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Dimon is demanding senior bankers return to office, Musk is swallowing Twitter, EY is paying rivals $600M to advise their breakup that isn't going through, and HBO is divorcing Max so he doesn’t get any handouts from the Waystar Royco merger.

US CPI walked so this morning's PPI could run.

Let’s dive in.

Economy Heat Check

As of 4/12/2023 market close, unless otherwise stated.

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Briefings

• Twitter “no longer exists,” is now part of Musk’s X (BBG)

• Microsoft to pay $3M over Russia sanctions (WSJ)

• Time Warner is renaming its streaming service from “HBO Max” to “Max” (PR)

• Elizabeth Holmes will have to wait out her appeal in prison (BBG)

• VMware CEO says sale to Broadcom is on track, despite regulatory reviews (WSJ)

• JPMorgan, H&M join Google, Meta to buy collective $1B of carbon removal (CNBC)

• LVMH boosted by rebound in luxury spending in China (WSJ)

• Juul to pay $462M to settle underage vaping lawsuits (NYT)

Performance Review

Firm updates your bank may be less inclined to disclose.

• EY breakup plan stopped by miscalculations and critics (WSJ)

• JPMorgan orders senior bankers to work 5 days a week in the office (FT)

• HSBC just hired a Credit Suisse MD who was unemployed for a year (EF)

• Buffett’s Texas power push sparks a Berkshire backlash (BBG)

• Barclays bankers fleeing for HSBC (EF)

• Advent, CD&R & Elliott boost bets in portfolio companies (BBG)

• $800M Crypto firm posts job for a "memelord" (EF)

Expectations Reset: CPI and PPI

US Inflation Report

US inflation took a breather last month (5.0%) after clocking in at a 6% annual increase in February. But headline is still holding the beer for core inflation, whose prices remain sky-high. That’s going to give the Fed some food for thought about a possible rate hike in May.

To recap: The Consumer Price Index (CPI), which measures what consumers pay for goods and services, dropped Wednesday morning. Its 5% rise last month from a year earlier marks its smallest gain since May 2021. But while consumers saw lower prices for groceries, gasoline, medical care and utilities, they still faced high prices for shelter, airline fares and insurance.

Don't expect inflation to go away anytime soon, as it remains well above the Fed's target and the 2.1% average in the three years before the pandemic. Core prices, which exclude volatile energy and food categories, increased 5.6% in March from a year earlier. They’ve been more persistent than a Selby Jennings headhunter, partly due to inflationary pressures from shelter costs.

Powell’s Fed has already raised interest rates nine times in the past year in response to core prices’ persistent highs. Most officials don’t expect much difference at his upcoming May meeting. That’s provided the economy grows little this year and labor demand cools.

US Producer Prices Report

This morning, US Producer Prices (PPI) printed at a 2.75% increase over the last year. That’s the ninth consecutive decline in the year-over-year rate of change. Not to be outdone by CPI, this is also its lowest print since January 2021. PPI had peaked at 11.7% in March 2022.

What both prints mean for the economy: Well, Powell says what he wants. But so will markets.

Below indicates what the Fed has signaled versus what the markets have priced in. The blue line signals what the Fed is communicating. The orange line is what the market is actually pricing in.

TL;DR - they have completely different outlooks.

Whether you’re downsizing your Tribeca loft or actually picking up dinner to avoid the 3x delivery fees, the economy is showing indications of slowing. And yet, grocery prices have declined and shipping rates have dropped. So, don’t expect either to be a major source of disinflation going forward.

Still to Come: US Retail Sales

Renewed recession fears are taking center stage if US retail sales’ Friday release can't cut it. The US dollar and major indices are in for a bearish ride.

Rising financial stress tends to precede further tightening of credit conditions. This is usually then followed by an untimely recession – then again, recessions don’t just drop by when it's convenient for you. And we're currently seeing financial stress on the rise to levels that are similar to the LTCM collapse and Dot Com bubble bust.

So don’t kid yourself holding out for any more dovish news. Consumers are often the last to react. If there are concerns about a recession, retail sales and household spending will inevitably take a hit. Analysts predict a decline in retail sales and growth acceleration to be short-lived due to recent financial market turmoil, interest rate hikes and a cost of living squeeze.

The real story lies in the backlogs of work for manufacturing, which have fallen for nine straight months. This suggests a future weakening of factory output unless new demand is revived. The global economy could be about to hit the snooze button on growth.

Meme Bank

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