The hope that US inflation has been tamed was rebuked with the CPI data released yesterday. US CPI month over month rose 0.4% or 4.8% annualized, more than double the Fed’s target rate and the second month of hot data. Wage growth came in at up 4.3% from the year. Now market watchers will focus on the PPI which comes out tomorrow. While there was an increase in the Unemployment rate to 3.9% from a forecast of 3.7%, this rise was due to a large number of ‘illegal immigrants’ entering the workforce looking for part time jobs so that they can take care of their families while waiting for their immigration asylum hearings. There was a healthy increase in jobs in February (275K jobs) but all were part time jobs and many people have taken more than one job to make ends meet. Full time jobs fell again as layoffs across the US at large corporations continue. Of concern for the public is that necessities (like apparel which has seen a 9.8% increase) are rising in price faster than the CPI rate and that key high cost items like college and medical care (up 5.8%) are rising much faster than the official numbers. Add to that the recent increase in crude oil prices (up nearly US$8/b over the last month from US$71.41/b to today’s US$79.23/b) that has yet to hit the CPI and PPI data. 

Chairman Powell’s comment that the Fed ‘is getting close’ to start lowering rates which he mentioned in his Congressional testimony now looks premature. Unless upcoming inflation data cools off materially there may not be a rate cut ‘pivot’ in June. 

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

• Of the increase in jobs over the last few months 1.2M came from ‘foreign born’ migrants who have taken jobs in the US to survive. Part-time jobs increased (921K) and full-time jobs have fallen (234K). Many companies that had hiring problems due to the type of job not wanted by local residents have gone to migrants. For example, Tyson Foods plans to hire over 180K migrant workers and already employs 42K immigrants. The non-profit ‘Tent Partnership For Refugees’ is leading this hiring initiative. The group is made up of large corporate entities. 
• Softness in small business measures may be an early sign of a soft landing or recession. Recently Jamie Dimon of JPM said a recession is ‘not off the table’. As he runs the largest US bank he may be seeing things from his business as a warning to the current complacency. 
• The US government’s spending spree continues with a spend of US$100B in just under a week. US debt has now risen to US$34.5T up US$11.2T since 2020. At the current pace of spending in this election year, the US deficit for this fiscal year could exceed US$3T. The interest cost alone will eat up the largest part of government spending, rising over US$1T annually. 

On the wars front:

• Ukraine used drones to attack critical infrastructure in Russia. Military targets were hit but the most damage was done to three key refineries. These were the Ryazan, Kstovo and Kirishie oil refineries. Damage was significant but Russia says they are back working. How much capacity they can run at is the issue now. These moves by Ukraine or to show the Russians that they can’t attack Ukrainian infrastructure without fearsome retaliation. The attacks continue as the ground battle in eastern Ukraine seems to be moving in Russia’s favour as Ukraine has limited munitions as it awaits US and EU weaponry. 
• The US and other nations have started a large move to increase shipments of food aid to Gaza. The first shipment arrived from Cyprus and was sent by a food NGO.
• The Houthis continue to attack shipping in the Red Sea and the Gulf of Aden. 
• President Biden is getting frustrated by Prime Minister Netanyahu who is not listening to US advice on how to handle the humanitarian crisis in Gaza. The US has warned him repeatedly that Israel should not attack Rafah unless the 1.5M refugees can be moved to a safe place. Netanyahu plans to attack in April if all Israeli and international hostages are not released in a prisoner exchange and a ceasefire of some duration. Biden is now mulling conditions on military aid if an attack occurs. The US ‘Red Line’ may be the first breach of the long standing US-Israeli relationship. Over the coming weeks the US will have installed a pier in Gaza to bring large regular shipments of food into Gaza.
• Attacks by Hezbollah into Israel have escalated and their aggression is getting to an Israeli critical point that they say would necessitate significant retaliation. If it occurs we may be looking at a new phase of this war. This would be much worse than the battle against Hamas, as Hezbollah has more fighters and over 150K missiles and drones.  

Market Update:  We await general stock market weakness 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.