Oil Overshadows Earnings, Powell Digs In, U.S. Plots Next Move on Iran

You might have thought that with the Federal Reserve bank's FOMC making a decision concerning monetary policy on Wednesday afternoon that interest rates would be the lead story on Thursday morning. You'd be wrong. You might have thought that with four mega-cap hyperscaling type names reporting quarterly financial results on Wednesday evening that corporate profitability or capital expenditures would be the lead story on Thursday morning. You'd be wrong.

Zero dark-thirty. The raccoons are trying to get into the garbage cans again. The snakes slither through the lawn unseen. Somewhere waves crash, birds sing and the wind blows. Oh, and oil prices rise. As was the lead story on Wednesday itself, the lead story as night spills into morning on Thursday has been the sharp rise in market prices for front month crude oil futures. As I bang out this morning note, I see WTI Crude trading close to $108 per barrel after peaking above $110. I see Brent Crude trading close to $112 per barrel after apexing overnight above $126. $126. Not kidding.

Soaring oil prices stole the show on Wednesday. Higher energy prices coupled with a sharp rise in Treasury yields put an anchor on equity prices weighing upon market performance on Wednesday. While yields spiked in response to the fractures that appeared in the unity of the FOMC at this week's policy meeting, oil prices surged as prospects dimmed for an imminent resolution to the conflict in Iran or the re-opening of the Strait of Hormuz to commercial traffic. No, the exit of the UAE from OPEC has not helped. At least not yet.

What's Going On?

This week, Pres. Trump has apparently met with executives from major U.S. oil companies to discuss the impact of a blockade of the Strait of Hormuz should that blockade last for months. On Wednesday, the president stated that the blockade will remain in place until Iran agrees to surrender its drive to create and control nuclear weapons. Readers need to understand that the front-month flips earlier for Brent than for WTI. Front-month Brent futures expire on Thursday, hence the heightened volatility seen in those contracts.

On Thursday morning, Axios is reporting that later today, Pres. Trump will be briefed by CENTCOM Commander Admiral Brad Cooper on new plans for a potential military strike into Iran. The story is being reported widely as the morning wears on. I have also seen stories crediting Axios for breaking this news at CNBC, Bloomberg News and MarketWatch. Bloomberg is reporting that CENTCOM has requested that the U.S. deploy hypersonic missiles to the region, which if done, would be a U.S. first. The Axios report refers to Admiral Cooper's plan as "short and powerful."

The What...

Should the U.S. deploy hypersonic missiles to the CENTCOM region, we are likely talking about the U.S. Army's "Dark Eagle" which is a long-range hypersonic weapon. Dark Eagle is an intermediate-range, surface-to-surface, glide-boost missile consisting of an unpowered body and a large rocket booster. The glide body is released at a significant altitude and drops at hypersonic speed toward its target. It is considered to be indefensible.

Dark Eagle can supposedly travel at up to Mach 17. China has nothing that travels at speeds greater than Mach 10. Russia is believed to have a hypersonic weapon that can travel at Mach 20. Dynetics, which is a unit of Leidos (LDOS) manufactures the glide body for Dark Eagle, while the rocket booster is a Lockheed Martin (LMT) product. Lockheed assembles the final product.

Powell to Stay!

On Wednesday, the Fed kept the target range for the Fed Funds Rate where it was, at 3.5% to 3.75%. There were four dissents from the official statement out of 12 voting participants, which is the most in 34 years. Cleveland Fed Pres Beth Hammack, Minneapolis Fed Pres. Neel Kashkari and Dallas Fed Pres. Lorie Logan all had a problem leaving a sentence in the official statement that had been there previously that implies an "easing" bias. Fed Gov. Stephen Miran dissented in favor of an outright rate cut.

The policy decision and those dissents were not the key takeaway from the Fed's activities on Wednesday. We learned at the press conference that outgoing Fed Chair Jerome Powell, whose term as Fed Chair expires on May 15, will remain with the central bank beyond that date. Powell's term as a Fed governor does not expire until January 2028. Powell stated:

"My concern is really about the series of legal attacks on the Fed, which threaten our ability to conduct monetary policy without considering political factors. I worry that these attacks are battering the institution."

Powell added that the legal fight had left him "no choice" but to stay on board until the threat was resolved. It should be pointed out that the Department of Justice had already dropped the criminal investigation of Powell's budget oversight of the Fed's refurbishment of its properties in Washington, D.C.

It should also be pointed out that Powell certainly did appear, I believe, to overtly consider politics himself in the implementation of monetary policy when taking the unprecedented steps of cutting short-term interest rates ahead of the 2024 national election. Powell's "holier than thou" act, I believe, does not pass the smell test.

The president, who as a result will be deprived of nominating someone of his choosing to replace Powell at the Board of Governors, lashed out in what I see as unprofessional fashion, posting "Jerome 'Too Late' Powell wants to stay at the Fed because he can't get a job anywhere else." The move by Powell given his animosity toward the president and vice versa, I believe, had to be expected.

Every Breath You Take

Every single day
And every word you say
Every game you play
Every night you stay
I'll be watching you

- Gordon Summer, aka Sting (The Police), 1983

In Brief...

- Meta Platforms (META) increased spending plans for the year, taking full-year capex spending up to $125 billion - $145 billion. The shares are trading more than 8% lower overnight.

- Alphabet (GOOGL) reported impressive numbers for both sales and profitability. It also signaled a huge increase in capex spending, but those shares are up more than 6% overnight.

- Amazon (AMZN) posted its fastest quarterly growth for its AWS unit in three years. That was positive, but capex spending is also an issue here. The stock is up 2.5% overnight.

- Microsoft (MSFT) also reported impressive growth in its Azure unit (AWS competitor). Nonetheless, the shares are down 2% overnight.

- March Durable Goods Orders exploded in March as the economy continues to show sharp, unexpected improvement over recent months. At the headline, new orders printed at +0.8% m/m beating expectations for growth of 0.5%. Core Capital Goods (ex-defense, ex-air), which is a proxy for business investment landed at a stunning +3.3% m/m, up from +0.6% for February and well above expectations for something close to +0.5%. This shocking uptick in business spending was tech focused. Parts of the economy are indeed starting to approach white hot conditions.

Detroit Rock City

Getting late, I just can't wait
Ten o'clock and I know I gotta hit the road
First, I drink, then I smoke
Start up the car, try to make the midnight show
Let's go

- Stanley, Ezrin (Kiss), 1976

Time to rock, kids. Let's go....

Economics

(All Times Eastern)

08:30 - GDP Growth Rate (Q1-adv): Expecting 2.1%, Last 0.5% q/q, SAAR.

08:30 - Initial Jobless Claims (Weekly): Expecting 215K, Last 214K.

08:30 - Continuing Claims (Weekly): Last 1.821M.

08:30 - Personal Income (Mar): Expecting 0.3% m/m, Last -0.1% m/m.

08:30 - Consumer Spending (Mar): Expecting 0.9% m/m, Last 0.4% m/m.

08:30 - PCE Price Index (Mar): Expecting 0.6% m/m, Last 0.4% m/m.

08:30 - Core PCE Price Index (Mar): Expecting 0.3% m/m, Last 0.4% m/m.

08:30 - PCE Price Index (Mar): Expecting 3.3% y/y, Last 2.8% y/y.

08:30 - Core PCE Price Index (Mar): Expecting 3.1% y/y, Last 3.0% y/y.

09:45 - Chicago PMI (Apr): Expecting 55.3, Last 52.8.

10:00 - CB Leading Indicators (Feb): Expecting -0.2% m/m, Last -0.1% m/m.

10:30 - Natural Gas Inventories (Weekly): Last +103B cf.

The Fed

(All Times Eastern)

No public appearances scheduled.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: (BMY) (1.42), (CAT) (4.64), (LLY) (6.85), (HSY) (2.04), (LHX) (2.57), MRK (-1.47), (W) (.28)

After the Close: (AMGN) (4.77), (AAPL) (1.95), (RDDT) (1.11), (RBLX) (-.41), (SNDK) (14.55), (WDC) (2.38)

At the time of publication, Guilfoyle was long AMZN equity.