Mixed economic data in the US continues with some data showing a slowing economy but others indicating inflation reversings to the upside. This stagflation pivot is not what the bond and stock market want to see. Forecasters are now indicating that the first cut would occur in June only if the data on inflation levels out and/or declines again. With crude oil prices rising, we have not seen their impact yet in the economic data so we don’t see a rate cut in June. If food, energy, rent and wages persist to the upside then we may not see a rate cut at all in 2024. That is not what the street is expecting. From an early 2024 view that there would be six or seven cuts in 2024, that view has changed to three cuts in 2024 after recent higher inflation data. Tomorrow’s PCE data will be closely watched as this is the Fed’s most favoured indicator of inflation. 

So let’s go through the recent economic & political releases of significance. 

• US Q4/23 GDP was revised to increase 3.2% from the prior forecast of increasing 3.3% and is below Q3/23 GDP growth of 4.9%. A slowing trend but still quite positive versus the rest of the OECD world. 
• The GDP Price Index for Q4/23 rose 1.7% versus the forecast of a rise of 1.5%. 
• The US Trade Balance came in at a negative US$90.2B versus US$88.5B in Q3/23. 
• Friday we get the employment data for February and a number of 185,000 new jobs are expected. Will most of these jobs be part-time? How will this data point compare to the Household survey which showed a decline in January of 31,000 versus the nonfarm data which showed a rise of 353,000 jobs. 
• US Household debt rose 14.5% over the last year to US$1.13T as consumers borrowed to keep up their standard of living. These are unprecedented borrowing levels and are unsustainable. 
• Bank of America’s CEO, Brian Moynihan issued a warning that mortgage rates could rise further. He sees rates moving up to 7% if inflation persists. A more dire warning was that the Fed could opt to raise interest rates further posing a threat to the US economy and the stock markets. He sees higher interest rates as a lasting reality. If the CPI and PPI spike in future months then his dire warnings may become reality. The Atlanta Fed has a survey of ‘Sticky Prices’ which indicates that 70% are sticky (including rent, insurance and food away from home). 
• We are watching sizable selling by insiders and this week we see that the Walton family (Walmart shareholders) sold US$1.5B of stock. 
• US Durable Goods Orders fell 6.1% in January led by a sharp decline in orders for airplanes at Boeing due to their reliability concerns. Excluding transportation Durable Goods Orders fell just 0.3%. They were forecast to rise 0.2%, so a slowdown is occurring. 

On the wars front:

• President Biden is pushing for a ceasefire deal in Gaza to commence before Ramadan starts on March 10th. The plan as outlined would see the releases of all civilian prisoners and all female soldiers in return for Hamas prisoners in Israeli jails and more food aid to enter Gaza on a regular basis. Israel and Hamas don’t seem to be on the same page as President Biden. Israel in the meantime continues to plan an invasion of Rafah to get the last of the Hamas leadership and battalions of terrorist fighters. Hamas in the meantime continues to fire missiles into Israel. 
• Iran accuses Israel of bombing two gas pipelines in Iran to further destabilize the country’s economy. 
• Israel striked Hezbollah targets in northeast Lebanon as it targets terrorist leaders in the area. 
• The Houthis after being hit repeatedly by allied forces continue to have the capability of hitting targets in the Red Sea and the Gulf of Aden. So far the allied forces have not been able to degrade the fortified mountain hideouts of the Houthis. They are using these bases to launch effective missile and drone attacks. A cargo ship was hit in the Gulf of Aden and has a large oil slick creating an environmental disaster in the area.
• There are reports that the Houthis have cut undersea internet cables connecting Europe and Asia. The Houthis have denied this yet traffic has been affected. 
• Russia and North Korea have expanded their trade with North Korea getting food, fuel and parts used in weapons manufacturing and in return Russia is getting containers of munitions (ballistic missiles, artillery shells and other military equipment that Russia needs). The US believes that Russia has received containers holding 3M rounds of 152 mm shells for their artillery. Shipment of the containers is by sea to a Russian port 180 KM north of the North Korean shipyard handling the containers. This trade has been very important for North Korea due to the severe sanctions it faces. 
• Some European countries have announced that they are considering sending troops into Ukraine. This has been confirmed by President Macron of France. If this occurs then we are looking at Russia fighting NATO and this would be a severe escalation of the war and could be considered the start of a world war.  

Market Update:  We await general stock market weakness in the coming months as markets are extremely overbought due to the AI craze. When the general stock market retreats energy stocks, which are high beta, should weaken further and test the lows of early December. When that happens be ready to buy the bargains that develop across all markets. If you want to see what our subscribers are looking at, sign up now for access to the Schachter Energy Research reports.