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Theft is now losing US retail conglomerates billions a year, Schwab is selling $2.5 billion in long-term debt and ESPN is selling out.

With no major economic drops for Friday, we dug up some things on the future Fed #2 and another board hopeful.

Let’s dive in.

Economy Heat Check

As of 5/17/2023 market close, unless otherwise stated.

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Expectations Reset: Debt Ceiling & EU Economy

US Debt Ceiling

If there’s one city we all think of when it comes to getting things done, effective deal making and financial execution, it’s Washington D.C. House members spent the beginning of this week continuing to get creative in their maneuver to force a debt-ceiling vote. Because if there’s one thing we know about the Constitution, it’s really just like red lights in Boston: recommendations.

If today’s media has taught us anything, it’s that it’s never too early to panic. And panic breeds volatility – and opportunity. Cut to Wall Street, who is having a collective panic attack over the possibility of a US default. The market for ultrashort-term government bills is particularly antsy, as the debt limit could mess with their repayment.

Over in commodities, the market is having a blast. Brent crude prices are soaring as gold prices are fluctuating. Seems the debt-ceiling standoff and potential Fed rate increase are just too much for traders to handle.

In the midst of all this uncertainty, bond markets have miraculously stabilized. That’s thanks to none other than J Pow himself and the anticipation of the next move by the all-knowing Fed. Traders are betting that the Fed is done raising rates, at least for now. But, naturally, if inflation continues to persist, they might change their minds and grace us with yet another rate increase in June.

Europe Economy Watch

In a stunning display of bureaucratic optimism, the European Commission presented its Spring Forecast. The sentiment gave “helicopter mom writes only son’s high school page.” To summarize: the Euro economy is a beacon of resilience in the face of global challenges. Apparently, lower energy prices and a robust labor market have miraculously dispelled any lingering recession fears.

Chief to note is that the Commission revised its GDP projections upwards. Brace yourselves, because the EU is now expected to reach a whopping 1.0% GDP growth in 2023. That’s up from a previous estimate of 0.8%. Looks like 2024 is going to be even wilder with a mind-blowing 1.7% growth. It's like celebrating when your team wins a game even though they get blown out of the series. The euro area also received similar upward revisions, with GDP growth expected at 1.1% and 1.6% for 2023 and 2024, respectively.

Not all member states are basking in the glow of economic prosperity. Ireland is leading the pack with its impressive growth rate. Meanwhile, Sweden and Estonia must be wondering what they did wrong, as they face contractions this year. But fear not, Germany and France are here to save the day with their scintillating growth rates of 0.2% and 0.7% respectively.

As for inflation, well, the bar tab was closed out months ago and EU party-goers are still wondering what happened. With core price pressures refusing to budge, the European Commission has revised its projections upwards. It assured that inflation will gradually decline through 2023 and 2024. Never to be outdone, you won’t want to miss the Commission gate crashing our Independence Day. Its Summer Forecast is set to be presented in July, which will provide updated projections for GDP and inflation.

Japan Producer Prices & GDP

Japan's export growth hit a speed bump in April, and they're not taking it lightly. The exports only managed to rise by a mere 2.6% compared to the same period last year, falling short of the impressive 4.3% increase in March and even below the economists' ambitious forecast of 4.5%. Guess Holmes finally getting shipped off to jail dissuaded them from such aggressive double-digit growth numbers.

Despite what headlines tend to have you think, not all hope is lost. When it comes to regional destinations, exports bound for the U.S. and the EU stole the show with growth rates of 10.5% and 11.7% respectively. Those autos, construction, and mining machinery must be flying off the shelves.

Sadly, the shipments to China and Asia couldn't keep up the pace, continuing their downward spiral with declines of 2.9% and 6.3% respectively. On the bright side, imports experienced their first decrease in 27 months, dropping by 2.3%. It seems Japan's enthusiasm for crude oil and liquefied natural gas imports took a hit. Time to stock up on tissues for all the tears shed over this minor setback.

Still to Come: Future Fed Board Watchlist

Inspired by playoffs, President Biden recently dropped a lineup of his own: future Fed picks. He said he would nominate economists Philip Jefferson and Adriana Kugler to fill key Federal Reserve policy-making roles. Jefferson, who is already a Fed governor, would become the central bank’s second-in-command if confirmed by the Senate. Kugler, a top World Bank official, would join the Fed board.

Let’s dive into each of the picks.

First Pick: Philip Jefferson, The Future Number Two

Philip Jefferson, second-in-command hopeful, is a former academic who magically transformed into a Fed governor last year. Clearly, his extensive experience in academia makes him the ideal candidate for handling the complexities of monetary policy. Practical experience can get so overrated when you can have someone who has spent their life analyzing poverty and inequality. That expertise will come in handy when deciding on interest-rate increases.

Fear not, Jefferson's expertise extends beyond interest rates. He compiled his life’s research in "Poverty: A Very Short Introduction," because nothing says "I'm an expert on poverty" like a concise introductory guide. In all seriousness, we have to respect how quickly Jefferson found a new job after ChatGPT automated him out of his last one.

Ever since joining, Jefferson has been a strong advocate for rapid interest-rate hikes. As the future two to J Pow, his views on monetary policy and inflation align closely with the Chair. Our voting opens soon for a suitable endearing nickname.

Second Pick: Economist Adriana Kugler

Adriana Kugler, a current professor of economics and public policy, would fill a vacancy on the Fed's board. If there’s any trend here, it’s that academia is the best training ground for making decisions that impact the entire economy. When it comes to monetary policy, practical experience in financial markets is no match for someone who specializes in labor and healthcare policy.

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