Et tu Dollar General?
June 2, 2023
–Vol crushed yesterday as debt-ceiling legislation passed. Skew came in. For example SFRH4 up 7.5 at 9569.5, 9600c only +1 (49.5), 9650c up 0.25 (35.25) and 9700c unch’d (24.75). Some calls marked lower on the day even on the rally. Curve edged steeper with the 2y yield down 5 bps at 4.337% and tens -3.2 at 3.605. On SOFR curve: reds +6.75, greens +4.125, blues +3.375. Yesterday’s Unit Labor Costs up only 4.2%. ISM Prices paid plunged to 44.2 versus 54.3 expected. ISM Mfg was 46.9…these are pretty much at the lowest levels outside of covid.
–Employment report today with NFP expected 190k and yoy Avg Hourly Earnings 4.4%, same as last.
–Dudley penned an early morning opinion that the Fed should keep going. On the other side, late in the day Harker echoed Jefferson for a pause. After a string of crappy retailer reports citing a weakening consumer, yesterday Macy’s and Costco, Harker said, ‘retail reports are weak….LET’S JUST SKIP A MEETING, see how it goes…’ You know, ‘let’s just WING it!’ It reminds me an awful lot of friend YZ saying, “Let’s run it through the model: * takes coin out of pocket and flips it * BUY”. On the other hand, it’s one thing if a bunch of retailers like HD, TGT, COST warn, but when Dollar General (DG) gets whacked 20% on the session, you KNOW there’s a problem.
–The Fed used to remind us that FF rate change policy is a blunt tool. What’s it supposed to do? Change behavior…eventually. COSTCO said that customers substituting into cheaper goods, which has been common in previous recessions. I.e. the consumer IS changing behavior. The most notable change has been pulling excess funds out of low interest rate bearing bank accounts into high yielding money markets. A friend of mine used to run a gym and say people wanted instant results. He’d respond, “it took you several YEARS to fall out of shape. It’s going to take a while to get you back”. It works with a lag.
*** No missives until middle of next week
