Wall Street Breakfast: 50 Or 75?

50 or 75?

It’s hard to find a week where the Fed won’t steal the spotlight. Later today, the markets will get a more detailed view of what was discussed at the Federal Reserve’s July 26-27 meeting, when the FOMC raised its policy rate by 75 basis points for a second-straight meeting, as it struggles to bring inflation under control.

Fed minutes arrive at 2 p.m. ET.

Tame inflation data last week shifted expectations for September’s hike to 50 basis points from 75. But mixed data this week on housing and industrial production has pushed the odds back to around 50-50 while the Treasury yield curve (US10Y) (US2Y) continues to flatten.

Last month, Fed Chairman Jerome Powell provided some more details at his post-decision press conference, saying that another “unusually large increase could be appropriate” at its next meeting, which will be Sept. 20-21. He also commented that the FOMC hasn’t yet decided on when it will slow its rate hikes. Fed watchers will be on high alert for any hints of when the committee may slow down their rate-hiking pace.

As of their June meeting, the median expectation was for the federal funds rate target range to be at 3.25%-3.50% at the end of the year. That’s 100 bps higher than its current range of 2.25%-2.50%. In early August, St. Louis Fed President James Bullard, one of the more hawkish Fed members, estimated the central bank will need to raise it to 3.75%-4.0% by the end of the year.

“With the uneven, but generally positive, data that has come in over the past 30 days or so, we believe the discussion during the recent Fed meeting was animated,” Brendan Connaughton, managing partner at Catalyst Private Wealth, told Seeking Alpha. “We are still in the camp that the Fed will go 75 bps at the next meeting” due to the recent tone of Fed member comments, he said.

Any talk of recession will be of particular interest. Although the officials didn’t provide updates to their economic projections at this meeting, there’s sure to be discussion of how the economy has changed since their last meeting. Keep in mind the meeting occurred just before the Commerce Department announced that GDP fell for a second straight quarter in Q2.

What does this mean for markets? Given the time of year and the earnings that are still being reported, Connaughton doesn’t see big moves in either direction for the capital markets in the near term, i.e. three months. “Net-net, we are constructive on the equity markets generally, at least domestically,” he said. “We are less attracted to bonds, although still believe in their risk-mitigating characteristics.”(7 comments)

NatGas record

U.S. natural gas futures ended Tuesday’s session at 14-year highs, lifted partly by soaring natural gas prices in Europe that have climbed in recent days to their highest levels since Russia’s invasion of Ukraine, and just shy of all-time highs.

Front-month Nymex natural gas (NG1:COM) for September delivery settled +6.9% to $9.329/MMBtu, the best closing level since August 2008; gas was trading at ~$66/MMBtu in Europe and a record $57 in Asia.

Other factors contributing to gains in U.S. natural gas include a heat wave in California, higher air conditioning demand than previously expected, forecasts for more hot weather, and technical and option trading.(69 comments)

Musk United?

Tesla (TSLA) founder Elon Musk stirred up soccer fans and investors late Tuesday when he tweeted that he was buying Manchester United (MANU). Four-and-a-half hours later he said that he was joking.

“Also, I’m buying Manchester United ur welcome,” Musk replied in a thread.

“No, this is a long-running joke on Twitter. I’m not buying any sports teams,” he replied later. “Although, if it were any team, it would be Man U. They were my fav team as a kid.”

Musk may think the joke is obvious given he is already embroiled in a legal battle over his deal to buy Twitter (TWTR) itself. And the initial tweet came at 8:01 p.m. ET, right after the end of after-hours trading, so it didn’t move the share price of MANU. But the SEC isn’t known for its sense of humor when it comes to takeover tweets that can affect the markets and Musk faced fraud charges for his 2018 tweet that he would take Tesla private at $420 per share.(15 comments)

Walmart lift

A profit guidance lift from Walmart (WMT) helped the retail sector outperform in early trading on Tuesday.

While the retail giant issued a profit warning last month due to concerns over consumer spending, WMT execs said with its earnings report that it was seeing a trade-down effect with shoppers at the higher income levels buying more groceries from Walmart. Back-to-school sales were also noted to be off to a strong start and the early outlook for the holiday season was positive.

Morgan Stanley said the retail giant seemed to show that inventory and markdown issues were under control and sees more upside than downside for the near term.(5 comments)

To infinity and Bed Bath & Beyond

Bed Bath & Beyond (BBBY) shares soared nearly 30% on Tuesday amid an ongoing upswing in meme stocks. The sharp rise in shares adds to an over 300% run for the stock since the end of July.

At one point in the session, BBBY was up nearly 79% for the day. The furious activity also prompted a trading halt for volatility. The rally came as the stock continued to draw attention from short squeeze-eyeing meme traders following the disclosure of call-buying from GameStop (GME) chairman Ryan Cohen’s venture capital firm RC Ventures. Per the disclosure, the Chewy founder bought January 2023 calls on more than 1.6M shares with strike prices between $60 and $80, fueling a squeeze.(104 comments)

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