Launch Pad

Markets seem to have somewhat regained their footing this week with equities looking to start today in the green. First-quarter earnings for the market as a whole have been largely in line with historical trends although there have been some large pullbacks for stocks as investors look for the impact of inflation and slowing economic growth. Investors took some comfort yesterday after the minutes from the Fed’s latest policy meeting provided no signals that officials could turn more hawkish to fight inflation. Most policy makers saw half-point rate increases as appropriate at the next two meetings which was consistent with Fed Chair Powell’s comments. The S&P 500 rebounded from earlier losses, while the tech-heavy Nasdaq outperformed. Year-to-date, tech is still down nearly –27%.  

The SEC is taking its biggest step yet to stop money managers from misleading investors when they claim their funds are focused on ESG issues. The agency proposed a slate of new restrictions yesterday aimed at ensuring ESG funds accurately describe their investments. Some would also need to disclose the aggregated greenhouse gas emissions of companies they are invested in. In one proposed change, the SEC would expand an existing rule to mandate funds labeled ESG invest at least 80% of their assets in a way that lines up with that strategy. This comes as concerns mount over a lack of consistent standards for investments claiming to be sustainable. 

Chinese officials held a rare nationwide meeting held via teleconference and admitted that China’s economy is at a critical point and faring worse now than in 2020 when the pandemic first emerged. Premier Li Keqiang urged for efforts to reduce a soaring unemployment rate and said that China’s priority on pandemic control is raising the prospect that it will miss its GDP target by a large margin for the first time ever this year. China has never admitted to missing its annual growth target by a large margin since it began setting goals more than three decades ago, but it appears they may do so this year. The Chinese economy has come under enormous pressure as president Xi Jinping’s commits to his zero-Covid policy. Li however did indicate that China will try to reduce the impact of its strict lockdown policies on the economy but did not give details on how that would be achieved. 

The International Air Transport Association is urging the Canadian government to take immediate action, including removing vaccine mandates, to deal with the delays impacting airports across the country. The airline lobby group released a statement this week calling on the federal government to reduce the massive delays which are presently occurring across the country. The group pointed to delays at Toronto's Pearson Airport as an example as wait times at the airport have doubled, and even quadrupled in some cases, in recent weeks. At the same time, it says every second flight landing at Pearson from abroad has been subject to an immigration delay, with some passengers waiting on planes for up to three hours before being allowed to disembark. 

Pfizer Chair and CEO Albert Bourla announced the company will sell 23 of its patent-protected products, including its top selling COVID-19 vaccine to 45 low-income countries at not-for-profit prices. Shipments of products are expected to begin before the end of the year.  The initiative is not expected to hurt Pfizer’s bottom line as sales to developing countries totaled about $8.4 billion in 2020, about one-fifth of the company’s total sales. 

Much of North America is at risk of blackouts this summer as heat, drought, shuttered power plants, and supply-chain woes strain the electric grid. Power supplies in much of the U.S. and part of Canada will be stretched, with demand growing again after two years of pandemic disruptions, according to a report from the North American Electric Reliability Corporation. The report cites climate change as partly to blame as droughts covering the western U.S. limit supplies of hydroelectric power (with temperatures only going up in the summer).   


Diversion: Thanks, I just ordered a beer though... 

Fed minutes released yesterday afternoon showed that there is overwhelming concern of inflation that has far exceeded the Fed’s target. Officials are so concerned about the need to move “expeditiously” on taming inflation that most participants are looking at as many as three 0.50% moves will be needed in the coming months. In the weeks following their first 0.50% hike on May 4, Fed Chair Powell has made it clear that economic conditions remain incredibly uncertain and that the Fed may need to go bigger — or smaller — depending on how things evolve.  

The latter may be true as bonds have been on an upward trajectory since that Fed rate hike. The Fed’s rate hike path is now becoming less “hawkish” and the 50 bp hikes at the next two meetings are coming into question. Swap contracts are indicating that markets priced less than 100 basis points of combined rate hikes at the June and July meetings. The value of such contracts is determined by the effective federal funds rate after Fed meeting dates.