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WHAT YOU NEED TO KNOW!

REAL RATES v POTENTIAL RECESSIONS

The disinflation in May CPI is overstated relative to real growth in activity, and lower goods prices only spur activity by raising real wages in a full employment economy. Nevertheless, the core pace has settled around 3.5%, low enough for the Fed to cut 50BP off the funds rate, at least. This should be done sooner rather than later, given the Fed's stated bias to avoid recession.

RESEARCH

MID YEAR UPDATES TO THIS YEAR'S ANNUAL THESIS PAPER

THE REGULATORY STATE

RELEASED - 01-17-24 --- 212 Page Paper

CRUSHING COST OF REGULATIONS - The Hidden Financial Numbers Exposed

• During calendar year 2022, while agencies issued 3168 rules, Congress enacted 247 laws. Thus, agencies issued 13 rules for every law enacted by Congress.
• Since January 2021, the Biden Administration finalized 923 federal rules costing $1.6T.
• The Biden Administration finalized regulations imposing costs of over $1 trillion in just the last few months as agencies rush to protect their regulatory actions from possible rollback measures in the event that Biden loses the 2024 election.

THE EXPLODING COST OF WASHINGTON'S BUREAUCRATIC OVERREACH

• Since 2009, more than 5,300 regulations have been finalized that are expected to cost $2.6 trillion in present and future costs.
• The recent JCNF report confirms what was already clear from the regulatory tsunami unleashed by the Biden administration. The president is weaponizing agencies’ regulatory authority and bypassing the legislative process in favor of heavy-handed rulemaking, which has become the hallmark of this administration.
• The Loper Bright legal case presents the opportunity for the Supreme Court to restore the separation of powers, rein in the federal bureaucracy, and give Americans a voice by returning the power to Congress to approve major or costly regulatory changes.

CHEVRON DEFERENCE DOCTRINE - The Litigation To Stop Government Over-Reach

• The impact of the Chevron Doctrine on small businesses is clearly demonstrated in the Loper Bright v. Raimondo case currently before the Supreme Court. In that case, a group of family-run fishing businesses are challenging a costly federal rule that required them to pay for third-party monitors that cost up to $700 per day per ship, amounting to up to 20% of a ship’s take-home pay. Fortunately, the Loper Bright case presents an opportunity for the Supreme Court to rein in this kind of unconstitutional overreach by the regulatory state.
• “I don’t want to say that Chevron is responsible for all the ills of the modern administrative state, just most of them.”

DEVELOPMENTS TO WATCH

US WARNINGS FROM EU ELECTIONS

• A decided shift to the right which will likely be more exaggerated in the National Elections.
• Shift shows some national leaders may be in trouble.
• Immigration and Security mounting problem.

BIDEN'S EXECUTIVE BORDER ORDER MISLEADING

ACCORDING TO GOLDMAN SACHS & US BORDER PATROL

 "The ultimate effect would be a fraction of this as most affected immigrants would likely attempt other modes of entry. Legal challenges to the new rules might even block implementation altogether." Goldman Sachs

Even if it was working as advertised, it would still admit 1.8 million illegals per year. Plus a massive carveout exempting all those whose home countries — like China and Venezuela — won’t accept them back. 

NOTE: Over 150,000 people from those two nations alone have jumped the border so far this year. 

GLOBAL ECONOMIC REPORTING

MAY CPI

• With real-time rent flat to down for the past year, the BLS-tracked OER 5-months lagged, is up 5.6%, and will decline gradually for the next 18 months as it catches down to real-time rents, even as the latter are actively rising. A 0.2% monthly core CPI reading is likely to be the base case for the balance of the year, especially as it looks more and more like the long-awaited slowdown in shelter costs will hit as soon as the next report.

MAY PPI

• The headline producer price index unexpectedly tumbled 0.2% MoM in May (+0.1% MoM exp) from a +0.5% MoM rise in April. That's the biggest MoM decline since Oct 2023.
• This left the YoY change in the headline index down from a revised 2.3% in April to +2.2%, (well below the +2.5% YoY expected). That is still the highest YoY since April 2023. Core PPI was unchanged MoM in May, (cooler than the +0.3% MoM exp).
• On a YoY basis, Core PPI dropped from +2.5%.

JOBLESS CLAIMS

• The number of Americans applying for jobless benefits for the first time surged last week to 242k (up from 229k and well above the 225k exp). That is the highest since August 2023.
• The last three weeks have seen the largest surge in claims since January.

In this week's "Current Market Perspectives", we focus on the signals that sentiment, fundamentals and various markets (Credit, Bond and Equity) are currently giving us.

=========

MID YEAR UPDATES TO THIS YEAR'S ANNUAL THESIS PAPER

THE REGULATORY STATE

RELEASED - 01-17-24 --- 212 Page Paper

FULL 212 PAGE PDF DOWNLOAD

1- CRUSHING COST OF REGULATIONS

Lately I have been talking about the pressures that Small Businesses in America are under. It is more than unprecedented Inflation; Wage Price Spiral & Rising Minimum Wages; Financial Stretched Consumers but increasingly exploding Government Regulations.

I was finally able to get my hands on the data and take a deep dive into why Small Business is screaming about this problem.

Budgetary pressures have incentivized the use of off-budget regulations requiring private outlays and adjustments, rather than adding more unpopular deficit spending. Mandates like family leave, child care and job training initiatives could involve either increased observable government spending or new regulations on business. Just as consumers wind up shouldering much of the corporate income tax, the regulatory compliance costs and mandates borne by businesses will percolate throughout the economy, sneaking their way into consumer prices.

This is one of the reasons there have been no large-scale tax hikes in years, because the hidden tax of regulation has proved appealing to lawmakers. Unlike on-budget spending, many regulations are hard to quantify and can come into existence "under-the-radar" versus the highly visible legislative process. The executive branch of government can enact its policies through the bureaucracy. The Biden Administration has done exactly that while the public glare was on Bidenomics.

Immediately on assuming office President Joe Biden:

• Declared the Trump tax and regulatory reduction agenda consisted of “harmful policies and directives that threaten to frustrate the Federal Government’s ability to confront ... problems.”
• SEE: Executive Order 13992 of January 20, 2021, “Revocation of Certain Executive Orders Concerning Federal Regulation,” Federal Register, Vol. 86, No. 14, January 25, 2021, pp. 7049– 7050, https://www.govinfo.gov/content/pkg/FR-2021-01-25 /pdf/2021-01767.pdf.
• Immediately initiated a progressive “modernization” of the regulatory review process.
• SEE: Presidential Memorandum of January 20, 2021, “Modernizing Regulatory Review,” Federal Register, Vol. 86, No. 15 (January 26, 2021), pp. 7223–7224, https://www .govinfo.gov/content/pkg/FR-2021-01-26/pdf/2021-01866.pdf.
• Reoriented the Office of Management and Budget away from regulatory supervision and restraint and toward the promotion of regulatory initiatives.
• SEE: Clyde Wayne Crews Jr., “A Look at ‘Modernizing Regulatory Review,’” OpenMarket (blog), Competitive Enterprise Institute, January 21, 2021, https://cei.org/blog/a-look-at -modernizing-regulatory-review/.

Below is what this meant:

TEN THOUSAND COMMANDMENTS - The Annual Snapshot of the Federal Regulatory State

PRODUCED BY: COMPETITIVE ENTERPRISE INSTITUTE (CEI) - 2023 143 PAGES REPORT

FINDINGS:

• During calendar year 2022, while agencies issued 3168 rules, Congress enacted 247 laws. Thus, agencies issued 13 rules for every law enacted by Congress.
• The “Unconstitutionality Index”—the ratio of regulations issued by agencies to laws passed by Congress and signed by the president—highlights the entrenched delegation of lawmaking power to unelected agency officials. The average ratio over the past 10 years is 22 rules for every law
• Since January 2021 the Biden Administration finalized 923 federal rules costing $1.6T.
• The Biden Administration finalized regulations imposing costs of over $1 trillion in just the last few months as agencies rush to protect their regulatory actions from possible rollback measures in the event that Biden loses the 2024 election.
• U.S. households pay $14,514 annually on average in a hidden regulatory tax. This amount exceeds every item in the household budget except housing. A typical American household spends more on embedded regulation than on health care, food, transportation, entertainment, apparel, services, or savings. 
• When regulatory costs are combined with federal outlays of $6.27 trillion, the federal government’s share of the entire economy reaches 31.4 percent. State and local spending and regulation would add to these costs. 
• The Congressional Budget Office’s February 15, 2023 Budget and Economic Outlook, covering fiscal year 2022 and projections for 2023 to 2033, showed discretionary, entitlement and interest spending of $6.272 trillion in fiscal year 2022, with spending projected to top $7 trillion in 2026 and hit nearly $10 trillion by 2033. Unprecedented open-ended deficits now standing at $1.4 trillion annually are expected to top $2 trillion annually by 2030. The national debt now tops $34 trillion, up from almost $20 trillion since 2017. 
• Of 99,429 final rules issued since the Congressional Review Act passed in 1996 during the Clinton administration, just 20 rules have been revoked, including one guidance document. 
• Economically, significant regulations are a special category of significant regulations. These rules each have at least $100 million of economic impact. The Biden administration’s spring and fall 2022 editions of the Unified Agenda contained a combined 89, (compared with 105 in 2021), completed economically significant rules. Even taking the dip into account, Biden’s count of completed economically significant rules is higher than anything seen in the Bush, Obama and Trump years. 
• Biden issued just 29 executive orders in 2022, after issuing 77 in 2021. This reduction reflects a change in strategy, rather than a more modest view of executive power. Biden’s "Memoranda" continue to outstrip recent predecessors; these typically escape formal review.

BIDEN ADMINISTRATION'S REPUDIATION & "WHOLE-OF-GOVERNMENT" INTERVENTION INITIATIVES

Biden has escalated his whole-of-government campaigns on equity, climate and other progressive ends. Biden’s repudiation of the Trump agenda of regulatory cost freezes and streamlining has been thorough. Biden has unleashed Trump-resistant agencies. They quickly moved to remove guidance document portals and now collude on the assorted whole-of-government campaigns.

2- THE EXPLODING COST OF WASHINGTON'S BUREAUCRATIC OVERREACH

PRODUCED BY: JOB CREATORS NETWORK FOUNDATION - 2023 (JCNF) REPORT

Since 2009, more than 5,300 regulations have been finalized that are expected to cost $2.6 trillion in present and future costs.

The Obama administration played a significant role in imposing this onslaught of regulations, finalizing rules between 2009 and 2016 with projected costs of more than $870 billion.

President Joe Biden has continued and accelerated this trend, unleashing an unprecedented wave of federal regulations far costlier than any recent presidential administration. 

UNPRECEDENTED WEB OF RED TAPE

From January to early May of this year, President Biden finalized regulations projected to cost around $1.2 trillion. In total, Biden’s wave of new regulations has been far costlier than even Obama’s regime of rules and mandates.

Across a similar timeframe, the Obama-Biden administration finalized regulations projected to cost $309 billion, while the Trump-Pence administration finalized regulations projected to actually reduce costs by $159.4 billion. 

Similarly, a report authored by Professor Casey Mulligan of the University of Chicago for the Committee to Unleash Prosperity, examined the impact that President Biden’s regulations will have on families. The report found that the new rules imposed in just the first two years of the Biden administration will lead to almost $10,000 in added present and future costs for the average household. Further, the report estimates that, should regulatory costs rise at the same rate under Biden as they did under Obama, the costs imposed across an eight-year Biden term would reach $60,000 per household.

.

These sweeping regulations will impose new costs on nearly every facet of our economy, from manufacturing to healthcare to small businesses and utilities.

• EMISSIONS STANDARDS: The Biden administration’s costliest regulations to date have been the new emissions standards for light- and medium-duty vehicles finalized earlier this year by the Environmental Protection Agency (EPA). These new standards are projected to cost some $870 billion and will raise prices for families already dealing with the impact of inflation.
• BENEFICIAL OWNERSHIP REPORTING: New beneficial ownership reporting requirements for businesses is expected to cost $84 billion.
• PFAS DRINKING WATER REGULATIONS are expected to cost 63.4 billion.
• TRANSPARENCY: New staffing and transparency requirements for Medicare and Medicaid ($43.1 billion).
• AUTOMOBILE REGULATIONS have hit American families and workers particularly hard, largely as a result of the left’s crusade to implement radical climate policies. A 2021 study published by Cambridge University found that auto regulations have added around $6,000 to $7,000 in costs per vehicle over the long term.
• Similarly, a Heritage Foundation report from 2016 found that President Obama’s fuel economy standards would raise prices for consumers by at least $3,800 per vehicle.
• In line with his climate agenda, auto regulations have been a costly focus of the Biden administration. According to a report by the Committee to Unleash Prosperity, the largest source of new costs imposed on households by Biden’s regulations has been new auto emissions standards.
• Costly mandates from Washington not only lead to higher prices for consumers looking to buy a car, they also lead to fewer available choices.
• According to an analysis by S&P, higher fuel economy standards have led manufacturers to phase out certain models.
• In all, there were 16 fewer affordable car models available to consumers in 2023 compared to 2017.
• President Biden is also undertaking an effort to phase out gas powered cars and force everyone into adopting electric vehicles, despite the fact that these cars are much more expensive and consumers have made clear they are not interested. 
• HOUSEHOLD APPLIANCES: The Biden administration has unveiled a series of new regulations aimed at household appliances.
• So far, President Biden has imposed new rules and mandates on air conditioners, furnaces, ceiling fans, washing machines, dish washers, water heaters, light bulbs, gas stoves, and more.
• The price tag for these new regulations will have a devastating impact on families’ budgets. An analysis by the Alliance for Consumers estimated that Biden’s new standards for washing machines will increase per-unit prices by $200 and new gas furnace efficiency standards will cost consumers $494 on average.
• Biden’s ban on certain refrigerants will increase the cost of refilling air conditioner units by $1,000 or more.
• Some regulations being advocated would force certain products out of the market altogether. For example, liberal politicians have actively pushed for a ban on gas stoves, which would force consumers to install new electric outlets and adopt newer electric models, imposing additional upfront costs on families. 
• BUREAUCRATIC RED TAPE: Empowered by misguided legal doctrine, regulators have spent decades piling up costly rules and regulations on American industries, hamstringing economic growth and job creation. As a result, businesses must wade through an overwhelming maze of red tape that diverts resources towards compliance rather than growth and innovation.
• Federal regulations cost American manufacturers approximately $350 billion in 2022, a 26% increase compared to 2012.
• A study released by the National Association of Manufacturers estimated that the average manufacturing company in the U.S. pays over $29,000 per employee to comply with federal regulations.
• Even more worrisome, the burden of regulations is hardest on smaller manufacturers. Manufacturers with fewer than 50 employees pay an astounding $50,100 per employee each year to comply with federal regulations.
• These costs hold back our manufacturing industry at a time when the country should be focused on reshoring jobs and manufacturing.
• The costs of overregulation are especially harmful to small businesses that are already struggling to get by. According to JCN’s SBIQ national poll of small businesses, 54 percent of respondents say complying with regulations is time consuming.

3- CHEVRON DEFERENCE DOCTRINE - Litigation Update

The Chevron Deference Doctrine is a bureaucracy-empowering legal doctrine that has distorted the U.S. system of government for decades at the expense of everyday citizens. The doctrine, which arose out of Chevron v. NRDC (1984), holds that an executive agency’s interpretation of a statute is entitled to deference unless Congress has explicitly said otherwise.

Conservatives and Republican policymakers have long been critical of the doctrine, saying it gives unelected regulators far too much power to make policy by going beyond what Congress intended when it approved various laws. The authority of regulatory agencies has been increasingly questioned in recent years as the conservative majority on the Supreme Court has grown. Conservative Justices Clarence Thomas, Samuel Alito, and Neil Gorsuch have expressed skepticism of the Chevron doctrine.

“I don’t want to say that Chevron is responsible for all the ills of the modern administrative state,

just most of them.”

The impact of the Chevron Doctrine on small businesses is clearly demonstrated in the Loper Bright v. Raimondo case currently before the Supreme Court. In that case, a group of family-run fishing businesses are challenging a costly federal rule that required them to pay for third-party monitors that cost up to $700 per day per ship, amounting to up to 20% of a ship’s take-home pay. Fortunately, the Loper Bright case presents an opportunity for the Supreme Court to rein in this kind of unconstitutional overreach by the regulatory state.

FOLLOW: #ChevronDoctrine

The Fishing Case that Could Put the Chevron Doctrine Out to Sea

Thomas S. Holmgren: Goldberg Segalla is a national civil litigation firm. (FOLLOW: @GoldbergSegalla)

• On January 17, the U.S. Supreme Court heard oral argument in Loper Bright Enterprises v. Raimondo, No. 22-451, an environmental-law dispute concerning fishery management in federal waters.    
• The case reached the court via a petition of four commercial fishing companies challenging a federal fisheries regulation, the Magnuson-Stevens Act, which provides that the National Marine Fisheries Service can require private vessels to “carry” federal observers onboard to allow for the enforcement of the agency’s regulations, (federally-prescribed fishing “catch” limits being the most obvious), and can require the private vessels to pay the federal observers salaries while they are monitoring.
• The D.C. Circuit Court of Appeals previously found that the agency’s view that the regulation allowed for the imposition of those obligations, in its ambiguity, was reasonable under the Chevron Doctrine. That decision and the Chevron Doctrine are now both under scrutiny.  
• The Chevron Doctrine originated in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. et al. 467 US 837 (1984), a Clean Air Act case in which the court needed to decide if the Clean Air Act permitted the Environmental Protection Agency to define the term “stationary source” for the purpose of their enforcement of the air pollution regulation. In siding with the EPA, the court created a test that would become known as the Chevron two-step. In the first step, courts determine if Congress has spoken to the “precise question at issue,” and if they have not, the statute is deemed to be ambiguous, and courts move to step two. In that second step, courts decide whether the agency’s interpretation is “reasonable,” and will defer to the agency as long as their interpretation of the statute is not unreasonable. In practice, the doctrine has compelled federal courts to defer to a federal agency’s interpretation of an ambiguous or unclear statute that Congress delegated to the agency to administer.  
• The doctrine’s critics believe that it gives agencies too long of a leash when there is no affirmative power for them to act. Justice Brett Kavanaugh used a significant portion of his time during oral argument time to highlight how such a system results in significant “shocks to the system every four or eight years when a new administration comes in” and implements “massive change” in areas like securities law, communications law, and environmental law, where new heads of agency have vastly different interpretations than their predecessors/ political counterparts.
• After nearly four hours of oral argument, in which a majority of the justices appeared ready to discard the Chevron Doctrine in favor of a principle under which the Supreme Court would reclaim some of the interpretive power it gave to agencies when it created the doctrine, it appears that we could be moving to a post-Chevron world when a decision is issued this term.
• While some level of deference to an agency interpretation is expected to remain, the impact of overruling — or even limiting — Chevron, will be tremendous. We will provide an additional update when the Supreme Court issues its decision.

The SCOTUS high court’s Chevron decision is expected to drive a new litigation ‘Flood’.

DEVELOPMENTS TO WATCH



US WARNINGS FROM EU ELECTIONS

• A decided shift to the right which will likely be more exaggerated in the National Elections.
• Shift shows some national leaders may be in trouble.
• Immigration and Security mounting problem.

The results for the European Parliament elections across 27 European Union (EU) member states show the biggest news being the shellacking of Emmanuel Macron’s Renaissance Party by Marie Le Pen’s National Rally in France. With his party having received only around half as much support as Le Pen’s party, President Macron has called a snap election, commencing at the end of June—a battle the former Rothschild banker is better equipped to fight on short notice than the populist leader, given his support from the corporate media and donor class.

IMPACT TO EUROPEAN PARLIAMENT

• Voter turnout remained steady at 51%, which suggests that a majority of the electorate does not consider European Parliament (EP) elections to be second-order events.
• Heightened geopolitical uncertainty did not mobilize more voters and raise awareness for EU-level action needed to solve current challenges around security and industrial competitiveness.
• Centrist majority holds with 56% of total votes – EU is likely to continue to run a centrist policy course. Widely, centrist parties have kept their majority. This means that the EU legislative process on future policy priorities (defense integration, boosting competitiveness) is unlikely to be hampered in the next 5-year legislative term.
• The shift to the right in the EP (all right-wing parties winning 22% of total votes) is likely to have some impact on the policy debate and could influence the shape of new legislation in policy areas like migration and the Green Deal.

IMPACT TO KEY EU MEMBER STATES

The biggest impact of the election result could be at a national level with President Macron announcing the dissolution of the French parliament after the defeat of his Renaissance party. Moreover, the election outcome may serve as a barometer to where national politics is headed in other EU member states:



• France - Macron dissolves parliament and calls early elections on June 30 for round 1 and July 7 for round 2 . Macron’s Renaissance party suffered heavy losses in the EP elections and the French President immediately announced the dissolution of parliament. A legislative election does not affect Macron's status as President. At the EU level, Le Pen's National Rally will likely continue to be a part of the far-right fringe party group ID, with limited influence in the EU parliament. Domestically, the weak showing of French President Macron’s Renaissance party, (coming in second place in the EP election), might provide tailwinds for Le Pen's National Rally in the legislative election. The strong result of the centre-left Socialist party might have consequences for the centre-left/left bloc in France. The EP results and recent polls suggest that the outcome of the legislative elections might lead to a government less likely to easily comply with EU fiscal rules, either intentionally or as a result of a potential weak political alliance.
• Germany – Weak election result of Scholz's SDP might fuel a debate about Scholz’s nomination for a second term for the 2025 national elections. Scholz’s Social Democrats secured 14% of total votes, which is roughly the same as in the last EP elections in 2019, but far less than in the general elections 2021. This rather weak result might fuel a debate about whether he is the right candidate to lead the SPD into next year's general elections. The budget process for 2025 is shaping up to be a critical test for the coalition's cohesion in the coming months.
• Italy – increasing leverage at the EU level? Although Giorgia Meloni’s Brothers of Italy did less well than expected, (with approval rates falling below 26%), this is unlikely to have an immediate impact on domestic government stability. At the European level, she has gained influence as (tacit) support for VdL might give her increasing leverage at the EU level (including a powerful portfolio in the next commission; e.g., the internal market portfolio).

BIDENS EXECUTIVE BORDER ORDER MISLEADING

ACCORDING TO GOLDMAN SACHS & US BORDER PATROL

Even though President Biden announced changes on June 4th that would restrict a channel that might otherwise account for around 700k potential immigrants annually at current unauthorized migration rates, Goldman Sachs concludes that:

 "The ultimate effect would be a fraction of this as most affected immigrants would likely attempt other modes of entry. Legal challenges to the new rules might even block implementation altogether."

Here are the details:

The new asylum restrictions announced on June 4 are likely to face legal challenges and logistical constraints, but could lower net unauthorized immigration and limit the potential for upside immigration surprises this year.

The policy would set a limit of 2.5k unauthorized migrants encountered per day (over a 7-day average) at the border outside of official ports of entry. Once the 2.5k limit is reached—this is likely to happen immediately as the daily rate was reported to be 3.5k in May—US authorities would expel apprehended migrants back across the border, rather than releasing many of them into the US to await a court date.

At a pace of 3.5k per day, this would in theory affect as many as 1.3 million immigrants per year. However, nearly half of these are detained when apprehended and are not allowed into the US. The remainder—around 700k at an annual rate in May—are released into the US to await a court hearing and the new program would mainly affect this segment. While this could result in a meaningful decline in immigration if implemented, the actual effect is likely to be a fraction of this, for three reasons.

• First, several groups are excluded from this policy, such as unaccompanied children—which account for roughly a quarter of these border crossings—as well as victims of severe trafficking and other vulnerable migrants. Those who express a fear of persecution in their home country would also still be eligible for asylum through an expedited process with a higher standard.
• Second, the policy does not apply to asylum seekers at official ports of entry, where around half of asylum-seekers also pass initial screenings and enter the US. It seems likely that many of those affected by the new policy will likely seek asylum at official ports of entry instead.
• Third, the effect could also be partly offset by an increase in other unauthorized inflows, such as those who cross the border and are not intercepted.

It doesn't work as announced:

BORDER PATROL DOCUMENT RIGHT: Border Patrol agents in southern California have been instructed to admit migrants from all but 6 of the 100+ countries in the eastern hemisphere — days after @POTUS issued an executive order in which he stated migrants would be removed from the country and not allowed to seek asylum.

A senior administration official told reporters on Tuesday “we anticipate we will continue to enhance our ability to return migrants to the Eastern Hemisphere.” That is not the case, according to the instructions given to Border Patrol in San Diego, where migrants from all over the world are crossing daily.

Even if it was working as advertised, it would still admit 1.8 million illegals per year. Plus a massive carveout exempting all those whose home countries — like China and Venezuela — won’t accept them back. 

NOTE: Over 150,000 people from those two nations alone have jumped the border so far this year. 

• Border Patrol memo instructs agents to release migrants from over 100 countries into the US NY Post
• BS Biden border ‘crackdown’ has already failed as illegals are flooding across NY Post

GLOBAL ECONOMIC INDICATORS:

What This Week's Key Global Economic Releases Tell Us

MAY CPI

CHART RIGHT: While the Biden administration will continue to gaslight voters with comments like "inflation is tumbling"... every man, woman and child who actually buy food know prices have NEVER been higher. People aren't stupid and see it for what it is - old time politics - that Biden was weened on. It's a new era and a new electorate!

CPI delivered the kind of downside surprise that bond bulls and the Fed have been waiting for, as both headline and core came in a tenth lower than expected, largely driven by a 3.6% drop in gasoline prices - the biggest reason why the headline CPI was flat on the month Indeed. At 0.16% the rise in core nearly rose just 0.1% when rounded. Meanwhile, in what may have been the biggest surprise, super-core services, ex housing, fell by 0.04%, the first negative reading since September 2021!

CHART BELOW

With real-time rent flat to down for the past year, the BLS-tracked OER 5-months lagged, is up 5.6%, and will decline gradually for the next 18 months as it catches down to real-time rents, even as the latter are actively rising.

A 0.2% monthly core CPI reading is likely to be the base case for the balance of the year, especially as it looks more and more like the long-awaited slowdown in shelter costs will hit as soon as the next report.”

MAY PPI

The headline producer price index unexpectedly tumbled 0.2% MoM in May (+0.1% MoM exp) from a +0.5% MoM rise in April.

That's the biggest MoM decline since Oct 2023.

This left the YoY change in the headline index down from a revised 2.3% in April to +2.2%, (well below the +2.5% YoY expected)...

That is still the highest YoY since April 2023. Core PPI was unchanged MoM in May, (cooler than the +0.3% MoM exp).

On a YoY basis, Core PPI dropped from +2.5%.

JOBLESS CLAIMS

The number of Americans applying for jobless benefits for the first time surged last week to 242k (up from 229k and well above the 225k exp). That is the highest since August 2023.

The last three weeks have seen the largest surge in claims since January.

GLOBAL MACRO

WHAT DOES YOUR SCAN OF THE DATA BELOW TELL YOU? - THE MEDIA AVOIDS BAD NEWS!

We present the data in a way you can quickly see what is happening.

THIS WEEK WE SAW

Exp=Expectations, Rev=Revision, Prev=Previous

AAPL OFFICIALY PART OF AI TRIUMVIRATE

FRENCH DEBT CREATES STORM CLOUDS OVER EU DEBT

Click All Charts to Enlarge

AAPL EXPLODES OUT OF TRADING RANGE - AAPL exploded out of its trading range as its aggressive buyback program continues. The Price lift is seen as a vote of confidence that AAPL has officially become a sustainable part of the AI Triumvirate leadership along with Nvidia & Microsoft.

The crowd is very long and in need of downside protection. We are seeing skew catch rather aggressive "bids".

The average percentile of 16 different equity focused sentiment indicators though not at all time highs is elevated especially against a longer term weakening trend.

"AS GO THE FINANCIALS, SO GO THE BANKS: AS GO THE BANKS, SO GO THE MARKETS"

MATASII FINANCIAL STOCK INDEX

We continue to keep an eye on both the Bank and Financial stocks to give us an early signal of market direction. We have been showing the banks over the last few weeks, but the Financials now appear to be giving a clearer signal.

• The MATASII Financial Index stocks has begun to exhibit a potential continuation triangle pattern.
• The Elliott Wave analysis supports an "E" wave higher as part of a potential ABCDE pattern.
• Momentum (bottom pane) has found long term support and needs to be watched to see if it breaks shorter term overhead resistance, shown by a dotted descending orange momentum trend line.

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

2 - FUNDAMENTAL ANALYSIS

FORWARD PE'S & EPS

Should we believe the 12 Month Forward Earnings per Share estimates, remembering that it is all based on a cap weighted S&P 500 driven by the Magnificent Seven? Especially as the Magnificent Seven is increasingly driven by three component stocks (Apple, Nvidia and Microsoft) all hinging their net growth outlooks on AI? That may not be outright gambling, but then it is not prudent investing - it is better termed speculation!

LIQUIDITY

We are seeing a less supportive liquidity trend picture for equities when we define it as (Bank Deposits +MMMF) /(Bank Loans Ex-Real Estate + Commercial Paper). As you would expect, VIX tends to rise when liquidity tightens - which it has.

S&P 500 vs FED BANK RESERVES

There are two glaring problems with the chart below:

1. The "Jaws-of-Death" will be closed at some point.
2. We have a major Divergence which is always a warning to be taken seriously!

DOW THEORY

In last week's Newsletter we outlined our growing concerns with the Trannies within the DOW Theory (LINK). The gap between Transports and SPY is only getting wider and wider. Is tech so powerful that we can dismiss from "all" PROVEN old relationships? NOTE: More Divergence!

3 - TECHNICAL ANALYSIS.

MARKET DRIVERS

As goes NVDA, so goes the MAG-7, As Goes Mag-7 so goes The Market.

NVDA - Daily

CHART RIGHT: NVDA stock Y-o-Y% change tracks the growth rate of revenue & EBITDA revisions. Both look to have peaked (Revenue shown to the Right)?

• NVDA continues to reach for new highs!.
• NVDA's lift this week pushed through the pre-split upper channel boundary trend line which now aligns with the black dotted rising mid-channel trend line shown below.
• The Dotted Black Trend line in the MATASII Proprietary Momentum Indicator (lower pane below) is suggesting a potential Divergence has been set up. This is normally seen as a warning to the downside that is ahead if the Divergence isn't removed by a movement higher in Momentum.
• At some point the major unfilled gaps (at much lower levels) must be filled. NVDA therefore may no longer become a Short to Intermediate Long Term hold, but rather a position trading stock as others entering the space and force margins to contract. 

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

MAGNIFICENT 7

Magnificent 7 is up a magnificent 24% YTD (chart right), contributing >50% of SPX return (NVDA alone = 25%) as monopolistic mega tech monopolizes performance..

Total CAPEX + R&D for the Magnificent Seven this year is expected to total $348bn. (Think about that for a second.)

Here’s another way to frame it - the Magnificent 7 is reinvesting 61% of their operating free cash flow back into

CAPEX + R&D!

• The basket of 'Magnificent 7' stocks soared for the 7th week in the last 8 (and the best week in the last 8) before pulling back ever so slightly at Friday's close.
• We continue to be concerned about the momentum Divergence signal that has been occurring for some time (bottom pane). Continued caution advised.

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

"CURRENCY" MARKET (Currency, Gold, Black Gold (Oil) & Bitcoin)

10Y REAL YIELD RATE (TIPS)

Real Rates reached our initial overhead resistance level of 2.25% before falling off hard as part of our expected "X" leg lower (chart right). Wednesday's CPI pushed real rates towards previous lows.

CONTROL PACKAGE

There are TEN charts we have outlined in prior chart packages, which we will continue to watch closely as a CURRENT Control Set:

1. US DOLLAR -DXY - MONTHLY (CHART LINK)
2. US DOLLAR - DXY - DAILY (CHART LINK)
3. GOLD - DAILY (CHART LINK)
4. GOLD cfd's - DAILY (CHART LINK)
5. GOLD - Integrated - Barrick Gold (CHART LINK)
6. SILVER - DAILY (CHART LINK)
7. OIL - XLE - MONTHLY (CHART LINK)
8. OIL - WTIC - MONTHLY - (CHART LINK)
9. BITCOIN - BTCUSD - WEEKLY (CHART LINK)
10. 10y TIPS - Real Rates - Daily (CHART LINK)

GOLD - DAILY

• Gold continues to weaken as inflation pressures weaken and yields fall.
• The Elliott Wave count still suggests a strong likelihood of a minimum retracement of 38.2% and the 100 DMA.
• Momentum support (lower pane) shows gold has found an important support line. it should be noted there is another longer duration trend support slightly lower (dotted black line).
• Though the MATASII CROSS has given an initial SELL signal on the Daily chart, we caution it may be short lived!

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

US EQUITY MARKETS

CHART RIGHT: Is the market finally ready for a break out? Low volume pre-summer vacation break-out moves can be "frustrating".



CONTROL PACKAGE

There are FIVE charts we have outlined in prior chart packages that we will continue to watch closely as a CURRENT "control set":

1. The S&P 500 (CHART LINK)
2. The DJIA (CHART LINK)
3. The Russell 2000 through the IWM ETF (CHART LINK),
4. The MAGNIFICENT SEVEN (CHART ABOVE WITH MATASII CROSS - LINK)
5. Nvidia (NVDA) (CHART LINK)

S&P 500 CFD

• The S&P 500 cfd rose aggressively this week through its long term upper trend channel boundary line. (NOTE: see Thought Experiment note below.)
• However, the MATASII Proprietary Momentum Indicator (middle pane) appears to be showing signs of weakening within a Divergence pattern with price and stopped by its overhead momentum resistance trend line.
• We also have an excess RSI level, though it could go slightly higher and sustain itself in the near term.

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

S&P 500 - Daily - Our Thought Experiment

OUR CURRENT ASSESSMENT IS THAT THE INTERMEDIATE TERM IS LIKELY TO LOOK LIKE THE FOLLOWING

NOTE: To reiterate - "the black labeled activity shown below, between now and July, looks like a "Killing Field", where the algos take Day Traders, "Dip Buyers", the "Gamma Guys" and FOMO's all out on stretchers!"

• The S&P just hit a new all time high this week.
• However, the MATASII Proprietary Momentum Indicator appears to be showing signs of weakening (lower pane) with firm support quite a bit lower.
• The Divergence in Momentum (lower pane) needs to be noted along with a clear long term ending wedge.

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

S&P 500 - Monthly - Our Thought Experiment

• We continue to move towards our target of 5540 shown here and on our daily chart (above).

STOCK MONITOR: What We Spotted

MONDAY

• Stocks ultimately largely traded in the green despite risk-off in Europe following the EU Parliamentary elections over the weekend, which saw the Far-Right parties make notable gains, with French President Macron ultimately calling a snap election.
• US Equities clawed back earlier losses once cash trade got underway in quiet trade with attention turning to the Apple (AAPL) WWDC event, which ultimately confirmed its partnership with OpenAI, but only briefly supported AAPL stock which sold off over 2% on Monday.
• T-notes bear steepened with weakness following on from JGB and EGB pressure overnight and in the European morning, but lows in T-notes were seen in the wake of the weak 3yr auction before paring slightly into settlement.
• There was little reaction to the mixed NY Fed Survey of Consumer Inflation expectations, which saw the 1yr ease, 3yr unchanged, and 5yr rise.
• Crude prices were bid throughout the session on geopolitics and optimism around Summer fuel demand, while gold and silver attempted to recover some of the steep losses incurred on Friday in the wake of the hot NFP. Attention now turns to the US CPI and FOMC on Wednesday.

INFLATION BREAKEVENS: 5yr BEI +0.7bps at 2.298%, 10yr BEI +1.0bps at 2.318%, 30yr BEI +0.9bps at 2.324%.

REAL RATES: 10Y -- 2.1476%

STOCK SPECIFIC

• Microsoft (MSFT) announced a new all-digital version of its Xbox Series X and S consoles, as well as new game releases including Call of Duty and Doom, in its annual Xbox Games Showcase.
• Southwest Airlines (LUV): Elliott Management has taken a USD 2bln stake in Southwest Airlines (LUV) and plans to engage with management. Barclays maintains its equal weight rating on LUV, but added that potential activism could “bring a fresh air for the storied, once low-cost airline”.
• Apple (AAPL) announced Vision OS2, and the expansion of Apple Vision Pro to eight new countries including China, and Japan. Introduced tap to pay, such that, users can send money to other iPhone users by tapping the phones together. In addition, Apple confirmed its partnership with OpenAI, integrating ChatGPT.
• KKR & Co. (KKR), CrowdStrike Holdings (CRWD), and GoDaddy (GDDY) will replace Robert Half International (RHI), Comerica (CMA), and Illumina (ILMN) in the S&P 500, respectively, on June 24th.
• Vista Outdoor (VSTO) received a USD 2bln plus offer from an alternative party for the Kinetic Group. It also separately announced the rejection of MNC Capital’s latest indication of interest.
• Cognizant Technology Solutions (CTSH) will purchase Belcan for c. USD 1.3bln in cash and stock.
• Tesla (TSLA) CEO Elon Musk says on X, “No Model Y refresh” is coming out this year.
• Moderna (MRNA) announced that its Phase 3 trial of MRNA-1083, a vaccine against influenza and COVID-19, has met its primary endpoints, resulting in higher immune responses than the licensed comparator vaccines used in the trial.
• Biogen (BIIB) announced that the FDA has accepted SBLA for monthly LEQEMBI IV maintenance dosing, which is intended for the treatment of Alzheimer's disease in patients with mild cognitive impairment or mild dementia stage of disease.
• Huntington Bancshares (HBAN) expects modest NII growth in Q2 and accelerating expansion in 2H24 and 2025.
• Morgan Stanley (MS) CEO says changes in rates environment is lasting, and higher for longer interest rates are good for business.
• Eli Lilly (LLY): US FDA Advisory panel unanimously vote in favour that available data shows LLY’s Donanemab is effective for treating Alzheimer’s disease with mild cognitive impairment and mild dementia.
• FedEx (FDX) raised its quarterly dividend by 10% to USD 1.37/shr.
• Intel (INTC) halted construction of a new factory in Israel, according to the Israeli Press Calcalist.
• Uber (UBER) lost its appeal to overturn California’s gig worker status law.
• Boeing (BA): Israel’s El AI chose BA’s 737 MAX to renew its short-haul fleet, and will buy 30 BA 737max aircrafts in a deal valued at USD 2-2.5bln, with deliveries to start in 2027.
• Apollo (APO) and Kyndryl Holdings (KD) are reportedly in a joint bid for DXC Technology (DXC), according to Reuters citing sources.

TUESDAY

• Stocks were ultimately mixed on Tuesday with outperformance in the Nasdaq and the index buoyed by Apple (AAPL) (+7%) after an upgrade from DA Davidson in the wake of the WWDC event on Monday.
• Meanwhile, morning weakness around French election uncertainty had unwound once Europe had left for the day, while a slump in UST yields took US indices to session highs.
• Treasuries were bid across the curve with notable upside seen after the stellar 10yr auction, which saw a 2bp stop through and a jump in indirect demand.
• The Euro continued to underperform in FX on political uncertainties, while moves elsewhere were rather contained with all eyes turning to key risk events on Wednesday; Fed and CPI. Crude prices saw marginal gains on Wednesday, while OPEC left world oil demand forecasts unchanged. But the EIA raised forecasts for both 2024 and 2025, with attention after hours on private inventory data.

INFLATION BREAKEVENS: 5yr BEI -2.9bps at 2.267%, 10yr BEI -2.3bps at 2.292%, 30yr BEI -1.7bps at 2.303%.

REAL RATES: 10Y -- 2.1123%

STOCK SPECIFIC

• Autodesk (ADSK) Q1 (USD): earnings, revenue and margins beat expectations.
• Nextera Energy (NEE) reaffirms its adj. EPS for 2024, 2025, 2026; now expects 2027 EPS to be in the range of USD 3.85-4.32
• Crown Castle (CCI) implements operational changes and updates FY24 guidance; FY adj. FFO USD 6.91-7.02 (exp. 6.92), adj. EBITDA 4.134-4.193bln (exp. 4.165bln). Is reducing staffing levels from its fiber segment by over 10% of current levels.
• Apple (APPL) plans to integrate other AI models, such as Google (GOOG) Gemini, in the future - as was alluded to in the WWDC.
• Zscaler (ZS) announced a collaboration with Nvidia (NVDA) to accelerate AI-powered co-pilot technologies, is to deliver gen-ai powered zero trust security innovations with NVDA; also strengthened its partnership with Google (GOOGL).
• Tesla (TSLA) CEO Musk said on X he will ban Apple (AAPL) devices at his company if Apple integrates Microsoft-backed (MSFT) Open AI at the OS level. Separately, TSLA's bid to dismiss claims that it was overstating its vehicle's self-driving capabilities was dismissed by a Californian judge.
• General Motors (GM) board approved a new USD 6bln share repurchase authorization and increased its common stock dividend from USD 0.09 to 0.12/shr. Expects Q2 earnings to be better than Q1, but cuts 2024 top-end goal for Ultium production to 250k from 300k
• Rio Tinto Plc (RIO) said it will buy Mitsubishi's 11.65% stake in Boyne Smelters (BSL) for an undisclosed sum.
• Spotify (SPOT) is to introduce a more expensive subscription tier; which will cost at least USD 5 more per month, according to Bloomberg.
• Regeneron (REGN) expects data from its obesity drug trial in 2025.
• Axsome Therapeutics (AXSM) is a new short Culper Research.
• Apple (AAPL) announced Affirm (AFRM) payment products are expected to be available to Apple Pay users in the US later this year.
• Fortinet (FTNT): Chinese hackers breached 20k FortiGate systems worldwide, much larger than previously known, according to BleepingComputer.
• Johnson & Johnson (JNJ) reached a USD 700mln settlement with most US states for alleged deceptive marketing of Talc-containing products.
• Boeing (BA) to open a location in Daytona Beach; plans to start hiring for about 200 high-paying engineering jobs this year and expects to nearly double that total over the next few years.
• Apple (AAPL): US Justice Department says four additional states join the Justice Department suit against AAPL for monopolizing smartphone markets.
• Paramount (PARA): Shari Redstone NAI decides to stop discussions with Skydance, according to WSJ.
• GameStop (GME) Chair Cohen won a USD 16bln lawsuit re. his Bed Bath and Beyond investment, via social media - unconfirmed.

WEDNESDAY

• The cooler-than-expected inflation data set the tone for the day with stocks closing well in the green with T-Notes firmer across the curve and the buck in the red.
• The softer-than-expected inflation metrics saw money markets revert to fully price in two 25bp rate cuts this year, albeit back to 1 after the Fed. The focus then turned to the FOMC, which saw rates left unchanged as expected, with only a slight tweak to the statement to acknowledge "modest further progress" on inflation, vs "lack of further progress" beforehand.
• The focus, however, was on the dot plot, which saw the median pencil in just one rate cut in 2024, on the more hawkish side of expectations. While the 2025 dot was raised, 2026 was unchanged but the longer run median view ticked up.
• There was only a slight reaction, with the Dollar coming off lows and Treasuries off highs but stocks were quite resilient.
• Nonetheless, the pressure in bonds ensued with Powell's press conference, which largely stuck to the script. Although the Chair stressed they need more confidence inflation is returning to target.
• Yields were still lower by c. 5-9bps across the curve and money markets now price in c. 45bps of easing throughout the year.
• Elsewhere, oil prices settled in the green but off highs with pressure seen after a surprise inventory build.
• Attention turns to US PPI and the 30yr bond auction on Thursday.

INFLATION BREAKEVENS: 5yr BEI -7.3bps at 2.189%, 10yr BEI -5.7bps at 2.235%, 30yr BEI -3.5bps at 2.267%

REAL RATES: 10Y -- 2.02%

STOCK SPECIFIC

• Oracle (ORCL) - Gives bullish AI commentary in its Q4 report. Within its earnings report, it missed on EPS and revenue, with the next quarter profit view more or less in line.
• Oracle (ORCL) and Alphabet (GOOG) - Google Cloud announced a ground-breaking multicloud partnership in which OpenAI selected Oracle Cloud infrastructure to extend Microsoft's (MSFT) Azure AI platform.
• Autodesk (ADSK) - Better than expected FY25 guidance.
• GameStop (GME) - Announced it has completed its "at-the-market equity" offering program, where it sold 75mln shares valued at c. USD 2.137bln.
• Casey's General Stores (CASY) - Earnings and revenue beat accompanied by higher than expected FY25 EBITDA guidance.
• Rentokil Initial (RTO) - Peltz's Trian has amassed a significant stake in the Co.
• FedEx (FDX) - Plans to cut 1.7-2k jobs in Europe and is expecting to save between USD 125-175mln on an annualized basis beginning in FY27.
• Paramount (PARA) - Shari Redstone's NAI decides to stop discussions with Skydance, according to WSJ. PARA says it is focusing on streamlining the organization, reducing non-content costs, optimizing the asset mix, and divesting some businesses to help pay down debt.
• Target (TGT) - Increased its quarterly dividend by 1.8% to USD 1.12/shr (prev. 1.10).
• Caterpillar (CAT) - Lifted its quarterly dividend 8% to USD 1.14/shr, and adds USD 20bln to its current buyback authorization.
• Elevance Health (ELV) - Exec said Medicare earnings are growing this year, making it clear the company is making money in Medicare.
• Toshiba (6588 JT) - To invest USD 650mln in semiconductors with an eye to EVs and the electric grid, will expand a semiconductor plant near Osaka, and will open a new production line in Japan's Ishikawa prefecture, according to Nikkei.

THURSDAY

• Stocks were mixed on Thursday (SPX +0.3%, RUT -0.9%, DJIA -0.2%) amid two-way action, as they were initially buoyed by dovish US data prints, before selling off later in the session, before clambering well off the lows into settlement.
• Meanwhile, the tech-heavy Nasdaq 100 (+0.4%) continued to outperform as it was buoyed by Nvidia (NVDA) (+3.5%), stellar Broadcom (AVGO) (+13%) earnings and Tesla (TSLA) (+2.7%) CEO Musk noting that both Tesla "shareholder resolutions are currently passing by wide margins".
• Back to the data, US PPI was cooler-than-expected with the headline M/M surprisingly declining 0.2% (exp. +0.1%, prev. +0.5%), and outside of the bottom end of the forecast range of -0.1%. Y/Y rose 2.2% (exp. 2.5%, prev. 2.3%). Core M/M was flat (exp. 0.3%, prev. 0.5%), also beneath the lower bound of 0.1%, while Y/Y rose 2.3% (exp. & prev. 2.4%).
• As such, it points towards core PCE coming in below the YTD average on June 28th.
• Regarding Fed pricing, money markets now price two full 25bps rate cuts in 2024 (vs. 44bps pre-data).
• For the record, initial jobless claims surprised to the upside. In wake of the data metrics, a dovish reaction was seen with Dollar falling to session lows of 104.640, before paring throughout the US afternoon to settle with firm gains and just off highs at around 105.20.
• T-Notes firmed after the data, before extending to fresh session peaks after the solid US 30yr auction.
• Elsewhere, it was a choppy day for the crude complex, albeit settling flat, amid continued geopolitical tensions as Hezbollah launched its largest attack since the start of the war.
• Looking ahead, Fed blackout ends tomorrow with Goolsbee (2025 voter) and Cook (voter) scheduled to speak, along with prelim UoM (Jun) data where attention will be on inflation expectations.

INFLATION BREAKEVENS: 5yr BEI -2.7bps at 2.164%, 10yr BEI -7.8bps at 2.213%, 30yr BEI -4.6bps at 2.255%

REAL RATES: 10Y -- 2.0489%

STOCK SPECIFIC

• Broadcom (AVGO) - Reported strong earnings highlighted by beating on adj. EPS and revenue alongside lifting its FY24 revenue view. Meanwhile, it announced a 10-for-1 forward stock split to commence on July 15th.
• Tesla (TSLA) - CEO Musk said that both Tesla "shareholder resolutions are currently passing by wide margins", regarding Musk's pay package and moving the headquarters to Texas.
• Virgin Galactic (SPCE) - Announced a 1-for-20 reverse stock split.
• Corning (GLW) - Downgraded at Morgan Stanley; said Corning’s stock has a more balanced risk-to-reward ratio after a notable rally this year.
• Pfizer (PFE) - Phase 3 CIFFREO study failed to meet the primary endpoint.
• JPMorgan Chase & Co (JPM) - Raised investment banking revenue outlook to 30% from 25%.
• Alphabet (GOOGL) - Austrian advocacy group NOYB filed a complaint against Google for allegedly monitoring users of its Chrome Web browser.
• Disney (DIS) - Reached agreement with Ron DeSantis to end their feud, clearing the way for the USD 17bln planned development at Walt Disney World, according to the NYT.
• Williams - Sonoma (WSM) - Declared a two-for-one stock split.
• Boeing (BA) - Investigating new quality problems on some undelivered 787 jets involving incorrect installation of fasteners, via Reuters citing sources.
• Healthcare names - Medicare will recalculate quality ratings of Medicare advantage plans, according to WSJ; plans with high ratings can get lucrative bonus payments. A redo would mean hundreds of millions of dollars in additional payments.
• Paramount (PARA) - Investor Mario Gabelli's legal threat to Paramount's (PARA) merger deal with Skydance, was a major factor in the termination of Shari Redstone's USD 8bln deal, according to NYPOST.

FRIDAY

• Stocks were mixed (SPX flat, NDX +0.4%) in broad risk-averse conditions with distinct underperformance in the small-cap Russell 2000 (-1.6%) as it continued on its sell-off from Thursday.
• Sectors were largely in the red, with only Tech and Communications firmer as Industrials lag after a downbeat MSC Industrial Direct (MSM) (-10.5%) earnings pre-announcement in addition to Boeing (BA) (-2%) telling suppliers it is delaying 737 production target by three months.
• As alluded to above, sentiment was dampened in the European morning after French Finance Minister Le Maire sparked a rout in European assets, after he answered "yes", when asked if the current political crisis could result in a financial crisis.
• As such, it sparked significant strength in non-OAT EGBs with some spillover to USTs.
• Treasuries bear flattened, and hit highs around further dovish US data, albeit not a consequence of, just more a coincidence, but did come off best levels after Mester (voter, retiring in June) said they want a few more months of ebbing inflation data.
• Goolsbee (2025 voter) later spoke noting if the Fed get more months like they just saw on inflation, the Fed can cut rates.
• On the data footing, US import/export provided the latest indication inflation may be cooling as they both surprisingly declined, while prelim UoM for June disappointed, with 1yr inflation expectations unchanged at 3.3% with the 5-10yr ticking higher to 3.1% from 3.0%.
• The crude complex saw two-way action on Friday, but ultimately ended flat, as geopolitical headlines took a back seat amid political angst out of Europe.
• Looking ahead, traders await a slew of Fed speak next week, amongst US Retail Sales (Tues), Flash PMIs (Fri), auctions, and a raft of central bank decisions.

INFLATION BREAKEVENS: 5yr BEI -3.3bps at 2.133%, 10yr BEI -2.6bps at 2.188%, 30yr BEI -2.1bps at 2.233%.

REAL RATES: 10Y -- 2.031%

STOCK SPECIFIC

• Adobe (ADBE): EPS and revenue beat, with next quarter profit guidance better-than-expected and raising FY view.
• Tesla (TSLA): Shareholders supported CEO Musk's USD 56bln pay package.
• Zscaler (ZS): Upgraded at JPM; said Zscaler is “a best-of-breed Zero Trust Network Security vendor” and is trading at a discount.
• MSC Industrial Direct (MSM): Downside pre-announcement for the next quarter and also lowered FY guidance.
• RH (RH): Deeper loss per share than expected.
• Boeing (BA): FAA is investing in recently manufactured BA and Airbus (EADSY) jets for using titanium sold using counterfeit documentation to verify the titanium's authenticity, according to NYT.
• Nucor (NUE): Issued weak guidance for the next quarter - Q2 EPS between 2.20-2.30 (exp. 2.99). Added Q2 steel products segment are expected to have decreased vs. Q1.
• Meta Platforms (META): Said it will not launch Meta AI in Europe at the moment, adding it's a step backwards for European innovation and competition in AI development. Meta's decision is in response to a request from an Irish Privacy Regulator to delay training its LLM using public content shared by adults on Facebook and Instagram.
• Apple (AAPL) & Meta Platforms (META): Set to be the first Big Tech group to face charges under EU digital law, according to FT.
• Boeing (BA): Told suppliers it's delaying the key 737 production target by three months. The new BA supplier schedule calls for 737 output to reach 42 a month in September (prev. June).
• Arm Holdings (ARM): Nasdaq announced ARM will join the Nasdaq-100 index, and will replace Sirius XM Holdings (SIRI) on June 24th.

BOND MARKET

CONTROL PACKAGE

Remember when "developed world" central banks pretended their inflation target was 2%? Well, that lie died a miserable death today - and will do so again for good measure tomorrow - after the BOC cut rates for the first time in 4 years, and less than a year after its last rate hike, from 5.0% to 4.75% even as Canada's inflation remains a very sticky 2.7%.

And just to underscore the death of the 2% inflation target, tomorrow the ECB will also cut rates for the first time since March 2016, (and 8 months after the last rate hike), even though core Eurozone CPI remains 3%.

Of course, despite all the posturing, the Fed won't be far behind especially once it becomes clear that the myth of strong US job growth was just a mirage, and either in July or September, the Fed will join the party despite core US inflation stuck at a blistering 2.8%.

It was this long overdue realization that the G7 central banks have officially raised their inflation target by about 1% that helped pushed bond yields to fresh two month lows, and down more some 35bps in just the past week, down for a 5th straight day as financial conditions have eased dramatically (see chart of Goldman Financial Conditions Index above), undoing any jawboned tightening the Fed tried to inject into the market in recent months: indeed, the latest rate pricing shows a sharp dovish shift in the Fed cut narrative for Sept, rising to 80% vs 45% just one week ago. As Goldman's trader notes, CTAs will become a focus if yields keep moving lower. -- Tyler Durden

There are FIVE charts we have outlined in prior chart packages that we will continue to watch closely as a CURRENT "control set":

1. The 10Y TREASURY NOTE YIELD - TNX - HOURLY (CHART LINK)
2. The 10Y TREASURY NOTE YIELD - TNX - DAILY (CHART LINK)
3. The 10Y TREASURY NOTE YIELD - TNX - WEEKLY (CHART LINK)
4. The 30Y TREASURY BOND YIELD - TNX - WEEKLY (CHART LINK)
5. REAL RATES (CHART LINK)

FISHER'S EQUATION = 10Y Yield = 10Y INFLATION BE% +REAL % = 2.188% + 2.031% = 4.219%

3YR AUCTION: The US sold USD 53bln of 3yr notes at a high yield of 4.559%, tailing the When Issued by 1.1bps, much larger than the six auction average of a tail of 0.1bps and prior stop-through of 0.3bps. The B/C was also weak at 2.43x, beneath the 2.63x prior and 2.57 six auction average. The soft reception was led by a drop in direct demand which came in beneath the prior average, but indirect demand was relatively stable at 64%, albeit not enough to offset the drop in direct demand, seeing dealers take a chunky 20% of the auction. The soft 3yr auction added to the soft 2yr, 5yr, and 7yr supply recently, with participants perhaps sitting on the sidelines ahead of key risk events like the US CPI and FOMC on Wednesday.

10-YEAR REVIEW: A very strong 10-year note auction. The US sold USD 39bln of 10yr notes at a high yield of 4.438%, stopping through the 4.458% WI by 2bps vs the prior and six auction averages of a tail of 1.1bps, also showing the largest stop-through since February 2023. The B/C of 2.67x was also stronger than the prior and six auction average of c. 2.50x. The breakdown of bidders saw a huge increase in indirect demand, rising to 74.6% from 65.5%, well above the 65.4% average. Direct demand dipped to 13.8% from 18.7%, falling beneath the 17.53% average, but the huge Indirect takedown saw dealers (forced surplus buyers) left with just 11.6% of the auction, beneath the 15.7% prior and 17.03% average. The strong 10-year note auction is on the heels of a slew of disappointing short-end and belly auctions, perhaps with uncertainty around the Fed/inflation keeping participants on the sidelines in the more Fed-exposed part of the curve and opting for longer-dated supply instead. The strong demand comes despite the huge event risk on Wednesday - which tends to see buyers take a step back - with both US CPI and the FOMC rate decision with accompanying Dot Plots due. There is the 30-year Bond auction on Thursday too, post Fed and CPI. Note, that analysts also highlight with bond volatility at the low end of multi-year ranges. It is likely that supported some buyers to step in.

10Y UST - TNX - Hourly

• The TNX plunged on the release of the My CPI finding support again at the descending long term trend channel's lower boundary line.
• Importantly in the near term is that Momentum (lower pane) appears to have reached a longer term support level.

YOUR DESKTOP / TABLET / PHONE ANNOTATED CHART

Macro Analytics Chart Above:  SUBSCRIBER LINK

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2020 VIDEOS OUTLINING THE COMING RISE IN INFLATION, STAGLFLATION & COMMODITY PRICES

THE REGULATORY STATE

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