Nat gas glut may help short-circuit CPI

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Major U.S. stock indexes higher; Nasdaq up >1%
  
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Comm svcs leads S&P sector gainers; utilities weakest group 
  
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Dollar, crude dip; gold, bitcoin gain
  
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U.S. 10-Year Treasury yield ~flat at ~3.42%
  
 
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NAT GAS GLUT MAY HELP SHORT-CIRCUIT CPI (1215 EDT/1615 GMT)
People were terrified last fall that a natural gas shortage would lead to higher electricity prices and even blackouts. 
That said, ultimately that shortage became a glut.
Here is a weekly chart of NYMEX natural gas futures:
With this, Brian Reynolds, chief market strategist at Reynolds Strategy, has been expecting this glut to weigh on 
electricity prices, and now he says that Wednesday's CPI data 
confirmed that conclusion, that electricity inflation is 
starting to reverse. 
He believes this shift alone could take 0.2% out of the overall CPI this summer, with more to come. 
As Reynolds sees it, there will be more declines in electricity prices ahead for three reasons: 
1) Electric rates are backward looking. Regulators allow electricity providers to pass on their past costs. However, now 
that costs are going down, electric rates should decline. 
2) High natural gas prices spooked electricity providers into entering longer-term contracts with gas suppliers just as 
gas prices were peaking. As those contracts roll off, the lower 
gas prices will come into play. 
3) Seasonal factors. The use of natural gas by electric generators bottoms in April, and then surges into summer months 
as the demand for air conditioning surges. 
Thus, utilities are at a point when their use of natural gas is going to surge as natural gas prices hit new lows. The result 
should pull down both the electric CPI and the overall CPI. 
Reynolds' base case is that electricity rates this summer will only go down by 10%, which is just a fraction of the 
decline in natural gas prices because of the lagged effect. 
"As electricity is about 2.5% of the CPI, that would imply a decline of the CPI by 0.2% or 0.3%. However, if electricity 
prices over time should follow natural gas prices, then we would 
expect that interaction to lower the CPI by 0.5%," writes 
Reynolds. 
As for the stock market, Reynolds says bank deposit issue and the debt ceiling issue makes him want to be a "better 
seller" of rallies until there is clarity about the debt 
ceiling. 
"The likelihood of better inflation news continues to make us want to be a better buyer of stocks on downward dislocations, 
but only as a renter and not as an owner." 
 
EXPECT CHOP, CHOP, AND MORE CHOP -CRESSET (1200 EDT/1600 GMT) 
2022 was a year when markets reacted to higher rates.
However, Jack Ablin, chief investment officer and founding partner at Cresset, believes 2023 and 2024 will be years when 
fundamentals, like economic growth and profits, will feel the 
effects of one of the most aggressive rate hiking programs since 
1980. 
What does this mean for the market?
Ablin notes that the S&P 500 derives its value from earnings and interest rates. One-year-forward earnings is the denominator 
of the PE ratio and the 10-year, BBB bond yield drives the 
multiple. 
He adds that as 2023 dawned, investors anticipated earnings growth of a little more than 3% for the year. Since then, 
however, he says that the profit picture has deteriorated with 
analysts now penciling in a 2.3% fall in profit growth this year 
on weaker growth and margins. 
At the same time, the U.S. 10-year Treasury yield has retreated on similar concerns. Its yield has pulled back from 
around 3.8% to 3.4%, helping to offset the earnings decline. 
With this, he says that the market’s single-digit gain so far 
this year squares with Cresset's S&P 500 valuation model, 
begging the question: Where do we go from here? 
Ablin's answer is that "today's return is currently situated at our year-end target, suggesting sideways trading for most of 
the rest of the year." 
He adds that "the stock market's direction will depend on inflation, interest rates and earnings growth. From our vantage 
point, a choppy sideways market will likely characterize the 
remainder of 2023." 
 
RIGHT SAID FED: PPI COOLS, JOBLESS CLAIMS RISE (1055 EDT/1455 GMT) 
A data duo from the Labor Department glided in like Fred and Ginger on Thursday, waltzing to the tune the Federal Reserve 
wants to hear - price growth is cooling and the tight labor 
market is showing some cracks.
Final demand (business-to-consumer) producer prices cooled more than expected in March. 
On a monthly basis, the producer price index (PPI) fell in March by 0.5%. 
Year-on-year, headline PPI shed a remarkable 2.2 percentage points to 2.7%. 
So-called core PPI - which excludes food, energy, and trade services - posted a nominal monthly increase of 0.1% from 
February and rose 3.6% year-on-year. That figure is nearly half 
the annual core PPI reading of March 2022, when Powell & Co 
fired the opening salvo in its war on inflation by hiking the 
Fed funds target rate for the first time since 2018. 
Digging deeper, a sizeable 0.6% monthly rise in food prices was offset by a whopping 6.4% decline in energy goods, and a 
welcome 0.3% drop in services. 
"Easing supply chain conditions and slowing momentum in demand have brought supply and demand into better balance, 
pushing producer prices sharply lower in March," says Matthew 
Martin, U.S. economist at Oxford Economics. "We expect the bite 
from the Fed's previous rate hikes will further reduce business 
and consumer demand, pushing producer price inflation lower 
throughout the rest of the year." 
Intermediate demand, or business-to-business PPI, showed monthly declines of processed and unprocessed goods of 1% and 
5%, respectively. 
On an annual basis, intermediate PPI for processed goods was down 1%, while raw material prices plunged 17%. 
Coming on the back of Wednesday's steeper-than-expected cooldown of headline CPI and last Friday's wage growth data, 
March indicators are three for three - inflation is headed in 
the right direction, inching ever closer to Powell & Co's 
average annual 2% target: 
Next, the number of U.S. workers filing first-time applications for unemployment benefits ticked higher 
last week, rising 4.8% to 239,000. 
While this marks initial jobless claims' 10th week above the 200,000 level, the bottom end of a range associated with healthy 
labor market churn, it has yet to reflect the surge in announced 
job cuts in recent months reported by Challenger, Gray & 
Christmas. 
"(The data) chimes with the surge in layoff announcements recorded by Challenger; total layoffs announced in the first 
quarter were the highest since 2005, excluding the initial Covid 
hit and the financial crisis," writes Kieran Clancy, senior U.S. 
economist at Pantheon Macroeconomics. 
"Jobless claims lag layoff announcements, so we expect a further rise in claims over the next few months, helping to 
drive payroll growth to zero by mid-year," Clancy adds. 
Ongoing claims, which are reported on a one-week lag, edged 0.7% lower to 1.810 million, a hair below 
the 1.814 million consensus, but above the 1.7 million 
pre-pandemic level. 
Despite the Fed-pleasing data, financial markets are still pricing in a 25 basis point hike to the Fed funds target rate 
when the FOMC convenes next month, but it's less of a sure 
thing. 
There's still roughly a one-in-three possibility that the Fed will press the pause button, according to CME's FedWatch 
tool. 
US STOCKS RIPE FOR A SHORT SQUEEZE (1022 EDT/1422 GMT)
As U.S. stocks have climbed 7% from their March lows, some stocks have become "more crowded and more squeezable," said S3 
Partners. 
On top of the list of S3's most squeezable U.S. stocks were Coinbase, used car retailer CarMax Inc, 
videogame retailer and meme stock GameStop, bitcoin 
investors and software company MicroStrategy and 
theater chain AMC Entertainment. 
Recent unrealized losses are the primary driver for a stock to be squeezed, the analytics firm said. 
Top 10 stocks on S3 Partners' list are:
Most squeezable US    Short interest    YTD % stocks                                  change 
Coinbase              $2.71 billion     91.7% 
CarMax                $1.80 billion     12.6% 
GameStop              $1.31 billion     20.6% 
MicroStrategy         $1.12 billion     128% 
 
AMC Entertainment     $749.0 million    31.2%  
TG Therapeutics       $591.7 million    69.7%  
Upstart Holdings      $500 million      24%  
Carvana               $485 million      95% 
Marathon Digital      $439 million      191%  
Riot Platforms        $439 million      264%