What to know today

  • It’s a wish on a wrecking ball.
  • A champion-chip bout sets up.
  • This is a crude balance.

Heading for a Slowdown

Markets are mixed and mixed up.

You know what it means when the Federal Reserve decides it’s seen enough incoming data to cut its benchmark interest rate, right?

Is it possible investors, traders, and speculators are beginning to understand that slowing growth means companies won’t meet raised earnings expectations?

After rallying on rate-cut hope, will we see a correction on rate-cut reality?

Do these rhetorical questions sufficiently communicate the level of ambivalence of price action so far in June, as short as that is here on the third trading day of the month?

The CBOE Volatility Index did creep higher on Monday and Tuesday and is up a little more than 2 percent since May 31.

The S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average closed in the green after spending time in the red during the trading session.

The Russell 2000 was down 1.25 percent.

And bonds rallied on higher rate-cut hopes after the Bureau of Labor Statistics said US job openings fell more than expected in April to the lowest level in almost three years. 

The Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey, a measure of labor market demand, showed openings declined by 296,000 to 8.059 million in April.

The Job Openings and Labor Turnover Survey, a measure of labor market demand, showed openings declined by 296,000 to 8.059 million.

The JOLTs print hasn’t been that low since February 2021.

According to Reuters, Fed Chair Jerome Powell is a fan of the openings-to-unemployed persons ratio, which declined to 1.24 from 1.3 in March.

That’s the lowest level for this measure of labor market tightness since June 2021. It’s well below the post-pandemic peak of nearly two to one and is tracking toward pre-pandemic highs.

We’ll have more opportunity to consider the rate cut-economic slowdown conundrum with Thursday’s release of initial jobless claims data for the period ending June 1.

And then it’s Jobs Friday.

The safest base-case scenario, based on observation, is we probably won’t know whether the Fed has seen enough incoming data until it’s too late.

That’s what history tells us, and that’s what Fed Chair Jerome Powell’s lawyerly, evidence-based approach suggests to me.

We’re on the verge, though, of some divergence among global monetary policymakers, with the Bank of Canada maybe ready to announce a cut today and the European Central Bank almost certainly to do so tomorrow.

That divergence risks renewed strength for the US dollar wrecking ball and the export of inflation.

deep dive

Moore’s Law Is Dead, Long Live Moore’s Law

Here is a fascinating and consequential debate.

It’s got to be tough for Intel $INTC, that Nvidia $NVDA has usurped it as the go-to chipmaker amid what appears to be the next big boom of the computing age.

Artificial intelligence is why NVDA’s peer group is now Microsoft $MSFT and Apple $AAPL, those companies at the very top of the market capitalization list.

Turns out INTC – co-founded by the guy who posited the driving thesis of the entire industry – won’t surrender its historical leadership role or the AI space without a fight.

Intel CEO Pat Gelsinger, during his presentation at Computex Tech in Taiwan on Tuesday, introduced new AI chips designed to compete directly with Nvidia’s.

Gordon E. Moore published his paper positing Moore’s Law, “Cramming more components onto integrated circuits,” in 1965.

The new Xeon 6 processor, meant for data centers, will have a more efficient core that will reduce space needed for generation hardware by two-thirds.

Gelsinger also engaged Nvidia CEO Jensen Huang on a different core level: “Unlike what Jensen would have you believe, Moore’s Law is alive and well,” Gelsinger said. “I think of it like the internet 25 years ago. It’s that big.”

In addition to highlighting INTC’s advantages in the PC space as AI proliferates, Gelsinger showcased its Gaudi system, which packages its chips into kits of multiple processors made to handle generative AI training.

Gelsinger said the “pretty compelling” kits will be sold at much more affordable prices than NVDA’s and will provide INTC a competitive edge. 

deep dive |
June 5, 2024

Moore’s Law Is Dead, Long Live Moore’s Law


Oil Supply, Oil Demand

It’s a crude and delicate issue.

There’s a lot of ambiguity in the latest communique from the OPEC+ cartel about its production intentions.

Recent price action reflects a stated plan to gradually ease some previously announced cuts as of October amid rising concerns about demand and the offsetting impact of output from non-members such as the US.

“This decision, aimed at stabilizing crude prices and balancing market demands, reflects Saudi Arabia's efforts to reconcile diverse member interests,” writes energy expert Robert Rapier over at Forbes.

“The alliance will continue to monitor market conditions and adjust strategies accordingly.” Rapier notes that the United Arab Emirates is set for a production increase of approximately 10 percent in 2025.

The cartel’s Joint Ministerial Monitoring Committee will meet on a bi-monthly basis to evaluate market conditions and monitor compliance and has authority to call additional meetings if necessary.

S&P Global Commodity Insights Executive Director Bhushan Bahree

Noted that two years ago OPEC+ output was 2.2 million barrels per day above current levels. But non-OPEC+ production is 3.1 million, with more than half of the increase driven by the US.

According to the International Monetary Fund, Saudi Arabia needs a Brent crude price of $81 to balance its budget.

Per barrel prices for both Brent and West Texas Intermediate crude oil are at their lowest levels since February.

From the Research Desk, we learn that UBS is pushing back on the emerging conventional view of OPEC+’s statement and tamping down concerns about oversupply.

No. 1, according to the Zurich-based investment bank, OPEC+ made it clear any production increases could be reversed based on market conditions.

And Saudi Arabia is responsible for most of the voluntary cuts, so any decision to reverse course would be relatively simple on the surface.

No. 2, there’s a sweet spot here for the price of crude oil, and all the big producers have an interest in being close to it.

US producers, in a position of strength following the Shale Boom, still do need prices to remain above certain levels to sustain rig counts and other activities.

And, No. 3, is the other side of the equation: demand.

As UBS sees it, crude demand is holding up well, and global inventories will decline in coming weeks as the summer driving season gets into high gear in the US.

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