Treasury cash balance dips below $50 billion
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Debt ceiling talks are nearing the finish line with a 2-year federal spending cap in sight. Defense spending on the up (3% next year!), electric grid getting a renewable-friendly revamp, and fossil fuel projects get a fast pass. Best part? IRS is getting a haircut!
⏳ The White House and Republicans have closed the gap on their differences over spending limits.
A potential deal would include a 3% increase in defense spending, measures to support the shift to renewable energy, and expedited permits for fossil fuel projects.
It would also reduce the recent $80 billion IRS budget increase by $10 billion.
No deal has been reached, however, as disagreements over a specific spending cap still remain.
And the pressure is mounting: the Treasury’s cash balance dropped to $49.5 billion on Wednesday, the lowest since December 2021.
📊 The latest GDP data show the economy grew by 1.3% in Q1, up from previous estimates of 1.1%.
The increase was driven by higher-than-expected growth in consumer spending, which was partially offset by a decrease in inventory investment.
Both the GDP price index (deflator) and core PCE prices were revised higher over initial estimates, clocking in at 4.2% and 5.0%, respectively.
Meanwhile, US corporate profits–if you exclude the Fed’s profits (losses)–rose, albeit at a slower pace than in previous quarters.
👷 Recent revisions to US unemployment benefits data reveal a far more resilient labor market than previous data suggested.
Total revisions to 3 months of data have resulted in ~171,000 fewer initial jobless claims than previously reported.
Last week, claims rose by 4,000 to 229,000 but the trend in recent months is clearly tilted to the downside.
This suggests next Friday’s jobs report could surprise to the upside, putting further pressure on the Fed to raise rates.
🎯 Nothing changes sentiment like price.
Wall Street strategists are raising their estimates for the S&P 500.
Earlier this week, BofA’s Savita Subramanian raised her price target for the index to 4,300 from 4,000, with a range as high as 4,600.
She also lifted her 2023 EPS outlook to $215 from $200.
At Morgan Stanley, senior portfolio manager Andrew Slimmon admitted the S&P could blow past his target of 4,200 and reach around 4,600 by year’s end.
🤖 JPMorgan is planning to cut around 15% of newly-acquired First Republic’s workforce (~1,000 employees).
In totally unrelated news, the bank is also developing a stock-picking AI system that generates investment advice for customers.
Trained by generative pre-trained transformer (GPT) models, IndexGPT will analyze and select securities “tailored to customer needs”.
JPMorgan applied to trademark the product earlier this month and must launch it within 3 years of winning approval (which typically takes about a year).
📈 Mutual funds began the quarter significantly underweight most of the stocks that have led this year’s rally.
Now–as many long-only funds hit their cash ceilings–they’re beginning to rotate that cash into Big Tech.
Hedge funds, meanwhile, have increased their allocations to tech stocks to 15.5% of overall single-stock net exposure from 9.7% to start the year.
Notional net buying in US equities among hedge funds from May 5 to May 18 was the largest since October 2022.
🛢️ OPEC+ will meet next week to discuss oil production levels.
If you ask Saudia Arabia, cuts to output are on the table.
If you ask Russia, no immediate changes are necessary.
Oil traders are also weighing a stronger USD and concerns about weak demand growth (mainly from China), both of which present headwinds for prices.
Meanwhile, oil positioning among money managers has returned to early Covid levels (read: very short).
📊 Yesterday’s highlights:
MRVL 0.00 Marvell Technology: $0.31 EPS (vs. $0.29 expected) ✅, $1.32 billion in sales (vs. $1.3B expected) ✅.
Marvell beat estimates and offered Q2 guidance just above consensus, but that’s not why shares surged +16% in after-hours trading...
The chipmaker said it expects its AI revenue to at least double this year before doubling again in FY2024.
CEO Matt Murphy: “AI has emerged as a key growth driver for Marvell”.
COST 0.00 Costco: $2.93 EPS (vs. $3.30 expected) ❌, $53.65 billion in sales (vs. $54.66 billion expected) ❌.
Same-store growth slowed, driven by a 17% YoY drop in big-ticket discretionary items.
Foot traffic was up 4.8% globally (3.5% in the US) but the average ticket fell 4.2% (3.5% in the US).
E-commerce sales also fell 10% YoY.
The Costco Hot Dog, however, presumably still costs $1.50.
👀 What we’re watching today:
Full earnings here.
Tesla leak: A whistleblower leaked data revealing nearly 4,000 complaints from customers about Tesla’s Full-Self Driving features.
Tesla x Ford: The two automakers have announced a partnership that will allow Ford to use Tesla’s EV-charging network.
Equities warning: BofA’s Michael Hartnett expects “another bout of risk-off to return late June”.
Board shakeup: Proxy advisers are recommending the replacement of Alphabet’s chairman, John Hennessy.
Landlords bleed: Apartment landlords in the US are facing financial distress from higher rates, escalating expenses, and declining building values.
Hulu’s fate: Within their multiyear fight over the streamer, Disney and Comcast are in an arbitration battle over Hulu’s international expansion.
Net-Zero abandoned: Four major insurers have withdrawn from the Net-Zero Insurance Alliance due to increasing US political pressure over the climate initiative.
Contrarian take: According to this strategist, a US recession would be a good thing for markets, actually.
Staking effect: The amount of ETH held on centralized exchanges has reached its lowest level since 2016.
Shuttered: Digital Currency Group is closing down its TradeBlock subsidiary which provides services to institutional investors.
Green Proofs: A non-profit has launched a certification system to provide transparency into the sustainability of Bitcoin miners.
USBTC mining: US Bitcoin Corp. is looking to become a major player in Bitcoin mining after acquiring assets from Celsius.
Expiry event: Prices held their ground despite over $3.5 billion in Bitcoin and Ether options expiring today.
Check out GritCRYPTO for more.
Ousted: Illumina’s chair, John Thompson, was ousted following a proxy battle with Carl Icahn.
Grain merger: Glencore’s Viterra is (again) in talks to merge with US rival Bunge.
Airlines: Lufthansa took a 41% stake in ITA Airways with an eye towards a full takeover.
Flooring M&A: The founder of Cabinets to Go has amassed a 9.4% stake in LL Flooring and will pursue a merger.
Oversubscribed: Abu Dhabi’s Adnoc unit received $125 billion in orders for its $769 million IPO, making it the 2nd largest IPO in the Middle East this year.
