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Good afternoon,

The most important FOMC of our lives is this week. Until the next one. 

“Sell in May and Go Away” is the adage on the street this week, as the stock market has historically performed weak during the six-month period of May through October. So blame the dip on something else besides this week’s battle of the central banks.

Let’s dive in.

Economy Heat Check

As of 4/28/2023 market close, unless otherwise stated.

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Bad News Briefings

Market movers like to bury bad news on Friday afternoon, so we've decided to excavate them. 

• PNC, JP Morgan put in final bids for First Republic in FDIC auction (CNN)

• Amazon now charging fees to return items (USA)

• U.S. Secret Service reveal that the agency may be tracking websites like OnlyFans

• Manchester United receives a final bid of ~£5B ($6.3B) from Sheikh Jassim (Sky)

• San Francisco to give $3,000-$8,000 to open pop-ups in empty downtown storefronts (SF)

• Saudi wealth fund eyes Flynas stake to bolster tourism (BBG)

• Steve Cohen “hired best team money can buy” to win New York casino license (NYP)

• IRS will not hire “any armed auditors” but "criminal investigators” with new $80B funding (IRS)

Performance Review

Firm updates your bank may be less inclined to disclose. 

• Citi’s Global Head of FX, Stuart Staley, leaving after 20 years (Trade) 

• HSBC promotes Citi director into hardest job in Hong Kong (EF)

• Credit Suisse bonuses paid in the style of the AT1 bonds wiped to zero in UBS takeover (BBG)

• Point72 paying $300k salaries to quant teachers (EF)

• JPMorgan promoted 37 new MDs in its corporate and investment bank (FN) 

• Credit Suisse bankers getting worried about their UBS prospects (FN)

• Deutsche Bank to buy some Credit Suisse businesses (BBG)

• Wells Fargo hired Joe Greeves, a software banker from BofA (BBG)

• UBS CEO Sergio Ermotti became chairman of Swiss Re until yesterday (FN)

• Deutsche Bank to cut ~800 senior back-office staff (BBG)

• Jefferies entered into strategic alliance with Sumitomo Mitsui, covering M&A, Leveraged Finance and Equity Capital Markets in Asia; SMBC plans to become Jefferies' biggest shareholder (PR)

Week Ahead: Signal to Noise

Next week’s market outlook and whether you should actually care. 

Signals 

FOMC Meeting

The US economy currently looks about as strong as a Senior Associate who forgot how to spell Equinocks. With the Fed and two-thirds of economists predicting a recession, that puts FOMC voters in an uncomfortable position this Wednesday of deciding whether to continue the inflation fight or try to cushion a slowing economy.

The odds are still in favor of the Fed raising rates by another 25 basis points. And even though everyone's wondering whether this hike will be followed by more hikes or if it's just a one-time fling, Fed members are still talking tough. 

With Wednesday’s FOMC nearing, there's a question looming in the air: What's going to happen as the aggressive tightening policy comes to an end? 

Well, in the past, buying stocks at the end of hiking cycles worked in low-inflationary environments. But that past, since the 1970s, has also shown that stocks have fallen three months after tightening cycles end. 

Regardless of what Twitter-verified CFAs are screaming, we're not gonna see any major changes until unemployment spikes or wage growth falters. Meanwhile, investors are yanking their cash out of mid-tier banks like they're trying to start their own money mattress.

US Nonfarm Payrolls Report

JOTS job openings, ADP employment, initial claims data and the employment indices from the ISM manufacturing and services PMIs all arrive ahead of Friday’s Nonfarm Payroll Report (“NFP”). In other words, time to nap until Friday, in case you didn’t get off the desk during last week’s Big Tech earnings.

Sure, that leaves plenty of opportunity for some moves ahead of NFP as traders try to guess the magic numbers. With markets sensitive to weak US economic data, USD bears could pounce at any whiff of weak employment data. Especially if there appears to be a trend. 

NFP job growth is currently expected to fall to a post-pandemic low of 181k while unemployment rises to 3.6%. Though that signals a slight deterioration of the employment sector, don’t expect it to be enough to warrant a dovish undertone by the Fed when it presumably hikes by 25 bps on Wednesday.

ECB Interest Rate Decision

The six hikes of this tightening cycle have seen the ECB raise interest rates to 3.5% - its highest level since last 2008. Like the Fed, ECB members have continued to make hawkish noises ahead of this week’s meeting on Thursday, May 4th. 

The lack of forward guidance in March means the increment the ECB will choose to hike still remains up in the air. After two consecutive 75 bps hikes, the ECB then dropped to 50 bps over its past three meetings. So, it’s all still possible we could see them drop to 25 bps this week.

RBA Meeting 

“Not soft, but softer” was the story of the latest Australian inflation data. That provides the RBA (Reserve Bank of Australia) an excuse to wriggle out of another hike in its meeting this Tuesday, May 2nd. 

Q1 inflation for Australia came in softer-than-expected, seeing cash rate futures price in 100% odds of another RBA pause. Rates remain very low at 3.6%, compared to other central banks and levels of inflation in Australia. Though the RBA has hiked at 11 consecutive meetings, they seem happy to pause to see if or when the current hikes make a material impact on the economy.

Noise 

Monday, May 1:

• US: S&P Global Manufacturing PMI; Construction Spending

• Canada: S&P Global Manufacturing 

• Japan: Japan Manufacturing PMI 

• Australia: Manufacturing PMI 

• New Zealand: Household living costs; Property transfer statistics

Tuesday, May 2:

• US: ISM manufacturing PMI; JOLTS Job Openings; Manufacturers’ Shipments, Inventories & Orders

• EU: Consumer Price Index (flash); Manufacturing PMI (Eurozone, Italy, France, Germany); Intra-EU trade in goods

• UK: Nationwide House Price Index

• Switzerland: Consumer Confidence

• Japan: Monetary Base

• Australia: Australia Services PMI 

Wednesday, May 3:

• US: ADP National Employment Report; ISM Services PMI; S&P Global Services PMI; Q4 Residential Vacancies and Homeownership

• EU: Industrial turnover; Building permits; Unemployment

• Japan: Consumer Confidence 

• Australia: Retail trade

• New Zealand: Labour market statistics

Thursday, May 4:

• US: Initial Jobless Claims; Conference Board CEO Confidence; Weekly Economic Index; Productivity and costs; International Trade in Goods and Services

• Canada: IVEY PMI; Trade balance

• EU: Natural gas supply; Energy trends; Industrial producer prices; Eurozone Composite and Services PMI (Eurozone, Italy, France Germany); Trade Balance (Germany)

• UK: Services PMI; BOE David Bailey speech

• China: General Manufacturing PMI 

• Australia: International Trade in Goods and Services

• New Zealand: Labour market; Building consents

Friday, May 5:

• Canada: Employment report

• EU: HCOB Construction PMI (Eurozone, Italy, France Germany); Retail trade; Industrial import prices; Service turnover; Industrial producer prices; Service production; Industrial Orders (Germany); Manufacturing Output (Germany)

• UK: Construction PMI 

• Switzerland: Consumer Price Index, Employment situation, FX reserves

• China: General Services PMI 

• Australia: Lending Indicators (Housing, Construction)

Lit's Picks 

Macro watch this week.

• White oak shortage could ruin the bourbon industry (BBG)

• PEPE, an altcoin (memecoin) created 15 days ago, reached over $300M market cap Friday

• “Sell in May and Go Away” could miss big summer rally (BofA)

• ECB expected to increase the pace of QT (quantitative tightening; according to Fitch)

• Oil prices closed the “OPEC production cut” gap to send WTI to a 17-day low and beneath $77

• BOJ left policy unchanged under new Gov. Ueda, whose bungled press conference and year+ timeline to review its policy led to a major yen sell-off 

• RBNZ proposed the easing of macroprudential requirements to help stabilize their falling housing market

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