MONITOR CONSUMER SPENDING

“The International Monetary Fund is sounding the alarm on the global economy, pointing toward a persistent slowdown in growth. Between geopolitical tensions and the lagging effects of higher interest rates, the IMF is warning that the path to a soft landing is narrowing for many developed nations, which puts extra pressure on domestic policy to keep things afloat.”

“Natural gas, which is a huge part of what the Middle East exports in terms of energy, that is key for global power generation. It's key for air conditioning. It's also a key input for manufacturers around the world. If we're thinking about companies that build everything from chips to companies that create steel and need high heat, to companies that produce fertilizer for farming, all of that requires an immense amount of natural gas.”

“HF Sinclair and the refining space are dealing with significant volatility as energy prices fluctuate and crack spreads tighten. For investors, the question is whether the current dividend yields and buyback programs are sustainable if we see a more pronounced dip in global demand for refined products in the back half of the year.”

“Looking at companies like Nestle, you see the struggle of large-cap consumer staples to maintain their margins in an inflationary environment. Despite their brand power, the rising costs of raw materials and logistics are forcing these giants to decide between raising prices further and risking a drop in volume or absorbing the costs and seeing their earnings take a hit.”

“There was a survey from the University of Michigan. It was the lowest ever in 74 years of the survey taking place. And so some of that might be an overreaction in vibes because the economy was pretty strong coming into this. But the direction of travel, how fast that plummeted in just one month as people were seeing those price increases in the gas station, that just goes to show that people hate this.”

“And while we can make up some of that gap, because countries and companies have stockpiles, we can sort of like massage it a little bit here and there for the moment. The longer this situation goes on, the longer the tankers can't make it out of the Strait of Hormuz, the longer that 10% will continue compounding. And the longer that the supply disruption will end up rippling through the global economy.”

“But the business has changed some, so it's not just intermediation, which you're talking about, but there's a financing piece of it. Things like prime brokerage and where investment banks are providing loans to hedge funds, that has grown a lot. If you look at the segment disclosures, for example, and you look at the markets businesses and the size of the balance sheets of these businesses, they are growing quite a bit. And that tends to be a little bit more durable than the intermediation side.”

“The IRS has finally published its official list of occupations that qualify for the new no tax on tips provision. This is a significant shift for millions of service workers who have historically seen a large chunk of their take-home pay eroded by federal taxes, and we are looking at how this will effectively change the net income for a massive part of the US labor force.”

“We are keeping a very close eye on the curve steepener and what it means for the broader market. As long-term rates start to climb relative to the short end, it reflects a change in how the bond market is pricing in future inflation and growth expectations, often signaling that the market is preparing for a new phase in the economic cycle.”

“So year-over-year inflation through the CPI index, which is a broad measurement of inflation, is up 3.3% from a year ago. And the Federal Reserve uses 2% as a target for where it wants inflation to be. Even before the war with Iran started, inflation was above that target level. And what we have now is an energy shock that is sending gasoline and diesel prices on one of their steepest climbs in decades, if not ever.”

“Unemployment is really important here. As long as people are employed and wages are going up, they're spending. We hear a lot about the two-speed economy and the K-shaped economy. I think a better way to frame it is an E-shaped economy, where the high end is growing more, spending more than the low end. But there's no delta, there's no inflection in terms of the trends right now. There's not a worsening at the low end. It's kind of stable.”

“Now, on the trading side that you mentioned, yes, the war did help. I do think, though, that trading was already tracking—the markets businesses were already tracking to pretty good results even before the war. On average, I think you had 17% year-on-year growth overall. As you mentioned, equities was a particular standout. I think one of the big questions, though, as we go forward is how durable these results are, especially in markets.”

“When you put more money directly into the pockets of service workers through these tax exemptions, you have to look at the velocity of that money. These are individuals with a high marginal propensity to consume, so this ruling might actually serve as a targeted fiscal stimulus that shifts consumer spending patterns in the service and retail sectors over the coming quarters.”

“Historically high volatility has not been good for investment banking, but it has been good for sales and trading. But right now, we're hitting on all cylinders where trading results are really strong and benefiting from volatility, but it's not undermining deal-making. I think a lot of corporates have now come to the conclusion that volatility may be a feature of the system as opposed to a bug and have to continue investing and raising capital and doing deals.”

“In the earnings call, several of the CEOs struck a notably cautious tone as geopolitical uncertainty lingers. Jamie Dimon warned of wars, energy price volatility, trade uncertainty, large global fiscal deficits and elevated asset prices. Goldman Sachs CEO David Solomon also pointed out heightened uncertainty in parts of private credit and the conflict in the Middle East. And Citigroup CEO Jane Fraser warned that one great first quarter does not a full year make.”

“We are a net exporter of energy. We are the largest oil producer the world has ever seen. So why the heck am I paying higher gasoline prices when all of this is happening 7,000 miles away? The reason why is oil is the most global market. So we are a huge exporter of crude oil, of gasoline, of jet fuel, mainly from the US Gulf Coast. So that tethers us to the global market in a really big way.”