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AM Notes: Fed, Biden & Apple earnings

Interesting moves in U.S. yields yesterday after another 'OK' 7Y auction...

10Y bonds sold off, with yields rising to 1.63% from 1.58%.

10Y breakevens also pushed higher...

Australia's CPI missed: 0.6% vs 0.9% expected

Westpac

The 0.6% rise in the CPI was softer than Westpac’s 1.0% forecast and the market 0.9% forecast. 

And it was not just due to the unexpected decline in dwelling prices (more below). Food prices were 1.0ppt softer than forecast rising just 0.4% mostly due to much softer fresh fruit & vegetables. There was also the very surprising fall in tobacco prices (-0.6%), not a common occurrence but it did happen in Q1 2019 (-10.7%).

Also surprising was the -1.8% fall in domestic holiday travel & accommodation. It is true that historically domestic holiday & travel prices fall in Q1 but with Australians locked in and travelling more domestically, there were widespread reports of local accommodation lifting prices. Clearly, there are larger factors at play with major international tourism facilities discounting significantly to attract local attention.

Also softer was the 0.4% rise in education prices – our forecast was for a slightly softer than usual seasonal rise of 2.5%.

As noted above housing costs unexpected fell and this was due to widespread use of a range of government assistance schemes both at the State and Commonwealth level.

Looking forward, while we acknowledge the ending of the HomeBuilder Grants will boost the CPI in the June quarter we are still yet to see any broad inflationary pressure. In fact, where we thought we should see some by now has failed to reveal any.

As such, the update today suggests downside risks to our current inflation profile for 2021.

Inflation to the RBA:

AUD fell ~40 pips in response

A far stronger labour market will be required to rebuild aggregate demand and put upward pressure on prices.

The speed of the labour market recovery will be key to the withdrawal of monetary support and subsequent rate hikes...

Commodity exports remained strong in March with a record $14 billion of iron ore exports:

ABS

Westpac expect further easing from the RBA: QE extension to be announced later this year - see no rate hikes until 2025...

RBA say no rate hikes until at least 2024...

Tech earnings - Google & Microsoft

Google (+4.2% in pre-market)

  • Revenue: $45.06B vs $42.61B est

  • EPS: $26.29 vs $15.64 est

  • Operating income: $16.44B  vs $12.02B est

  • Operating margin: 30% vs $22.4% est

  • $50B buyback approved

Increasing ad sales was the big driver.

Microsoft (-2.6% in pre-market)

  • Revenue: $41.7B vs $41.05B est

  • EPS: $2.03 vs $1.78 est

  • Intelligent Cloud Revenue: $15.12B vs $14.94B est

Looks decent... So why did Microsoft sell off when Google didn't?

“the top line beat was perhaps a bit below buy-side expectations,”

- Evercore

Coming up today, the main events are Biden's speech, FOMC, plus Apple & Facebook earnings after the close...

Biden's speech is essentially a delayed state of the union address.

Although it's unlikely to tell us anything we don't already know about Biden's plans (raise taxes, spend a bucketload on infrastructure and another couple of trillion on the American families plan)

Getting these plans passed is another matter altogether.

The problem with taxing the rich?

It only works if they're not voting for you...

FT

All are Democrat states except Idaho, Montana & Nebraska

Tax hikes are coming, but they will likely be far lower than the current suggestions.

This is what Biden's done so far 👇

Yesterday he also signed an order increasing the minimum wage to $15 for all government contractors by March 2022...

AND he's created a task force to promote labor organizing, including over 20 heads of agencies and cabinet officials, such as Defense Secretary Lloyd Austin, the White House economic advisers Cecilia Rouse and Brian Deese, the White House climate adviser Gina McCarthy and Treasury Secretary Janet L. Yellen.

"The President and Vice President believe that the decline of union membership is contributing to serious societal and economic problems in our country,"

Busy boy...

FOMC: IT'S TOO SOON EVERYONE... CHILL!

bviously we've got to keep an eye out in case there's some disagreement in the minutes, Powell slips up, or starts defining conditions for 'substantial progress/taper, but odds are VERY low that comes tonight.

The messaging has been consistent for months, and theres no reason to expect that to change until another big chunk of the ~8.5 million job losses are recovered...

June meeting looks a far better prospect for hints as Tim Duy notes:

Goldmans think roughly the same...

Everyone is obsessing over inflation while the Fed have made it clear that the labour market recovery is most important...

(As with the Australia example, it's hard to sustain inflationary pressures without a tight labour market)

Still a way to go on that front...

 The Consumer Confidence report is always quite interesting and once more it is showing some strong inequality and let's say dichotomy in the US recovery.

That is something Powell will continue to stress (job recovery is not good if it still prolongs job inequality). pic.twitter.com/OHUifF2PvN— tanguy bretagne (@pauleluard) April 27, 2021 

The K-shaped employment recovery needs to become more V-shaped to satisfy the Fed...

Financial conditions are about as loose as can be...

“As it relates to the bond market, I’d be concerned by disorderly conditions in markets or by a persistent tightening in financial conditions broadly that threatens the achievement of our goals,” - Jay Powell, March 2021

Nothing for JP to worry about for now, but this caught my eye 👇

 Important to keep in mind what is driving the ship here. Showing 12/31/19-today you will notice the most dominate factor driving this FCI basket lower is equity market performance while the dollar has tightened since January 21' https://t.co/IPHJghkF9Q pic.twitter.com/rH28YchUIJ— Magnus Macro (@MagnusMacro) April 26, 2021 

Wrapping up, today's earnings calendar

And some Apple previews via the always awesome PriapusIQ 👇

Highlights from the April 24th 'Spring Loaded' Apple Event

And this dropped this morning 👇