Pro Perspectives 5/26/23





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May 26, 2023

In just a few days, the pendulum has swung from despair to building enthusiasm.
This morning, the May consumer sentiment survey was reported.  As you can see in this chart, it has been plunging back to levels of the Global Financial Crisis, and the 2011 debt ceiling standoff (which was also accompanied by a sovereign debt crisis in Europe).  
This chart is, indeed, reflecting despair. 
But there's good news:  We have new information entering the mix, just over the past few days. 
As we've discussed, the Nvidia earnings call on Wednesday, revealed a retooling of computing technology that's underway (and in early stages), and (related) transformative economic outcomes that are coming, via generative AI.   
Add to that, by early this morning, it was leaked that a deal was coming together on the debt ceiling.
With all of the above in mind, as we discussed yesterday, the markets were already giving signals of change.  
We end the week, with the interest rate market now pricing in a 71% chance of another rate hike next month.  A week ago, it was just 17%. 
And the probability of rate cuts coming by year-end are being priced-out, rapidly.
This rate outlook is not driven by a firm inflation number this morning.  This is incorporating the shifting view toward bright economic growth prospects.  And that view changed on Wednesday, with the Nvidia report. 
As I've said here in my daily notes, we need this following formula to grow out of, and inflate away, the debt burden:  a period of hot growth + stable (but higher than average) inflation + rising wages. 
On that note, the AI transformation should bring us a productivity boom.  And a productivity boom should bring about the above formula.