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The UK is rejecting a 69 (billion pound) opportunity in Microsoft’s Activision deal, dozens of companies that went public via SPACs are heading to bankruptcy court, and some rapper less relevant than J Pow during a blackout period is heading to jail for 1MDB. 

The countdown to the death date of the eurodollar is on. 

Let’s dive in.

Economy Heat Check

As of 4/26/2023 market close, unless otherwise stated.

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Briefings

• Bristol-Myers CEO Giovanni Caforio to step down (WSJ) 

• Microsoft stock heading for record price gain (MarketWatch)

• Microsoft purchase of Activision Blizzard blocked by UK (Gov) 

• Teck Resources scraps restructuring vote as it faces pressure from Glencore bid (FT) 

• Citizens Financial CEO rebuffs idea of takeover by a megabank (BBG) 

• First Republic faces potential curb on borrowing from Fed (WSJ) 

• Citadel money manager exits to join Biden’s push for chips (BBG) 

• Former rapper convicted in scheme tied to 1MDB (WSJ)

Expectations Reset: BOJ Decision & Aussie CPI

The yen slid as new Bank of Japan (BOJ) Governor Ueda seems set to stick with its ultra-loose policy. There’s a new BOJ Governor on the block, and he’s prepared to do the opposite of anything in his first policy meeting Friday. 

On Monday, Gov. Kazuo Ueda announced that he intends to maintain monetary easing for the time being, as he anticipates a slowdown in inflation in the near future. More or less telling us not to tune in Friday (your Thursday night), the market's attention is now focused on any initial changes following the BOJ's leadership transition. 

Most economists expect interest rates and asset purchases to be just as stand-still as current BOJ policy and remain the same. Ueda stated that the need for monetary easing is still present, but he expects inflation to fall below the central bank's target of 2% by March 2024. It's a refreshing bit of realism we expect to quickly evaporate after his first meeting with the Fed or BOE, both of whose life coaches have them convinced can get inflation down to 2% by the end of this year.

Australia's inflation rate has fallen from its December peak, with annual price increases of 7% for the year to March. CPI inflation slowed in the March quarter, with the quarterly rise being the lowest since December 2021. That’s down from last quarter’s 7.8%. 

For Aussies, furniture, appliances and clothes are getting cheaper. And, if you live or plan to be heading down under, be prepared to pay more for medical services or education. As for gas prices, well, better start saving up for that road trip because it's not getting any cheaper anytime soon.

Still to Come: Death Date for the Eurodollar & US PCE

Tomorrow, it’ll be LIBOR no more. This Friday marks the end of an era as the LIBOR (London Interbank Offered Rate) borrowing benchmark bids farewell. And if that wasn't enough to make you shed a tear, eurodollar futures and options – a favorite of traders in the US interest-rates market – are also being axed. 

Not to despair, because as you all know and love from the Heat Check in each newsletter, there’s been a new benchmark in town. In case you just never cared to Bing-search it, the Street knows her as SOFR (Secured Overnight Financing Rate). Though eurodollars used to be the big man on the block, they'll all be converted to SOFR futures or options. 

To put things in perspective, open-interest in SOFR products is approximately 50 million, while eurodollars were down to a measly 7 million as of last week. So, remember to pour one out for LIBOR at Miami Tech Week.

The so-called core PCE deflator, the Fed’s preferred inflation gauge, is expected to show price growth cooled tomorrow. The expected outcome for March's core PCE is a 0.3% increase compared to the prior rate. The annual measure is anticipated to decrease by 0.1% to 4.5% year-over-year. 

In actual words, the data is likely to confirm the ongoing process of gradual disinflation in March. But, the core run rate is expected to remain higher than the Fed's target. While the CPI release showed a slight increase in core goods prices in March, this is offset by modest disinflation in shelter, which has a smaller weight in the PCE than CPI. So, expect the monthly inflation rate to remain unchanged.

A Lit Thank You

Thank you, from the front to back office inside Eight Ball, to those of you who took the time to provide feedback in our recent performance review. You’re all built different, but most had similar opinions and ideas. 

We’re still getting the final vote from shareholders on new edits, which we’ll let you know soon. In the meantime, you can always respond to any email to let us know your thoughts. Alternatively, we’ll always keep the poll at the bottom of each email. Thanks again.

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