WEEKLY | AWAITING FOR THE FEDERAL RESERVE

The month of May saw record highs in the three major US equity indices with the Dow accumulating a +2.6% return year-to-date 2024 while the S&P 500 accumulated a +10.6% rise and Nasdaq, led by companies whose exposure to artificial intelligence is deep, closed the fifth month of the year at +11.5%. In between the 10-year sovereign rate closed at 4.5% adding +60 basis points since the beginning of the year as inflation started to move horizontally in the first quarter of the year. In the metallurgical world, the price of copper accumulated a 19% increase closing at US$4.62 per pound while gold was another clear gainer, rising +13.3% to US$2,350 per ounce. But the month was not only accompanied by higher demand for equities, but we had a series of mega transactions in the energy and telecommunications sectors ratifying that there is still room to continue rising, as long as the Federal Reserve's (FED) discourse does not change drastically in its next monetary policy meeting on June 11 and 12.

In the political arena, former President Trump and Republican presidential candidate, Donald Trump, was charged with 34 felony counts, the first former president in the United States to be criminalized.

In Mexico, the ruling Morena party won by a large majority, leaving its first woman president, Claudia Sheinbaum, at the helm, while in South Africa, the ruling ANC party lost its parliamentary majority.

This week the focus will be on the May employment data to be released on Friday, where the unemployment rate is expected to remain at 3.9%, the generation of new jobs at 170 thousand and wage growth at 3.9%. If the latter figure comes in below its current level, the market will react favorably, as it is this last factor that can accelerate the fall in inflation. On the corporate front, Campbell's, Crowdstrike, Docusign, JM Smucker, Lululemon and Nio, among others, will be reporting their quarterly results, formally closing the quarterly results season. In addition, at some point the U.S. regulatory authorities will have to pronounce on the market behavior of stocks such as AMC, Gamestop and Blackberry, whose prices have shown an extraordinary degree of volatility. Today in the premarket the Gamestop share price is up almost +80% as a result of the intervention again of Keith Gill (Roaring Kitty) through social networks. At this point, it is to be expected that in a few more weeks some hedge fund that chose to intervene in these shares will be short of liquidity due to the losses it will have generated. This will eventually force the regulators to make another pronouncement.

On the macroeconomic front, last Friday saw the release of consumer-related inflation (PCE) data, the Fed's preferred inflation reading. The headline figure closed at 2.7% while core, which excludes food and energy prices, came in at 2.8%, both unchanged. But what we did see last week was a slight change in discourse by more than one Fed representative with the most vociferous being Minneapolis Fed President Neel Kashkari, who argued the following: 

At this point, my best guess is that we would leave [rates] here for an extended period until we get a lot more data that convinces us, one way or another, that core inflation really is on the way down.

The Fed representative was blunt in mentioning that inflation remains a problem, arguing that:

The economy in the United States is quite strong, the labor market is strong, inflation is coming down, and many, many people are deeply unhappy with the state of the economy. I think it's because of the high inflation they've experienced.

This was the general tone of other Fed policymakers entering the quiet period ahead of their next meeting next week with it leading to the market now only estimating two rate cuts of 25 basis points each in the second half of the year from its current 5.5%. This is why the 1-year sovereign rate continues to hover around 5.2%. In turn, and something that should have market players on alert, was the announcement by JP Morgan Chase that 3% of the short-term sovereign fixed income market is controlled by the giant Berkshire Hathaway, who with just a couple of large sales of its positions could shake up the fixed income markets quite easily. The financial institution noted that: 

Berkshire Hathaway currently owns more Treasury bills (short-term T-Bills) than international organizations, stablecoin issuers, overseas money market funds or local government mutual funds.

Maybe Berkshire's next big gain will come from fixed income rather than equity positions.

In turn, on the political front, without entering into the discussion about whether or not the trial of former President Trump had anomalies and may have been administered with the intent to intervene in the U.S. presidential election results on November 5 by the Biden administration, it is clear to all that this legal process, with the criminal convictions imposed, will generate a political turn in the country. Indeed, there will be a second and third round about jury imposition in other legal venues, which could reverse Trump's criminal legal ruling. However, should Trump win the election, since the ruling does not prevent him from becoming president again, he is certain to use the full force of his prospective administration to pass some bills to the Democratic party. The more centrist wings of both political parties have been more cautious in their appreciation of how this ruling in New York City will alter the political arena having used the legal system as an instrument to criminalize a former president using a series of paths without legal precedent.

On the corporate front, the oil company Chevron reached an agreement to buy Hess for US$52 billion. T-Mobile agreed to buy US Cellular for US$4.4 billion and Merck reached an agreement to buy Eyebio for US$1.3 billion, so it would appear that M&A activity entering the summer period has gained traction.

In conclusion, regardless of the return of the equity market and corporate activity, everyone will be waiting for the Fed's decision and subsequent statement next week.    

THIS WEEK 

Monday (June 03)

Quarterly Reports

• GitLab Inc.

• HealthEquity, Inc.

• Cosan S.A.

• Nordic American Tankers Limited

• Kenon Holdings Ltd.

Economic Reports

• ISM Manufacturing Purchasing Management Index Report.

• ISM Manufacturing Employment Index Report.

Tuesday (June 04)

Quarterly Reports

• CrowdStrike Holdings, Inc.

• Ferguson plc

• Woodside Energy Group Limited

• Hewlett Packard Enterprise Company

• Bath & Body Works, Inc.

Economic Reports

• Job Openings Position Change Report

• Vehicle Sales Report

• Annual Red Book Change Report

Wednesday (June 05)

Quarterly Reports

• lululemon athletica inc.

• Thor Industries, Inc.

• Dollar Tree, Inc.

• Brown Forman Corporation

• Campbell Soup Company

Economic Reports

• ISM Service Sector Purchasing Management Index Report.

Thursday (June 06)

Quarterly Reports

• Samsara Inc.

• Toro Company (The)

• NIO Inc.

• DocuSign, Inc.

• The J.M. Smucker Company

Economic Reports

• Trade Balance Report

• Exports Report

• Imports Report

• Initial Unemployment Assistance Report

Friday (June 07)

Quarterly Reports

• QIWI plc

• Graham Corporation

• Cheetah Mobile Inc.

• OneMedNet Corp

• Hurco Companies, Inc.

Economic Reports

• Nonfarm Payrolls Report

• Unemployment Rate Report

Now you have more information about your investments. See you next week with more news.

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