Inconceivable!

Elon Musk in an interview to CNBC last night, “Offer me money. Offer me power. I don’t care... I’ll say what I want, and if the consequence of that is losing money, so be it.”

The wide-ranging discussion was certainly interesting...Tesla price cuts are due to lower demand; the Fed will cut too slowly. But also, the above slightly cryptic reference to the Princess Bride – Musk won’t be tamed – so advertisers won’t be back. He also said it would be nice to have a normal human being in the White House...good luck with that! I’m also calling BS on his only taking 2-3 days off a year. Well worth a watch.

Retail Disappointments Weigh on Indices

Stocks are a bit weaker in early trade in Europe on Wednesday to track recent ranges after a lacklustre session on Wall Street saw the S&P 500 down two-thirds of a percent and the Dow off by more than 1%, weighed down disappointing sales at Home Depot. Results from Home Depot weighed on the Dow (5th largest in the price weighted index) with revenues down and guidance cut as consumers push back bigger ticket items...inflation biting. SPX still totally beholden to the 4,100-4,150 range. 

Retail sales data was ok but still less than expected with a mixed picture - headline rising by 0.4%. But this chiefly reflected declines at gas stations as fuel costs fell. As a silver lining core retail sales increased 0.7%, ahead of expectations, reflecting higher ecommerce sales. GS: “Even stronger than our previous assumptions and indicates upside to our Q1 and Q2 consumption estimates.” Industrial production was also better than forecast at +0.5% vs +0.1% expected so perhaps not as negative as on first glance.

An Uncertain Market Awaits Policymaker Moves

Final EZ inflation seen at 7.0%, Bank of England governor Bailey to speak later…and a UK parliamentary report in crypto says it should be regulated like gambling...no mention of derivatives or CFDs in the paper, so assume not touching the ban...? Overnight, Japan Q1 GDP rose 1.6% on an annualised basis against expected 0.7%, offering some optimism about the pace of recovery and possibly hinting towards the BoJ, though the dollar is still very much bid and extending gains this morning against major peers.

Debt ceiling talks continue – progress made in the charade...a deal will be done. Joe Biden is cutting short his Asian tour to focus on talks. I don’t think they shutdown. BofA: “Should any X-date breach last a month or more and involve prioritization of debt payments it would mean immediately cutting spending by about 5% of GDP... this would turn an otherwise mild recession into a severe recession... rate cuts could come as quickly as 3Q 23.”

Fed’s Barkin – willing to raise rates again if necessary, lesson from 70s is not to quit too soon, yet to be convinced on rates… BofA: investors bearish, Fed done, risk assets resilient so long as the landing is soft. Majority (61%) say Fed hiking cycle over, 1st rate cut likely at Jan’24 FOMC… dovish Fed expectations mean forecasts for steeper yield curve at 2-year high (64%). “On risk: biggest tail risks are credit crunch/recession (33%), high inflation/hawkish central banks (29%); CRE seen as most likely source of credit event (49%); vast majority of investors (71%) expect US debt ceiling resolution before “X-date.”

Equity Enfeeblement

Scottish Mortgage is down a smidge as it urges patience in the face of “disappointing” performance. “The Board shares this disappointment but remains confident that Scottish Mortgage is a strong long-term investment. We firmly believe in the fundamentals of our investment portfolio, which has delivered so much value over many decades,” management said.  In similar measure, British Land – like LandSec yesterday, experienced a big writedown on portfolio of 12%., but peak REITs contrarian trade on?

JD Sports shares fell by more than 4% as it took a big hit, Profits fell by a third as it took at £550m hit on investments. Underlying still looks positive with organic sales at constant exchange rates 12% ahead of the prior period. Sales exceeded £10bn for the first time with solid progress made in the US, and with plans to open a lot more stores investors should expect more growth. The question will be about execution, margins and market share but so far so good. Sticks to guidance for headline profits before tax to exceed £1bn this year.

Elsewhere: Currency and Crude

GBPUSD is testing the May lows around 1.2430 (rusty door – hit it enough times and it will come crashing down) this morning and a breach could point to 1.2370 area being the next target for bears.

IEA says oil price drop running into a supply crunch...this is what the lack of investment has done – more short cycle barrels and persistently higher prices as a result. OPEC won’t mind a bit. In its latest report the IEA said global oil demand set to rise by 2.2 mil bpd in 2023 to a record 102 mil bpd. Market pessimism masks much tighter balances in the second of the year when demand could outpace supply by 2m bpd. Also notes that China's demand recovery has surpassed expectations, hitting a record 16 mil bpd in March.

Spot WTI (daily) - bearish momentum fading