What to know today

  • Forecasters expect some cooling.
  • Biden goes full Trump.
  • GM’s ICE-and-EV plan is working.
markets

It’s About To Get Real Again

Degeneracy flares amid incoming inflation data.

It won’t be $AMC or $DJT or even $GME moving markets today, people.

Those meme stocks may rise yet again amid another flare-up of the degen economy, but it’s important to understand that their collective market capitalization adds up to a rounding error in the real scheme of things.

That Producer Price Index data for April sure seemed to be ideal for them, though.

This classic squeeze with 21st century social media effects on top can continue as long as there’s meaningful short interest, ample days to cover, and some serious fervor. And all it takes to manufacture enough of that is an illustration of a guy leaning forward in a chair.

Unless you’re getting squeezed or doing some squeezing, it’s equal parts amusement, aggravation, and amazement – though it does make a mockery of the “efficient market hypothesis.”

The consensus forecast for core CPI is a 0.3 percent month-over-month rise compared to 0.4 percent in March.

The business at hand is Consumer Price Index data for April to be released by the Bureau of Labor Statistics at 8:30 a.m. ET.

The consensus expectation is for a 0.4 percent month-over-month rise, consistent with March, and a 3.4 percent year-over-year rise, down from 3.5 percent, in the headline CPI.

The forecast for core CPI is 0.3 percent month over month compared to 0.4 percent in March and 3.6 percent year over year compared to 3.8 percent.

Headline PPI data came in above expectations, but subcategories that feed into the Federal Reserve’s preferred inflation gauge – the Personal Consumption Expenditures Price Index – were softer month over month.

At the close on May 14 the CBOE 1-Day Volatility Index was pricing in about a 1 percent move on May 15.

Perceptions of price action so far this week have been skewed by this meme stock revival. Still, as Cullen Roche of Discipline Funds noted early in Tuesday’s madness, we’re seeing a strange sequence of events:

The Yen jumped overnight before falling as interest rates eased on a hotter than expected PPI whose PCE components were softer than expected which coincided with a 100% rally in meme stocks because of a chair picture.

GME rallied another 60 percent during regular trading hours on Tuesday. It was surging again in the after-market, up double digits percentage-wise less than 30 minutes into that session.

And the S&P 500 was up half a percentage point after a basically flat Monday.

Investors, traders, and speculators appear to be preparing for something real today, though: At the close on Tuesday the CBOE 1-Day Volatility Index was pricing in about a 1 percent move for CPI Day.

Again, let’s be careful out there.

deep dive

Biden’s Tariff Gambit

This is domestic political stuff.

Describing China’s trade practices as “cheating” rather than competing, President Joe Biden on Tuesday quadrupled the tariff on EVs produced in the Middle Kingdom and established new tariffs on computer chips, solar cells, and lithium-ion batteries.

Following a three-year review, the Biden administration has made official a new bipartisan establishment consensus on trade with China first articulated by his predecessor Donald Trump.

The new tariffs will apply to $18 billion in products, including EV batteries, critical minerals, and medical products. The rate for Chinese semiconductors will double from 25 percent to 50 percent by 2025.

The Biden administration explained its moves in terms of protecting American workers and businesses from a flood of low-cost Chinese products, particularly EVs.

White House officials cited China’s years of “unfair trade practices” in pursuit of its dominant position in global manufacturing, including forced technology transfer, intellectual property violations, and hacking of American businesses.

The Biden administration said it will raise the tariff on EVs from China to 100 percent from 25 percent.

Protecting domestic jobs (and profits) is the most basic function of tariffs. They can also serve to reduce trade imbalances. Nowadays, cybersecurity is a major concern. 

And then there’s the national security factor: making sure there’s sufficient defense manufacturing capacity in case of war.

What we have here, though, appears to be down-home domestic politics: Biden is competing with Trump on messaging to voters in the Rust Belt – the old US manufacturing hub in the Midwest and Northeast that forms a new band of must-win states.

This is as much about electoral math as it is industrial policy.

Whether Beijing interprets the move as an escalation in an ongoing trade war or merely a political expedient is the critical question.

deep dive |
May 15, 2024

Biden’s Tariff Gambit

AUTOMAKERS

GM’s Plan Is Coming Together

It can do EVs and internal combustion engines

From the Research Desk, we learn that sentiment for General Motors $GM among Wall Street analysts is rising even amid slowing global EV demand.

The stock is enjoying a strong start to 2024, outperforming both traditional rival Ford Motor Company $F and erstwhile EV lodestar Tesla $TSLA by significant margins.

GM posted solid first-quarter results, beating top- and bottom-line forecasts and raising its full-year guidance for adjusted earnings.

Management cited North American operations, supported by strong truck sales for the first-quarter beat and the full-year guidance boost.

GM also said it will ramp up EV production as it continues to take share in the hybrid market.

General Motors $GM has outperformed Ford Motor Company $F, Tesla $TSLA, and the S&P 500 so far in 2024.

Citi Research analyst Itay Michaeli recently reiterated his “buy” rating on GM and his $96 12-month price target. That’s 113 percent upside from Tuesday’s closing price of $45.03.

Michaeli expects GM to continue to grab share in the US EV market as it executes a solid business plan.

Bank of America analyst John Murphy also rates GM a “buy” but sees it at $75 in 12 months. Murphy was impressed by management’s full-year guidance but suggests it was too conservative.

Murphy said ongoing execution and strength in its core businesses will support EV investments and other initiatives to “future proof” GM, even as it continues to return value to shareholders. 

Wedbush Securities analyst Dave Ives rates GM a “buy” and recently raised his 12-month target from $45 to $55, citing GM’s healthy balance between its electric- and its gas-powered vehicles.

Wall Street is generally bullish on GM: 21 analysts rate it a “buy,” nine rate it a “hold,” and just one analyst rates the stock a “sell.”

Based on the consensus 12-month price target, there’s 14 percent upside from here.

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