Market 05/22: Fed's pessimistic stance in May FOMC Minutes

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FOMC Minutes 05/01: Fed turning hawkish again

Key points in May FOMC Minutes:

1. Many Fed members propose raising interest rates if inflation remains high (if inflation warrants it)

2. Fed members believe that inflation data in Q1/2024 “disappointing” (disappointing)

3. Members discussed keeping interest rates high for longer..

4. Some officials concerned financial conditions not tight enough (not sufficiently restrictive)

5. Some officials believe long-term interest rates need to be higher than before..

6. Many officials uncertain about whether policy is restrictive enough (uncertainty about degree of policy restrictiveness)

This FOMC Minutes conveys extremely hawkish stance from Fed members amid persistent inflation (sticky inflation).

• View full May FOMC Minutes here.

Previous statements from Fed officials

Fed President Mester:

• Tightening policy will not pose risks while the job market remains strong.

• Inflation needs to decrease in the coming months — Need to monitor inflation expectations.

Fed President Collins:

• Need to patiently monitor inflation progress, may take longer.

• Businesses quite optimistic due to easier hiring => wage pressure decreasing

Fed President Bostic:

• Better to wait longer to ensure inflation doesn't rise again after rate cuts

• Expected inflation to decrease but "relatively slowly"; no expectation of rate cuts before Q4: Fed's priority is inflation back to 2%.

USD 16 billion 20Y Treasury auction favorable

• High Yield: 4.635% (market yield: 4.637% | previous session: 4.818%)

  • => Stop-through 0.02bps — yield lower than previous session.

  • Successful bid ratio at High Yield level: 30.2% (previous session: 79.31%)

• Bid-to-Cover: 2.51 (previous session: 2.82)

• Competitive awarded components:

  • Dealers: 10.06% (previous session: 9.09%)

  • Foreign investors: 70.76% (previous session 74.71%)

Existing home sales drop as buyer confidence at record low

• Existing home sales (existing home sales) in April decline -1.9% MoM (much lower than expected +0.8%, previous: -3.7%),

  • Reached 4.14 million (expected: 4.21 million, previous month 4.19 million) - near lowest level since Covid.

• … as homebuyer confidence falls to 50-year low,

  • contrasting with optimistic sentiment of builders.

• Mortgage rates remain high, putting pressure on homebuyers.

• Number of first-time homebuyers accounts for up to 33%, up

  • +4% YoY. …while real estate investors account for only 16% of transactions, down.

    

• Image Average existing home price up +5.7% YoY to record high

407,600 USD.

• Record-low mortgage borrowing activity: signaling reduced homebuying demand Household outstanding mortgage debt at all-time low.

• Image

• Bank mortgage lending activity slows down…

  • Loans at non-bank institutions and CMBS showing negative growth

Weekly crude oil inventories rise after large SPR refill

API Report:

• Crude +2.49 million (-3.1 million exp)

• Cushing: +1.77 million

• Gasoline: +2.09 million

• Distillates: -320,000

DOE Report:

• Crude +1.825 million (-3.1 million exp)

• Cushing: +1.325 million

• Gasoline: -945,000

• Distillates: +379,000

• Biden administration to release 1 million barrels of gasoline from Northeast reserve to lower gas prices ahead of summer holidays.

• Despite declining gasoline inventories, Biden administration continues to add +993,000 barrels of oil to the Strategic Petroleum Reserve (SPR) - the most since December 2023.

Company earnings reports: Macy’s, Target

Macy’s ER: Earnings beat expectations due to turnaround strategy push

• EPS: 27 cents (expected 15 cents).

• Revenue: 4.85 billion USD (expected 4.86 billion USD).

  • Positives include customer service enhancements, new brand expansions.

Net revenue guidance FY2024: 22.3 - 22.9 billion USD (down from 23.09 billion USD in 2023).

Target ER: Disappointing report due to reduced consumer demand

• EPS: 2.03 USD (expected 2.06 USD)

  • - first miss since November 2022.

• Revenue: 24.53 billion USD (expected 24.52 billion USD).

• Customer traffic (online and in-store) down -1.9% YoY.

• Daily consumer goods purchase trends decline significantly.

• Average spend per customer also down -1.9% YoY.

EPS guidance 8.60 - 9.60 USD.

• TGT stock drops nearly 10% after earnings report.

• Target's earnings miss while Walmart beats signals American consumers cutting spending!

Crypto market: BlackRock is about to surpass Grayscale to become the largest Spot Bitcoin fund

1. BlackRock is about to surpass Grayscale to become the largest Spot Bitcoin fund.

• BlackRock's IBIT fund recorded net inflows of 290 million USD on 05/21 - more than the total inflows over the previous 21 trading days.

2. Tether adds another 1 billion USDT.

3. Bitcoin and Ethereum ETPs launch on the London Stock Exchange after FCA approval.

4. VanEck's Ethereum Spot ETF listed on DTCC with ticker ETHV.

   • Ether price surges 31% in the past 7 days as spot ETF approval chances rise.

Some other news:

1. Boeing 777 flying from London to Singapore encounters severe turbulence, free-falls 1.82km in 2-3 minutes, killing 1 person and injuring many.

2. Amazon plans to upgrade AI for Alexa and raise monthly fees, after OpenAI launches two-way conversational chatbot.

3. Biden administration to cancel 7.7 billion USD in student debt for over 160,000 borrowers to reduce education debt burden on families.

4. US officially increases tariffs on Chinese EVs, batteries, and chips from 08/01, quadrupling EV import tariffs and doubling semiconductor tariffs.

   • Read more about current challenges facing the US economy: here.

5. China imposes sanctions on 3 companies Boeing, Lockheed Martin, and Raytheon for selling weapons to Taiwan.

   • Tensions continue to escalate in the Taiwan Strait.

6. Japan's 10Y bond yield reaches 1% for the first time in over a decade, raising expectations for BOJ tightening.

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