Earnings Season

Rangebound Ahead of Earnings

The price action in April has been rangebound which has been a disappointment as seasonality this month is typically some of the best on the calendar. You can see in the chart below the sideways trading this month and we await a decisive break of this range (4172/4097) before anything interesting gets going in the technicals.

S&P 500 Futures by @kiscocap

We did get the CPI/PPI inflation data this week and price increases are cooling and that means the Fed will have the leeway to end this rate cycle in the coming months. Consensus is that we will get another 25bps at the May meeting and the recent appearances by Fed Governors hint that this will be the next and maybe last move higher. However, Fed Funds futures also show there may be rate cuts this year so that adds to the uncertain nature of this market environment.

Earnings reports will be the focal market for the next few weeks so that will shed some light on how the economy is dealing with the sharp rate increases since last summer. Also, China is coming back online as evidenced by their export numbers and that is a good sign for global trade and the supply chain.

The Yield Curve

A very funky curve right now and notable is the 1Mo tenor that is much lower than all the other T-Bill yields. This may mean concern over earnings, Fed policy or bank balance sheets. It could also be cash left over from Q1 that is yet to be deployed but it all amounts to uncertainty over the path of this economy. And maybe depositors are grabbing higher yields than received on their checking/savings accounts. Either way, the yield curve is inverted and that predicts a slowdown of some kind in the coming year.

Economic Data

  • The March CPI on an annualized basis was up 5% from a year earlier, easing from February’s 6% pace and the slowest since May 2021. But core prices, which exclude volatile food and energy and which central bankers see as a better gauge, were up 5.6%, accelerating slightly from February’s 5.5%.
  • China’s exports in March were dramatically better than expected and up 14.8% compared to last year (estimates were down 7.1% so this was an unexpected swing). Exports within Asia and Europe led the way as China re-opens their economy post COVID.
  • U.S. supplier prices fell in March by the most in nearly three years, the latest evidence that inflation is moderating. The producer-price index, which generally reflects supply conditions across the economy, fell 0.5% in March from the prior month, the Labor Department said Thursday. From a year earlier, supplier prices rose by 2.7% in March, a significant slowdown from highs reached last year, but above prepandemic levels. (WSJ)
  • March PPI in Japan rose 7.2% and down from 8.3% in February.
  • The oil market will fall into a far larger oil deficit due to surprise production cuts from some of OPEC’s leading members, the International Energy Agency said Friday. The gap will reach 2 million barrels a day by the third quarter of the year, the Paris-based energy watchdog said. The gap could potentially send crude prices sharply higher and worsen inflation expectations.
Paul J. McCarthy III

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Paul J McCarthy III

President, Kisco Capital

Paul McCarthy

Mr. McCarthy is the President and founder of Kisco Capital.