All about CPI today
April 12, 2023
–CPI today expected 5.1 to 5.2 yoy from 6.0 last. Core expected 5.5 to 5.6 from 5.6 last. Ten year auction. Fed minutes from March 22.
–Yesterday 2/10 pushed to a recent low of -62.2. with the 2y up 5.3 bps to 4.054 and tens +1.7 to 3.432. At the low on March 8 it was just under -108. After SVB, 2/10 rallied to -40 by March 24. Yesterday NY Fed’s Williams emphasized inflation and said another hike would be appropriate, but Austan Goolsbee, the new Chicago Fed President was much more circumspect:
“Today, I want to explain why I think that at moments like this, of financial stress, the right monetary approach calls for prudence and patience—for assessing the potential impact of financial stress on the real economy.
The reason to include financial conditions in our monetary policy discussion is that history has taught us that moments of financial stress, even if they don’t escalate into crises, can mean tighter credit conditions. These can have a material impact on the real economy in a way that the Fed absolutely needs to take into account when setting policy.”
–The market continues to lean toward another 25 bp hike at the May 3 meeting. (FFK3 9501s vs current EFFR 483 or 9517). There are many indications that banking sector stress is being discounted. For example, in the immediate aftermath of SVB, near atm straddles in SOFR actually traded at higher nominal premiums than red midcurves with the same expiration dates. I just chose March 14 as a comparison date, when atm SFRM3 9537.5^ was 93 while 0QM3 9625^ was 96. (June’23 had previously traded higher). SFRU3 9562.5^ was 121.5 with atm 0QU3 9650^ 116.5. These relationships are now reverting to more normal levels: SFRM3 9500^ is 33, fully 40 bps below 0QM3 9650^ at 73.0. However, SFRZ3 9562.5^ is still nominally above 0QZ3 9687.5^, 108 compared to 104.5. My interpretation is that immediate panic has subsided, but the situation is fluid going into year-end.
–Major banks report on Friday and it will be interesting to hear comments on recent turmoil. JPM, C, PNC, WFC, BLK.
–This last part is about Walmart’s decision to close 4 stores in Chicago… immediately after the election of Brandon Johnson as mayor.
The simplest explanation is that collectively our Chicago stores have not been profitable since we opened the first one nearly 17 years ago – these stores lose tens of millions of dollars a year, and their annual losses nearly doubled in just the last five years. The remaining four Chicago stores continue to face the same business difficulties, but we think this decision gives us the best chance to help keep them open and serving the community.
https://corporate.walmart.com/newsroom/2023/04/11/walmart-announces-closure-of-four-chicago-stores
Losses nearly doubled in the last 5 years! (Lori Lightfoot/Kim Foxx). The press release doesn’t mention loss due to repeated theft, but in December, WMT CEO Doug McMillon told Squawk Box that as a result of shoplifting, higher prices and closed stores could occur. “Theft is an issue. It’s higher than what it has historically been.”
Again from the WMT press release,
Community and city leaders have been open and supportive as we met with them over the years to share these challenges. As we looked for solutions, it became even more clear that for these stores, there was nothing leaders could do to help get us to the point where they would be profitable.
I don’t know about you, but to me, that sounds an awful lot like a big F you. Welcome to the top job Mayor Johnson.
