"I am the wisest man alive, for I know one thing, and that is that I know nothing." -- Socrates
In The Corner
The Fed will release their official policy statement for May this afternoon at 2pm ET. There will be no press conference, no adjustment to projections for GDP, unemployment, or for inflation. No song or dance. I would think that the FOMC will attempt to signal their collective intent to stay on trend as far as a gradually normalizing monetary policy goes. Their intent has been clear to this point. That would mean leaving the emphasis on gains made over time, and attempting to gloss over to some degree the weakening macro-economic environment. Let's keep in focus that although fed funds futures markets are pricing in almost no chance of a rate hike this afternoon, those same markets are pricing in a better than two in three chance of an increase on June 14, and then close to a one in three chance of another hike on Sept. 20.
The official statement made this afternoon will be your macroeconomic event of the week, even with a BLS employment report due on Friday. After that first quarter GDP surprise to the downside, consumer level inflation took one giant step backward. After vehicle sales, housing starts, and some key measures of manufacturing health have all appeared to slow, mentioning the balance sheet at all this afternoon will be very tough. Look for nothing that comes close to a commitment in this space. The language concerning inflation will, however, need to be addressed. Perhaps an optimistic message would be to refer to the recent data as "transitory". They like that word, and it acts as an escape hatch when covering something uncomfortable. A less optimistic message here would likely be noticed by the marketplace.
On top of this, some kind of acknowledgement of a strengthening global environment, I would think, would be in line. Last year, the Fed overtly implied that global conditions were a threat to the U.S. economy. Well, how about when those global conditions are outperforming domestic economic conditions? Yet, global central banks seem quite comfortable in their far easier monetary policy clothes than does our central bank. I would love to hear something mentioned on foreign monetary policy. Don't count on it.
Let's Make a Deal
The annualized pace of vehicle sales for the month of April did bounce a bit from what we saw in March. Still, the bounce was less than hoped for by the industry, and significantly lower (-4.7%) year over year. Pick a manufacturer, any manufacturer. They were all losers this month, and the biggest problem may not be sales itself, but overwhelming inventory. General Motors (GM) , for one, supposedly has about one million vehicles scattered across the nation on dealer lots.
It would appear that factory shutdowns, and perhaps further discounting, will be required by the majors in order to work down these inventories. Let's be honest, the industry has been extremely hot over the last few years. One, I don't know how often they expect folks to go out and acquire new wheels, especially while the rest of the macro universe seems to be on shaky turf. On top of that, it is clear for anyone to see that the U.S. consumer, though seeing some relief on the income side, has changed behavior. That consumer is a long way from being OK, and unless forced by a lease that's coming to an end date, is far less likely to splurge on a large purchase than they might otherwise be. This may be conjecture, but from talking to people in supermarkets, and in line at big box retailers, the average person does not trust any gains that he or she may have made in recent years. Many folks still expect to be hurt again. My sample size is obviously small, but at least in my neck of the woods, this seems to be a commonality.
Dodd-Frank Overhaul? Yeah, Right.