“You must be shapeless, formless, like water. When you pour water in a cup, it becomes the cup. When you pour water in a bottle, it becomes the bottle. When you pour water in a teapot, it becomes the teapot. Water can drip and it can crash. Become like water my friend.” — Bruce Lee

1. Hot Inflation Report Derails Case for Fed’s June Rate Cut — the consumer-price index, a measure of goods and services prices across the economy, rose 3.5% in March from a year earlier, the Labor Department said Wednesday. That was a touch higher than economists had forecast and a pickup from February’s 3.2%. So-called core prices, which exclude volatile food and energy categories, also rose more than expected on a monthly and annual basis. Wednesday’s report had been hotly anticipated because Fed leaders had been willing to play down stronger-than-anticipated inflation readings in January and February as reflecting potential seasonal quirks. But a third straight month of above-expectations inflation data erodes that story and could lead Fed officials to postpone anticipated rate cuts until July or later.
2. Wholesale Prices Rose 0.2% in March, Less Than Expected — the producer price index rose 0.2% for the month, less than the 0.3% estimate from the Dow Jones consensus and not as much as the 0.6% increase in February, according to a release Thursday from the Labor Department’s Bureau of Labor Statistics. However, on a 12-month basis, the PPI climbed 2.1%, the biggest gain since April 2023, indicating pipeline pressures that could keep inflation elevated. Excluding food and energy, the core PPI also rose 0.2%, meeting expectations. Excluding trade services from the core level, the increase was 0.2% monthly but 2.8% from a year ago.
3. China Tells Telecom Carriers to Phase Out Foreign Chips in Blow to Intel, AMD — Officials earlier this year directed the nation’s largest telecom carriers to phase out foreign processors that are core to their networks by 2027, a move that would hit American chip giants Intel INTC -5.16%decrease; red down pointing triangle and Advanced Micro Devices AMD -4.23%decrease; red down pointing triangle, people familiar with the matter said. The deadline given by China’s Ministry of Industry and Information Technology aims to accelerate efforts by Beijing to halt the use of such core chips in its telecom infrastructure. The regulator ordered state-owned mobile operators to inspect their networks for the prevalence of non-Chinese semiconductors and draft timelines to replace them, the people said.
4. U.S. Moves Warships to Defend Israel in Case of Iranian Attack — The moves by the U.S. that are part of an effort to avoid a wider conflict in the Middle East came after a warning from a person familiar with the matter about the timing and location of the potential Iranian attack. A person briefed by the Iranian leadership, however, said that while plans to attack are being discussed, no final decision has been made. Army Gen. Erik Kurilla, the head of U.S. Central Command, discussed a possible Iranian attack with Israeli Defense Minister Yoav Gallant in Israel on Friday. “We are prepared to defend ourselves on the ground and in the air, in close cooperation with our partners, and we will know how to respond,” Gallant said, according to Israel’s Defense Ministry.

The week ahead — Economic data from Econoday.com:

“The most dangerous thing is to buy something at the peak of its popularity. At that point, all favourable facts and opinions are already factored into its price and no new buyers are left to emerge” ― Howard Marks

1. Tesla’s Quarterly Deliveries Fall for First Time Since 2020 — Elon Musk’s electric-vehicle maker delivered 386,810 vehicles globally in the first three months of 2024, down 8.5% from a year earlier. It was the company’s lowest quarterly performance since the third quarter of 2022. The result was enough for Tesla to reclaim the title from China’s BYD as the world’s top EV seller on a quarterly basis. Yet, it is a troubling sign for the broader electric-vehicle market, where growth is slowing and automakers including Ford Motor and General Motors are recalibrating investment plans after finding consumers to be less enthusiastic about going electric than the companies had expected.
2. Powell Still Sees Room for the Fed to Cut Rates This Year — Powell pointed to signs that labor-market conditions are less tight than they have been in recent years, a view that has eased concerns that paychecks and prices might rise in tandem. Meanwhile, signs of firmer-than-expected inflation in January and February haven’t shaken the Fed’s stance that price growth will continue to slow down despite some bumps, Powell said at a conference in Stanford, Calif. Fed officials raised rates rapidly over the past two years to address a surge in inflation, which hit a 40-year high. They have held their benchmark short-term rate in a range between 5.25% and 5.5% since July.
Measures of underlying inflation have cooled notably since the middle of 2023. That has allowed the Fed to shift its attention away from whether to keep raising rates and toward when to lower rates from a level that some officials thought was necessary to defend against inflation becoming stubbornly elevated.
3. Oil Is Hitting Its Highest Level in Months — The rally in crude picked up speed this week after an Israeli strike on an Iranian diplomatic building fanned worries of a broader regional war. Undergirding prices: a relative lack of crude in global markets thanks to production cuts from OPEC and its allies. Brent crude futures, the benchmark, have climbed 18% in 2024 to exceed $90 a barrel for the first time since October. That is feeding into gasoline, with average national prices measured by AAA up 15% this year at $3.57 a gallon. Gasoline supplies are a possible pinch point ahead of the busy summer driving season. Inventories in the U.S. are 3% below the recent average for this time of year, close to the lowest for this time of year in the past five years.
4. U.S. creates 303,000 jobs in March. Much bigger increase than expected — The U.S. created a larger-than-expected 303,000 new jobs in March and signaled the economy is still expanding at a solid pace, but the report won’t make it any easier for the Federal Reserve to decide when to cut interest rates. The increase in new jobs was the biggest since May 2023. Economists surveyed by The Wall Street Journal had forecast a 200,000 increase in new jobs last month.

The week ahead — Economic data from Econoday.com:

The road to long-term investment success runs through risk control more than through aggressiveness. — Howard Marks

1. Japan Amps Up Intervention Threat as Yen Hits Lowest Since 1990 — The nation’s currency dipped to 151.97 versus the greenback early on Wednesday in Tokyo — beyond the level at which policymakers stepped in during October 2022 — before comments from government officials on their readiness to act boosted the yen to its strongest level of the day. The yen’s rapid decline comes even after the Bank of Japan raised interest rates for the first time since 2007. A lack of guidance pointing to further near-term policy tightening, and the central bank’s insistence that financial conditions will remain easy, have instead pushed the yen in the opposite direction — something that traders have jumped on.
2. China Industrial Profits Return to Growth — Industrial profits jumped 10.2% in the first two months of 2024, compared with a 2.3% decline for all of 2023, the National Bureau of Statistics said Wednesday. The result was partially thanks to a low base last year.
China’s state-owned companies reported a 0.5% rise in profits for January and February, while profits at foreign companies jumped 31.2%. Private companies saw growth of 12.7%.
Profits in China’s manufacturing sector expanded 17.4% in the first two months of the year, while that of the utilities sector surged 63.1%. The mining sector was the main drag on overall profit growth, seeing its profit drop 21.1% in the January-February period.
The main contributor to overall profit growth was equipment manufacturing, which recorded a 28.9% expansion from a year ago.
3. GDP update boosts U.S. fourth-quarter economic growth rate to 3.4% — The final reading of U.S. growth in the 2023 fourth quarter was raised a few notches to a 3.4% annual pace, reflecting strong consumer spending and a surprisingly resilient economy. The government previously said gross domestic product had expanded at a 3.2% rate in the final three months of last year. The figure is adjusted for inflation. The growth rate of the economy is forecast to taper to a still-healthy 2% in the soon-ending first quarter.
4. Fed’s Favored Inflation Gauge Rose 2.5% in February — The overall personal-consumption expenditures price index rose 2.5% over the 12 months through February, the Commerce Department said Friday. That was in line with forecasts from economists polled by The Wall Street Journal. Core prices excluding volatile food and energy prices rose 2.8%, also in line with forecasts. From January to February, the PCE price index increased 0.3%, less than the 0.4% increase economists expected. The core index rose 0.3%, in line with expectations.
Another inflation gauge has shown price pressures were stickier than expected in the first two months of the year, while job growth remained strong. Fed governor Christopher Waller said earlier this week that recent data “reinforces my view that there is no rush to cut the policy rate.”

The week ahead — Economic data from Econoday.com:

“My attitude is that I always want to be better prepared than someone I’m competing against. …” — unknown

1. Fed Officials Still See Three Interest-Rate Cuts This Year — Federal Reserve Chair Jerome Powell indicated that stronger growth and firmer-than-anticipated inflation in recent months hadn’t changed his expectation that the central bank would be able to cut interest rates this year. New projections released Wednesday reinforced that view by showing most of his colleagues expect to cut rates two or three times this year, with a narrow majority penciling in three cuts, the same as in December. The central bank held steady its benchmark federal-funds rate in a range between 5.25% and 5.5%, a 23-year high. Expectations that the Fed would cut rates by June rose to around 75% in futures markets later Wednesday, up from closer to 50% earlier this week, according to CME Group.
2. February home sales spike 9.5%, the largest monthly gain in a year, as supply improves — Sales of existing homes surged 9.5% in February from January to 4.38 million units, on a seasonally adjusted annualized basis, according to the National Association of Realtors. Housing analysts had been expecting a slight drop. Sales were down 3.3% year over year, but it was the largest monthly gain since February 2023. Sales surged the most in the West, up 19.4%, and the South, up 16.4%. Sales in the Northeast were unchanged. Inventory rose 10.3% year over year to 1.07 million homes for sale at the end of February. That represents a still low 2.9-month supply at the current sales pace.
Higher demand continued to push the median price higher, up 5.7% from the year before to $384,500 — the eighth straight month of annual gains. Competition was stiff, with 20% of homes selling above list price.
3. Swiss central bank becomes first major bank to cut rates as Fed and ECB edge closer to taking action — The global rate-cutting cycle was started on Thursday when the Swiss National Bank made a quarter-point reduction in rates that took markets by surprise. Officials of other central banks, including Fed Chair Jerome Powell and European Central Bank President Christine Lagarde, said rate cuts could be coming in just a few months’ time. Lagarde said a June cut was “likely,” while Powell said the base case was that there would be three reductions this year, which markets interpret to mean that a June reduction is highly likely.
Some suggested the Bank of England could cut rates as early as May, after two voting members changed their minds on the need to hike, and as minutes suggested that the bank’s policy would be restrictive even if reductions were made. The Bank of Canada also is planning rate cuts.

The week ahead — Economic data from Econoday.com:

“The purpose of trading is not being right, the purpose is to make money, and I think that’s my number-one rule. Don’t get hung up on your current positions.” -Dana Allen.

1. Inflation Picks Up to 3.2%, Slightly Hotter Than Expected — Consumer prices rose 3.2% in February from a year earlier, the Labor Department said Tuesday, up slightly from economists’ expectations of 3.1%. The second straight month of firmer-than-expected inflation is likely to reinforce the central bank’s wait-and-see posture toward rate reductions when officials meet next week. Still, officials are focused on when to cut rates rather than whether to raise them again. Inflation has declined notably from 40-year highs following the most rapid rate increases in four decades. Still, the report didn’t make the Fed’s coming deliberations easier. Core prices, which exclude food and energy items in an effort to better track inflation’s underlying trend, rose more than expected, both when measured from a year ago and a month ago.
2. Microsoft to Launch AI Assistant for Security Products — Microsoft will make its artificial intelligence product Copilot for Security available worldwide next month, its latest foray into integrating AI with its products. Microsoft’s previous launches in AI have been met with mixed reactions. The company’s launch of Copilot for Microsoft 365, which allowed the chatbot to integrate with Word, Outlook and Teams, was deemed useful by users, but some said it didn’t live up to the price. Copilot for Security can process prompts and respond in eight languages. The program also has a multilingual interface for 25 different languages.
Microsoft said Copilot for Security would be available in a standalone portal and embedded in existing security products from the company.
3. Wholesale inflation rose 0.6% in February, much more than expected — The producer price index, which measures pipeline costs for raw, intermediate and finished goods, jumped 0.6% on the month, the Labor Department’s Bureau of Labor Statistics reported Thursday. That was higher than the 0.3% forecast from Dow Jones and comes after a 0.3% increase in January.
Excluding food and energy, the core PPI accelerated by 0.3%, compared with the estimate for a 0.2% increase. Another measure that also excludes trade services rose 0.4%, compared with the 0.6% gain in January, and was above the estimate for a 0.2% advance. Also, initial filings for unemployment insurance nudged lower to 209,000 last week, a decrease of 1,000 and below the estimate for 218,000, the Labor Department reported. Continuing claims edged higher to 1.81 million, though the previous week’s count was revised sharply lower.
4. U.S. Retail Sales Rose 0.6% in February — excluding autos, sales were up 0.3%. Economists had expected an increase of 0.4%, sans autos.
The monthly report on how consumers are spending or pulling back is viewed as a harbinger for the state of the U.S. economy. Many economists believe that Americans are close to spending down their pandemic-buffered savings and are feeling stretched by inflation, which has impacted the prices of everyday essentials from groceries to rent. Still, the Commerce Department said that the drop in January sales was sharper than previous calculations. January sales were revised from down 0.8% to down 1.1%.

The week ahead — Economic data from Econoday.com:

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“Do more of what works and less of what doesn’t.” – Steve Clark
1. Fed Jerome Powell Says Fed on Track to Cut Rates This Year — Federal Reserve Chair Jerome Powell reiterated that he expects interest rates to start coming down this year, but is not ready yet to say when. Rate cuts won’t be warranted until officials have “gained greater confidence that inflation is moving sustainably” toward the central bank’s 2% goal, Powell told the House Financial Services Committee on Wednesday during the start of two days of testimony on Capitol Hill. Fed officials are trying to balance two risks: One is that they move too slowly to ease policy and the economy crumples under the weight of higher interest rates. The other is that they ease prematurely, allowing inflation to become entrenched at a level well above their 2% goal.
2. ECB Keeps Rates Steady – a June Cut Is Possible — the European Central Bank left interest rates unchanged on Thursday and kept the door open for cuts later this year. As with the U.S. Federal Reserve, the question for ECB President Christine Lagarde is how soon rates can start going lower. Economists widely predict a quarter-point reduction in June. Like the Fed, the ECB raised borrowing costs aggressively from 2022 to 2023 and has been on hold for about half a year now. Also similar to the U.S., inflation in Europe has continued to slow—the last reading for the euro zone was 2.6% in February. That’s still higher than the ECB’s target of 2%, but it has come down dramatically from a peak of more than 10% in October 2022. the big difference between Europe and the U.S. is the poor performance of the economy on the other side of the Atlantic. Growth flatlined in the second half. Germany, the biggest economy among the 20 countries sharing the euro, is in recession.
3. U.S. economy adds 275,000 jobs in February — outpacing forecasts — as unemployment rate hits 3.9%, even with downward revisions in December and January, the economy had added an average of 228,00 new jobs a month since last August. That’s very strong. In February, the household survey showed a sharp increase in the number of unemployed people and a decline in employment. As a result, the jobless rate climbed to a 25-month high of 3.9% from 3.7%. Employment growth in the previous two months were revised 167,000 lower than previously reported. That made the increase in February not quite as strong as it appeared.
4. White House Revives Plan to Save Homeowners Money on Closing Costs — the initiative aims to reduce one of the biggest costs associated with closing on a mortgage: title insurance. Under a pilot program, government-controlled mortgage giant Fannie Mae will waive a requirement for title insurance on mortgage refinancings it purchases from certain lenders.
The move reignites a fight with the industry over the cost, and necessity, of the insurance, part of the White House’s broader aim to chip away barriers to homeownership. The administration announced the program hours ahead of President Biden’s State of the Union address. The industry is dominated by a few big players, including the publicly traded First American Financial. The American Land Title Association, an industry group, criticized the plan as “a purely political gesture offering a false promise of savings for homeowners.” The group said it would expose consumers, lenders and taxpayers to greater financial risk.

The week ahead — Economic data from Econoday.com:

“Being too far ahead of your time is indistinguishable from being wrong.” So” ― Howard Marks

1. US GDP Revised Slightly Lower Despite Stronger Consumer Spending — Gross domestic product rose at a revised 3.2% annualized pace in the fourth quarter, compared with a prior estimate of 3.3%. Consumer spending advanced at a 3% rate, faster than initially estimated, Bureau of Economic Analysis figures showed Wednesday. Inflation was revised higher. Last year the economy expanded 2.5%, marking an acceleration from 2022 and far outperforming the broader eurozone and Japan. The Fed’s preferred inflation metric — the personal consumption expenditures price index — rose at a 1.8% annual rate in the fourth quarter. Excluding food and energy, the gauge increased at a 2.1% pace, the Bureau of Economic Analysis report showed. Both were marginally higher than initially estimated.
2. PCE shows biggest rise in U.S. inflation in four months — The PCE index rose 0.3% last month, the government said Wednesday. That matched the forecast of economists polled by The Wall Street Journal. The more closely followed core rate that strips out food and energy rose a sharper 0.4%, the largest increase in a year. The core index is viewed as a better predictor of future inflation. The yearly rate of inflation, meanwhile, still fell a few ticks to 2.4% from 2.6%. The rate of core inflation in the 12 months ended in January slowed to 2.8% from 2.9%.
3. AI Startup Making Humanoid Robots Raises $675 Million With Bezos, Nvidia in Funding Round — Tech companies are pouring cash into AI at a breakneck pace, with investors and analysts increasingly believing the AI boom is sustainable. More than $29 billion was invested in generative AI companies last year, according to research firm PitchBook. Nvidia, the chip maker at the heart of the AI craze, has a market cap around $2 trillion, making it one of the biggest companies in the U.S.
AI has powered the technology behind chatbots like OpenAI’s ChatGPT and the humanoid robots designed by Figure. The startup said it was working with OpenAI on developing new AI models for humanoid robots. Figure said the investment would speed up the commercial deployment of its robots. The startup has said it signed an agreement with BMW to use its robots for automotive manufacturing.
4. Congress votes to avert government shutdown — Facing an end-of-the-week deadline, the House of Representatives passed a bill to temporarily fund one set of federal agencies through March 8 and another set through March 22. It quickly moved to the Senate, which passed it Thursday evening, on a 77-13 vote. The bill now goes to President Joe Biden to be signed into law ahead of a Saturday deadline. Without action, a handful of agencies, including the Department of Agriculture, would partially close early Saturday. The remaining agencies, including the Pentagon, would partly shutter after March 8.

The week ahead — Economic data from Econoday.com:

There will not be any re-cap for the week of Feb 19 through Feb 23, 2024. We are away for some needed R&R.

The staffs at EGS.

The week ahead — Economic data from Econoday.com:

“Hope is [a] bogus emotion that only costs you money.”

1. Inflation at 3.1% Reflects Stubborn Pricing Pressure, Clouding Outlook for Fed Rate Cuts — the Labor Department reported Tuesday that consumer prices rose 3.1% in January from a year earlier, versus a December gain of 3.4%. That marked the lowest reading since June. Still, the consumer-price index was higher than the predicted 2.9%, a disappointment for investors who hope the Fed will cut rates sooner rather than later. Rate cuts tend to help stock prices by boosting economic activity and reducing competition from bonds for investor dollars. But Tuesday’s inflation report underscores why Fed officials have been dismissive of such expectations, and it could provide ammunition to officials who want to wait until the middle of the year before cutting interest rates. Some Fed officials have suggested that the pace of improvement over the past six months might overstate underlying progress in containing price pressures.
2. US Producer Prices Increased by More Than Forecast in January — the producer price index for final demand increased 0.3% from December, Labor Department data showed Friday. The gauge rose 0.9% from a year earlier, also exceeding forecasts. The so-called core PPI, which excludes volatile food and energy categories, climbed 0.5% from the prior month, and 2% from a year ago — both topping expectations. The advance reflected increases in services categories, including hospital outpatient care and portfolio management.
3. Housing starts post sharpest drop since April 2020 — housing starts fell to a 1.33 million annual pace from 1.56 million in December, the government said Friday. That’s how many houses would be built over an entire year if construction took place at the same rate every month as it did in January. Housing starts fell to the lowest level since August 2023.
The drop in January was the sharpest since April 2020, during the coronavirus pandemic, when starts fell by nearly 27%. Not including that pandemic drop, housing starts fell by the most since 2015.
4. New OpenAI Technology Can Create Realistic Video From a Line of Text — OpenAI calls the new system Sora. It takes a written prompt and, through AI, renders a richly detailed video. OpenAI is one of many companies like Alphabet’s Google and Meta Platforms seeking to capitalize on new AI-video developments. Microsoft-backed OpenAI, maker of the ChatGPT AI chatbot, said it is sharing the text-to-video technology with a select group of researchers and academics who will study it to find ways the AI program could be misused. It hasn’t been released to the public. OpenAI previously released a program called Dall-E 2 that produces still images based on text descriptions.

The week ahead — Economic data from Econoday.com:

“Trading is very competitive and you have to be able to handle getting your butt kicked.” — unknown

1. Biden Administration Explores Raising Tariffs on Chinese EVs — Biden administration officials, long divided over trade policy, have left in place Trump-era tariffs on roughly $300 billion of Chinese goods. But officials at the White House and other agencies are debating the levies again, the people said, with an eye on wrapping up a long-running review of the tariffs early next year. Chinese EVs are already subject to a 25% tariff, which has helped prevent subsidized Chinese automakers from making inroads into the U.S. market. Raising that tariff, which comes on top of a 2.5% tariff on auto imports, likely would have little immediate impact on U.S. consumers. Other targets for potential tariff-rate increases are Chinese solar products and EV battery packs, the people said. While the U.S. now primarily imports solar material from Southeast Asian countries, China is still an important supplier of EV batteries.
2. In China, Deflation Tightens Its Grip — the latest data suggest China faces a growing risk of slipping into a longer-term spell of falling prices that becomes harder to reverse the longer it lasts. That presents a special challenge for the rest of the world. While cheaper goods from China might help ease inflation elsewhere, it means the global economy can also expect a flood of cut-price imports as Chinese factories search out buyers overseas for products they can’t sell at home. That risks squeezing other countries’ domestic manufacturing, stoking already acute tensions over trade between China and the U.S.-led West. China’s sinking prices add to a litany of economic challenges in the country this year. Growth is projected to slow from last year’s underwhelming pace. A drawn-out real-estate crunch is throttling consumer spending, with China Evergrande Group—the poster child for the sector’s woes—ordered into liquidation by a Hong Kong court. Exports are struggling and foreign investors are fleeing. Beijing on Wednesday replaced the country’s top securities regulator after an epic stock-market rout.
3. S&P 500 Tops 5,000 — the S&P 500 closed at a record level on Friday, finishing above 5,000 for the first time ever as investors looked to next week’s inflation data for a confirmation of easing price pressures. So far this year, investors have largely focused on the positive signs for markets: Economic data, including the latest readings on labor and gross domestic product, have boosted hopes that the Federal Reserve monetary policy actions won’t hamper growth. Recent earnings results from Palantir Technologies and IBM have also lifted hype about artificial intelligence. These themes have carried the S&P 500 upwards in 14 out of the past 15 weeks–something which hasn’t happened since 1972.

The week ahead — Economic data from Econoday.com: