Here Comes the March CPI Report
All eyes will be on the core figure, which may not dip as expected
Today is the day investors have been waiting for with bated breath - the March CPI report. It’s out at 8:30 AM ET and while the closely watched core CPI is expected to show slight progress - up 3.7%. YoY compared to 3.8% in February; up 0.3% MoM vs. February’s 0.4% increase - the market is bracing for something potentially higher.
Some will point to the upward move in the 10-year Treasury yield as an indication of what’s likely to come, or more correctly what’s not to come - as many rate cuts expected by the market. Supporting that move higher are the comments about rising input and output costs found in the March PMI data, wage data in ADP’s Employment Change Report, and the more than 17% YTD climb in gas prices, the ripple effect for which will be a tailwind for other inflation pressures.
While some will be of that mindset that we will need to see a red-hot inflation figure to dash rate cut expectations, with the core CPI between 3.8%-4.0% YoY between October and February, a March print that matches February’s 3.8% figure is likely to be enough to knock down June rate cut expectations and raise questions about one for July. Why? Because such a March core CPI print would not land in the “good data” camp the Fed is looking for, but it would also mean that inflation barometer has stalled between 3.8%-4.0% YoY for the last two quarters.
That brings us back to the 10-year Treasury yield, which is signaling the market should expect higher rates for longer and the prospect for more Fed heads to push rate cuts into 2H 2024. Our thinking remains the Fed’s need to see “good data” talk is a way to let the market slowly come to terms with the growing prospect of even fewer rate cuts in 2024.
Now to see what today’s data has to say, and lest we forget tomorrow brings the March PPI report, one that is expected to show YoY and MoM increases compared to February.
Taiwan Semiconductor (TSM) announced its net revenue for March 2024 rose 7.5% compared to February and was up 34.3% YoY. Revenue for the March quarter totaled NT$592.64 billion (~$15.54 billion), an increase of 16.5% YoY, and above the $18.06 billion consensus forecast. Key end markets for TSM include High Performance Computing (data center and AI) and smartphone.
UBS (UBS) has raised its oil price forecasts by $5/bbl., estimating Brent to hold a range of $85–$95 per barrel(bbl.) and West Texas Intermediate in the $80–$90/bbl. range over the coming months.
Fitch Ratings cut its outlook on China's long-term foreign debt to negative from stable, reflecting the growing risks to the country's public finances, but affirmed its A+ rating.
Model Musings
Aging Population
“The number of people in the state who are 65 and older will increase by 35 percent over the next decade, a significant shift that could impact nearly every aspect of the economy and every corner of the state. The main driver? The baby boomers.” Read more here
Artificial Intelligence, Cloud Computing
“During Google’s keynote presentation on Tuesday, the company announced numerous updates for everything from its AI models and new chips, to new platforms for creating and editing content. And while marketing wasn’t the main focus of the 90-minute presentation, plenty of updates are of interest to the marketing and media worlds. Beyond all the new AI updates, Google highlighted how companies across a range of industries are already using its various AI products. For example, one short video features Mercedes-Benz CEO Ola Kallenius, who said the auto maker is applying Google Cloud AI for sales assistants, improving call centers and optimizing marketing. Other companies with executives featured in brief video appearances included Uber, Walmart and Goldman Sachs.” Read more here
“The latest data from the IDC Worldwide Quarterly Enterprise Infrastructure Tracker paints a compelling picture of growth in cloud infrastructure sales on demand. The fourth quarter of 2023 saw an 18.5% year-over-year increase in spending on compute and storage infrastructure for cloud deployments. It is a significant shift in the technological landscape, where AI is now front and center in the push to find cloud infrastructure to run it.” Read more here
CHIPs Act
“The Biden administration has announced another major deal out of the CHIPS program: a preliminary agreement for up to $6.6 billion in grants, plus up to $5 billion in loans, for the Taiwan Semiconductor Manufacturing Company — commonly known as TSMC. A few weeks ago, Intel secured a similar deal for up to $8.5 billion in funding. The CHIPS and Science Act was a 2022 law designed to restart the semiconductor industry in the U.S.” Read more here
Consumer Inflation Fighters
“Inflation has changed the way many Americans shop. Now, those changes in consumer habits are helping bring down inflation. Fed up with prices that remain about 19%, on average, above where they were before the pandemic, consumers are fighting back. In grocery stores, they’re shifting away from name brands to store-brand items, switching to discount stores or simply buying fewer items like snacks or gourmet foods.” Read more here
Cybersecurity, Data Privacy
“Non-profit healthcare service provider Group Health Cooperative of South Central Wisconsin (GHC-SCW) has disclosed that a ransomware gang breached its network in January and stole documents containing the personal and medical information of over 500,000 individuals.” Read more here
Space Economy
“NASA announced April 3 it picked teams led by Intuitive Machines, Lunar Outpost, and Venturi Astrolab for its Lunar Terrain Vehicle (LTV) Services contract. The contract covers work to design and develop rovers that would be used by astronauts on Artemis missions starting with Artemis 5 at the end of the decade. The rovers would be provided by the companies to NASA as a service, in much the same way the agency is procuring spacesuits and lunar landers.” Read More Here
The Strategies Behind Our Thematic Models
Aging of the Population - Capturing the demographic wave of the aging population and the changing demands it brings with it.
Artificial Intelligence – Software, chips, and related companies that facilitate the collection and analysis of large data sets and autonomous generation of solutions given non-machine language prompts.
CHIPs Act – Capturing the reshoring of the US semiconductor industry and the $52.7 billion poised to be spent on semiconductor manufacturing.
Cloud Computing – Companies that provide hardware and services that enhance the cloud computing experience for users, such as co-location, security, and edge computing.
Consumer Inflation Fighters - Companies poised to benefit as consumers stretch the disposable spending dollars they do have.
Core Holdings – Companies that reflect economic activity and are large enough to not get pushed around by day-to-day market trends. Low-beta, large-cap names able to better withstand economic turmoil.
Cybersecurity - Companies that focus on protecting against the penetration of digital networks and the theft, ransom, corruption or destruction of data.
Digital Infrastructure & Connectivity -The buildout and upgrading of our Networks, Data Storage Facilities, and Equipment.
Data Privacy & Digital Identity - Companies providing the tools and services that verify authorized users and safeguard personal data privacy.
EPS Diplomats - Profitable large capitalization companies proven to produce above-average EPS growth and provide investors with the benefit of multiple expansion.
EV Transition - Capturing the transition to EVs and related infrastructure from combustion engine vehicles.
Guilty Pleasure – Companies that produce/provide food and drink products that consumers tend to enjoy regardless of the economic environment and potential long-term health hazards associated with excessive consumption.
Homebuilding & Materials – Ranging from homebuilders to key building product companies that serve the housing market, this model looks to capture the rising demand for housing, one that should benefit as the Fed returns monetary policy to more normalized levels.
Market Hedge Model – This basket of daily reset swap-based broad market inverse ETFs protects in the face of market pullbacks, overbought market technicals, and other drivers of market volatility.
Luxury Buying Boom - Tapping into aspirational buying and affluent buyers amid rising global wealth.
Market Hedge Model – This basket of daily reset swap-based broad market inverse ETFs protects in the face of market pullbacks, overbought market technicals, and other drivers of market volatility.
Nuclear Energy & Uranium – Companies that either build and maintain nuclear power plants or are involved in the production of uranium.
Precision Ag & Agri Science – Companies that look to address shrinking arable land by helping maximize crop yields utilizing technology, science, or both.
Rebuilding America - Turning the focused spending on rebuilding US infrastructure into revenue and profits.
Safety & Security – Targeted exposure to companies that provide goods and services primarily to the Defense and security sectors of the economy.
Space Economy – Companies that focus on the launch and operation of satellite networks.
The Strategies Behind Our Dividend Income Models
Monthly Dividend Model – Pretty much what the name says – this model invests in companies that pay monthly dividends to shareholders.
ETF Dividend Model – High-yielding ETFs that provide a range of exposures from domestic equities, international equities, emerging market equities, MLPS, and REITs.
ETF Enhanced Dividend Model – A group of high-yielding ETFs that utilize options to enhance yield through collecting option income.
Don’t be a stranger
Thanks for reading and if you have a suggestion for an article or book we should read, or a stream we should catch, email us at info@tematicaresearch.com. The same email works if you want to know more about our thematic and targeted exposure models listed below.