Market 03/06: Fed could cut interest rates in 2024 but needs more information on inflation

Summary of Fed Chairman Jerome Powell's testimony session

1. Powell still hopes to cut interest rates this year but cannot assure the direction of inflation:

   • will not cut interest rates until “inflation shows a clear trend down to 2%”.

   • "It may be appropriate" to cut rates in 2024.

2. Cutting rates too early or too late both carry risks

   • but Fed would rather cut rates late with risk of economic deterioration, than cut early to face risk of inflation rising again.

3. Demand in the labor market still exceeds supply.

4. Fed "will carefully review upcoming data".

→ Market expects first rate cut at June meeting

Employment report: labor market gradually normalizing - back to pre-Covid period

JOLTS: Job openings and hires drop sharply - quit rate back to pre-Covid levels

• January job openings (JOLTS) fell to 8.863 million in (from 8.889 million in December).

• Nondurable goods manufacturing: +82,000

• Private education services: -41,000

• Government: -105,000

JOLTS job openings statistics have been revised downward significantly in 6/8 recent months.

• 12-month job postings also revised down -137,000

January quit rate fell to 2.1% - lowest since August 2020… … while hiring remains stable.

—> Labor supply-demand is gradually rebalancing.

ADP survey: US adds +140,000 jobs in February

Private payrolls rose +140,000 in February (January: +111,000).

FYI: Discrepancy between ADP survey and Labor Department's payroll report (NFP) has widened in recent months.

WTI extends gains as crude production continues to be cut

Crude oil inventory update

API report

• Crude +423,000 barrels (exp. +1.3 million barrels)

• Gasoline -2.8 million barrels (exp. -1.4 million barrels)

• Distillates -1.8 million barrels (exp. -400,000 barrels)

DOE report

• Crude +1.37 million barrels (exp. +1.3 million barrels)

• Gasoline -4.46 million barrels (exp. -1.4 million barrels) - largest draw since November

• Distillates -4.13 million barrels (exp. -400,000 barrels) - largest draw since May

Government added 706,000 barrels of oil to SPR stockpile last week

US crude production down 100,000 bpd

Earnings report: CrowdStrike, Abercrombie & Fitch

1. CrowdStrike

• Annual Recurring Revenue (ARR) +34% Y/Y to 3.44 billion USD

• New ARR reached 282 million USD (+9% Q/Q)

• Retention rate 122%

• Revenue +33% to 845 million USD (beat estimates by 5 million USD)

• Operating margin 4% (+13pp Y/Y)

• Non-GAAP EPS 0.95 USD (beat estimates by 0.13 USD)

• FY25 revenue guidance ~3.96 billion USD (+29% Y/Y)

2. Abercrombie & Fitch

• Q4 Revenue: +21% Y/Y to 1.5 billion USD - of which: Abercrombie +27% Y/Y, Hollister +6% Y/Y

• EPS up from 0.75 USD last year to 2.97 USD

• Operating margin: 11.3% in 2023 - highest in 15 years

Other news

1. News: New York Community Bank seeking to raise capital - stock down >40% this morning, dragging regional bank stocks down.

2. New York deploys 750 National Guard troops + 250 state police and MTA officers to subway system due to increase in violent incidents.

3. Nikki Haley has officially announced withdrawal from US presidential race

4. Consumer Financial Protection Bureau (CFPB) issues rule allowing maximum $8 penalty (from average $32) for late credit card payments.

   

5. US House aims to pass spending bill to prevent government shutdown this weekend.