5 Things You Need to Know to Start Your Day: Americas

Good morning. Fed officials are sticking to the script despite cooler inflation, meme stocks are swinging wildly and old-school bond manager [View in browser]( [Bloomberg]( Good morning. Fed officials are sticking to the script despite cooler inflation, meme stocks are swinging wildly and old-school bond managers are retooling their strategies. Here’s what’s moving markets. — [Sam Unsted]( Want to receive this newsletter in Spanish? [Sign up to get the Five Things: Spanish Edition newsletter](. Inflation ripples US stock futures [are pretty flat]( following the new records notched by the S&P 500 and Nasdaq 100 in the previous session. Stocks were spurred on by cooling signals in US inflation and retail sales data on Wednesday, which also increased bets the Federal Reserve will ease policy. That inflation data, which the market was feverishly anticipating, was [inadvertently published 30 minutes early](, raising new questions about how some of the world’s most sensitive economic information is released. Fed messaging The inflation reading, however, hasn’t changed the tone of comments from Federal Reserve officials. Neel Kashkari repeated that the Fed will likely have to [keep interest rates at current levels for “a while longer”]( and raised questions about how much high borrowing costs are restraining the economy. And Austan Goolsbee said that a slowdown in price-growth is welcome, but he’ll [need to see more progress]( before supporting rate cuts. The Fed’s Thomas Barkin, Patrick Harker, Loretta Mester and Raphael Bostic are all due to speak today. Meme swings The resurgence of meme stocks that saw GameStop and AMC Entertainment surge in the first couple of sessions of the week has faded, at least for now. Both companies [slumped on Wednesday]( and are sliding lower again in premarket trading. That echoes what happened in 2021, albeit in condensed form. Back then, GameStop rallied more than 1,000% in a matter of weeks before rapidly unwinding. It then swung back and forth for months, never quite reaching the early heights again. Was the pop in meme stocks a sign of strength of the American consumer? Or a contrarian signal to exit the equities? Share your views about the recent gains in GameStop and AMC in the latest MLIV Pulse [survey](. Need for bond speed The growing unpredictability of government bond markets is causing old-school fixed-income managers [to retool their trading strategies](. Volatility in bond markets has overshot other assets consistently for the past two years, and long-term yields are swinging more violently than the average of the last decade. Hedge funds have been quick to embrace the volatility — another bout of which was seen in Treasuries after the US inflation data yesterday  — and now traditional players are doing the same. Walmart clues There’s a smattering of economic data for the US due today, but attention is likely to be focused on results from retail giant Walmart and the clues it provides on the health and spending habits of US consumers. Agricultural machinery giant Deere & Co is on the slate too. Networking equipment giant Cisco is rallying in premarket trading after [increasing its sales forecast](, saying that its customers are starting to invest again. What We’ve Been Reading This is what’s caught our eye over the past 24 hours. - China-Russia ties [should last “generations,”]( Xi tells Putin. - The frantic atmosphere as [Archegos collapsed](. - Michael Burry [boosts his bet]( on Chinese big tech stocks. - The shooting of Slovakia’s premier [inflames political tensions](. - A [copper short-squeeze]( in New York rattles global markets. And finally, here's what Joe’s interested in this morning The world could completely run out of cocoa inventories, according to the famed commodity trader and hedge fund manager Pierre Andurand. Pierre has built a successful career primarily based on his oil bets. But he also veers into other areas from time to time, including a successful long bet on cocoa back in March, right before the price of the commodity took off. We talked to Pierre for the [Odd Lots podcast out today](, and it was absolutely fascinating hearing how someone like him conceptualizes the market. Find the whole episode on [Apple,]( [Spotify]( or elsewhere. As he sees it, there are four factors greatly diminishing supply: - Bad weather in West Africa - Climate change - Two separate disease outbreaks affecting the cocoa plants - A shortage of fertilizer on account of Russia's invasion of Ukraine. But then what's perhaps even more interesting is how he conceptualizes demand. Basically, from a demand perspective higher prices just don't matter much. A typical chocolate bar might just be 10% cocoa, which means even a 10x increase in the price of the beans would only double the price. And since chocolate just isn't a big part of most people's spending, even a surge in prices at the end level might not affect the amount of chocolate people buy. Here's how he maths it out (edited for clarity): It's always about supply versus demand. But what has been capping the price between $2,500 a ton and $3,000 a ton was not demand because demand is extremely inelastic. You can study that historically when you have a recession or not, when prices go up a lot or not. Demand generally goes up. And that's because the amount in dollar terms that people consume in cocoa is very small. I did a back-of-the-envelope calculation the other day. You have 8 billion people on the planet and a market of 5 million tons of demand per year, so on average it means that people consume 1.7 grams of cocoa per day. At $10,000 a ton, which is four times the more recent historical prices, that represents 1.7 cents per day. Okay, that's the average person. Many people eat nothing and a few eat 10 times that amount. So, at these levels of spending — 1.7 cents per day per person — the swings just don't matter much and the only way to bring the market into balance is supply. Now he sees a possibility that the world could run out of cocoa inventories, which to be clear is different than the world not having any cocoa. Exchanges and producers hold stocks of cocoa, which is an important number to get your hands on, so you can get a “stocks-to-grinding” ratio, which gives you a sense of how much the world has on hand as a buffer relative to how much is processed at any given time. Right now we're at 21%, which is far lower than the past 10 years, when the world was closer to 35% to 40%. If we get another bad year of weather and disease, those excess inventories could just vanish. Follow Bloomberg's Joe Weisenthal on X [@TheStalwart]( [Bloomberg Markets Wrap: The latest on what's moving global markets. Tap to read.]( Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. 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