Travel is essential for travel companies, not consumers

Stocks had a mixed close with slight gains and losses across the board as traders sat tight in an information vacuum with little to trade on. Fed speakers continue to circle around the higher for longer mantra – remember what they say is what you usually get.

Overseas cousins. But for the weekly job numbers, the stream of tradable information continues to underwhelm traders. The quiet time, in some cases, is healthy for markets that have made recent big moves in either direction. After four-in-a-row days of positive gains for stocks through Tuesday, traders need to stop, look around, regroup, take in some victuals, and prepare for the next slog, hopefully up. The technical Wall Street term for that is consolidation, which is precisely what we would expect after recent gains. Tomorrow we will get the preliminary release of University of Michigan Sentiment which is an important and very current litmus test of consumer confidence. It can be a market mover and it has been holding up rather well since the start of the year, maintaining its shallow ascension trend which bottomed sometime in the summer of 2022. That said, we have a long way to go to get back to 2019 levels.

You all know by now that my early morning escapades which result in this newsletter start with a couple of seriously strong espressos, hand pulled before the birds of spring begin their morning chirps. That is followed by a hard look at the UK and EU markets as they are taking their morning tea and espresso, respectively. They are just getting their trading sessions off to a start, and there are often some good insights to be had and applied to Wall Street’s later open. That said, as I take quill to ink and begin to write every morning, I typically move on to a cup of tea to carry me through. This morning, as I sipped said tea, my thoughts fell on Threadneedle Street in the city of London. Firstly, what a fetching name for a street, don’t you think? It is on that street that the Bank of England finance ministers will meet today to decide on rate policy for the UK. The BOE has a Monetary Policy Committee (MPC), which is kind of like the Fed’s FOMC. The committee meets monthly and is comprised of the BOE Governor, three deputy governors, the BOE’s Chief Economist, and 4 outside members appointed by the Chancellor of the Exchequer. Those outside members are prolific economists who don’t even need to be UK citizens, and you can often witness them making interest public statements.

Today, the stage is set for the UK’s MPC to make a rate decision. Similar to the US, we can observe overnight index swaps to determine at least what the market thinks might occur in the future and come up with probabilities. The UK’s equivalent to the Fed Funds Rate is simply, the Bank Rate, or Base Rate; I suppose they used up all their creativity when naming the street 😉. UK’s current Base Rate is 5.25% compared to the Fed Fund’s 5.5%. We can call that similar. Today, the MPC is largely expected to keep its Base Rate unchanged. The first meaningful probability of rate cuts comes in the June to August timeframe with an expectation of it being -50 basis points lower by yearend. In contrast, at current, expectations for Fed rate cuts are more like early spring with a respectable, but not definite expectation for its being -50 basis points lower by yearend.

Looking at UK’s inflation challenges, we can look at their CPI equivalent which is… not so strangely, also CPI. The last read of UK’s CPI was +3.2% compared to the US CPI of +3.5%. The US CPI will be released next week and as of today a survey of blue-chip economists is expecting the yearly number to recede slightly to +3.4%. I won’t get into what is driving sticky inflation in the US… because my regular readers already know that it is housing, specifically rent. Let’s take a quick look at the UK’s CPI and see what is causing it to remain high. Imagine clicking of keys and mouse as I press my reading glasses tight against my face. Now some more clicks as I drill down to the source. Be patient, this takes some effort. Ok, so in the case of the UK, it is not rent that has them “in a pickle” as they would say over there. No, for the UK, its troubles lie in Recreation and Cultural Service as well as Restaurants and Hotels. The good news for them is that those services could be safely referred to as non-essential, while rent is very much essential. Therefore, in the UK, keeping rates higher for longer in a gambit to cause folks to demand less non-essential services may actually work. Unfortunately, in the US, keeping rates higher for longer in a stratagem to cause life-necessary rents to decline seems like a lot of unnecessary pain for consumers. Some in the UK may even think it folly.

FOLLY IN THE PREMARKET

Airbnb Inc (ABNB) shares are lower by -9.33% in the premarket after the company announced a Q1 beat on EPS and Revenues. The company however lowered future expectations on weak travel demand in coming quarters. Hmm, I wonder if this has something to do with ⬆️. In recent weeks 8 analysts have raised their target prices while only 2 have lowered them.  Potential average analyst target upside: – 3.0%. WHY IS THIS NEGATIVE: because the current trading price of the stock is higher than the median analyst target price. While this can mean that a stock is expensive, it does not mean that it cannot trade higher.

Emerson Electric (EMR) shares are higher by +0.89% after the company announced a big EPS miss with a slight gain in revenues. Analysts are quoted as saying the results were “good enough.” The company raised its full-year guidance giving the stock a bit of a positive push. Dividend yield: 1.86%. Potential average analyst target upside: +13.5%.

YESTERDAY’S MARKETS

NEXT UP

• Initial Jobless Claims (May 4) is expected to come in at 212k, up slightly from last week’s 208k new claims.
• San Francisco Fed President Mary Daly will speak today.
• After the closing bell earnings: Sweetgreen, Akamai, SoundHound, Cleanspark, and Guardant Health.