costs make up about one-third of the index’s weighting.
2. Fed Holds Rates Steady but Expects More Increases — Federal Reserve officials agreed to hold interest rates steady after 10 consecutive increases, but signaled they are leaning toward raising them next month if the economy and inflation don’t cool more. In a statement, the Fed said the decision to maintain the benchmark federal-funds rate in a range between 5% and 5.25%, a 16-year high, might be short-lived. “Holding the target range steady at this meeting allows the committee to assess additional information,” the committee said in the statement. Officials approved the rate decision unanimously.
3. European Central Bank Raises Rates, Signals More Hikes to Come — The European Central Bank nudged up interest rates by a quarter percentage point and indicated it will continue to push them higher, sending the euro surging higher. The ECB’s assertiveness, which took markets aback, stands in contrast to the Federal Reserve’s decision on Wednesday to keep interest rates steady. At a news conference, ECB President Christine Lagarde said officials are unhappy with the outlook for inflation and will continue to raise rates unless economic data change substantially. The ECB said in a statement it would increase its key deposit rate to 3.5%, the highest level in more than 20 years. That move, the bank’s eighth consecutive rate increase, was widely anticipated by investors. But in an unexpected hawkish twist, Lagarde strongly indicated it will raise rates again next month, and the bank sharply raised its forecasts for underlying inflation through 2025.
4. Retail sales rose 0.3% in May after a strong April gain — consumers spent a seasonally adjusted 0.3% more in May at retail stores, restaurants and online, following April’s strong 0.4% advance, the Commerce Department said Thursday. That growth reflected robust hiring and rising wages that pumped up incomes in recent months, further defying recession predictions in early 2023. Consumers spent more at grocery, furniture and electronics stores last month, Tuesday’s report showed. They also appeared to shrug off higher interest rates in May. Sales climbed at auto dealerships and home-improvement stores, places where customers often borrow to pay for big-ticket purchases.

The week ahead — Economic data from Econoday.com:

“The whole secret to winning and losing in the stock market is to lose the least amount possible when you’re not right.” – William J. O’Neil

1. Treasury’s $1 Trillion Debt Deluge Threatens Market Calm — Investors are bracing for a flood of more than $1 trillion of Treasury bills in the wake of the debt-ceiling fight, potentially sparking a new bout of volatility in financial markets.
Some on Wall Street fear that roughly $850 billion in bond issuance that was shelved until a debt-ceiling deal was passed—sales expected between now and the end of September, according to JPMorgan analysts—will overwhelm buyers, jolting markets and raising short-term borrowing costs.
2. China’s Share of U.S. Goods Imports Falls to Lowest Since 2006 — The share of goods shipments the U.S. receives from China has declined to the lowest level since 2006. In recent years, imports from other countries in Asia have grown to meet the healthy demand for foreign products.
In April, U.S. businesses brought in more cars, cell phones and industrial supplies, the Commerce Department said Wednesday. Exports decreased as global growth ebbed. China’s share of trade with the U.S. dipped again, continuing a downward trend. China accounted for 15.4% of U.S. goods imports for the 12 months ended April, the smallest share since October 2006.
U.S. companies have been looking for alternatives to Chinese manufacturers in recent years. Amid geopolitical tensions between the two world powers, the Trump administration imposed tariffs on thousands of goods from China, which the Biden administration has continued.
3. GM EV Owners to Tap Tesla’s Supercharger Network — General Motors said its future electric vehicles will use the same charging hardware as Tesla TSLA a move aimed at giving GM owners more access to charging and further endorsing Tesla’s charging-port technology as the industry standard. GM reported that Tesla agreed to give GM customers access to 12,000 of Tesla’s fast chargers, known as Superchargers, starting next year. Those GM customers will need an adapter to use the chargers, because the GM vehicles use a different charge port. Starting in 2025, GM will start making EVs with the Tesla charge port instead. GM Chief Executive Mary Barra said that giving the company’s customers access to Superchargers will accelerate EV adoption and that switching to the Tesla charge port on future models “could help move the industry toward a single North American charging standard.”
4. Democrats Push for Debt-Ceiling Overhaul Bill After Default Scare — Democrats in the House and Senate introduced a bill Friday that would overhaul the debt-ceiling process, eager to capitalize on widespread anxiety in the party regarding the regular brinkmanship over the country’s borrowing limit.
Backers argue that using the full faith and credit of the U.S. as leverage is irresponsible and tantamount to taking the U.S. economy hostage. But many Republicans in Congress see the debt limit as a pressure point that can be used to extract concessions from Democrats on spending.

The week ahead — Economic data from Econoday.com:

There will not be any re-cap for the week of May 26th through June 2nd, 2023. We are away for some needed R&R.

The staffs at EGS.