Update: May CPI, central bank meetings, SpaceX IPO and Social Security

There’s never a dull moment for investors, with volatility in stocks and bonds escalating as questions regarding the A.I. trade just won’t go away.  Moreover, the U.S.-Iran conflict is behaving more and more like the Energizer bunny - it just keeps going on and on and on.  In fact, so much so that the closure of the Strait of Hormuz has become the new norm, although it seems investors could care less. 

That being said, let’s motor on to what really matters in the coming days – May CPI in the U.S. (released yesterday), upcoming central bank meetings, the SpaceX IPO which is on the launch pad (no pun intended), and U.S. social security. 

May CPI, released yesterday

May CPI for the U.S. was released Wednesday morning, and it came bang on with expectations.  Headline inflation for May (YoY) was 4.2% reaching its highest level in three years.   Core inflation was 2.9%/annum, also in line with expectations.    

Although inflation remains well above the Fed’s target, yields across the UST curve were not affected by the May CPI data given that it was in line with expectations.  The leader of the free world had this to say in The Hill:

Strange that….hardly know what to think because it’s always blah, blah, blah.  For context, recall that flash Eurozone CPI for May was 3.2% YoY headline at 2.5% YoY core, sharply elevated from pre-war levels.  And this brings us to upcoming central bank meetings…

Central Bank meetings

The next week sees all four major central banks holding monetary policy meetings. 

• ECB (Eurozone): June 10-11 (now), with decision on June 11^th (today).  With its single mandate of inflation control (target 2.0%), the ECB will not sit back like the BoE and Fed, but will act to address inflation that has now risen to 3.2%/annum in the Eurozone.  Expectations are that the ECB will raise its policy rates 25bps this afternoon, with the possibility of another 25bps increase at the July meeting.

  
  

• FOMC (Fed): June 16-17, with the monetary policy decision announced on the 17^th.  This is new chairman Kevin Warsh’s first meeting in which he is in charge of the FOMC.  The FOMC is expected to sit tight in spite of inflation spiralling higher.  Investors will not be focused on this as it is a given, but rather will listen carefully to what Chairman Warsh has to say in his first press conference as head of the Fed.   As an aside, the CME FedWatch Tool is projecting no change in U.S. interest rates (Fed Funds currently 3.50%-3.75%) until December, with the Fed Funds rate expected then to be raised 25bps.

• Bank of England: The Monetary Policy Meeting of the BOE will meet on June 18^th, and announce its policy decision that day.  Expectations are that the Bank Rate will be held at 3.75%, although investors are leaning towards a 25bps increase in the Bank Rate at the July meeting.

• Bank of Japan: June 15-16, with a monetary policy decision announced on the 16^th.  Expectations are very high that the Bank of Japan will increase its policy rate (currently 0.75%) by 25bps at its monetary policy meeting next week in order to address rising inflation and a weak Yen.  A further 25bps increase in the policy rate is expected in the second half of 2026.

In summary, there should be no surprises as far as policy shifts at these meetings.  However, the minutes of the meetings and the commentary following the meetings by the various central bank heads will be much more influential as far as next policy steps. 

SpaceX IPO (and others)

The SpaceX IPO (SPCX) is rumoured to be widely over-subscribed, so much so that the book apparently closed on Wednesday.  The offering is expected to price today at $135/share and to begin trading on Friday.  If the offering is as oversubscribed as reported, the stock will certainly pop at the open, and it’s hard to say by how much although I’d venture a guess and say 20% +/-.  As I have written in my blog (here), I am not convinced as to the staying power of SPCX once the dust settles and the lock-ups begin expiring in mid-August.  Two things have changed since I wrote my article last week, both negative for the stock, although I suspect no one cares because this stock is going to be “meme-like HOT” at the launch!  

• SpaceX will not be given any sort of exception to be included in the S&P 500, which requires among other things that the company be profitable, and it’s a long ways from that.  (However, it will quickly go into the NADSAQ for QQQ holders.)

  
  

• The company amended its offering document (S-1) last week to add that further stock sales are likely, potentially diluting existing shareholders including the new block of publicly-held shares.  Dilution like this would ordinarily be priced in, but no one cares because the stock is going to be white-hot.  Here’s a description of the concern extracted from The Motley Fool:

Behind SpaceX, both Anthropic and OpenAI have filed for IPOs in the last week, both expected to be valued at around $1 trillion.  The timing is likely to be in the autumn for both, with no other details available just yet.  Investors in Anthropic (Claude A.I.) include corporate tech giants Alphabet (GOOG) and Amazon (AMZN), along with a number of VCs.  Investors in OpenAI (ChatGPT A.I.) include corporate tech giant and long-time backer Microsoft, along with a number of VC firms.  Investors best pray to the A.I.-gods that A.I. maintains its momentum because the volumes to be absorbed across SpaceX, Anthropic and OpenAI are very material.  

I have been noodling over SpaceX, and might try to play in the IPO (doubtful I would be allocated shares) but do not see myself as a long-term holder. 

Somewhat in competition (at least for equity investment dollars), GOOG announced an $80 billion share offering on June 1^st, which could tempt MSFT, META and AMZN into the market too.  Although the GOOG offering sounds huge, it will be only 2% or so of the company’s float.  Investors might be surprised at this offering given the company had $127 billion of cash on its balance sheet at the end of March, and it generated nearly $46 billion of operating cash flow in the first quarter alone.  However, GOOG has said it will spend $165 billion to $175 billion in capex this year for data centres mostly, so it will burn some serious cash.  Moreover, the offering makes tonnes of sense from the company’s perspective since the stock has skyrocketed and is at an attractive level (from the company’s perspective) to raise equity.   

All of this equity capital raising makes me wonder just how large the supply will be, and whether or not it will all be digested.  These are some very large numbers! 

Social Security Trust Fund: It’s heading for depletion

If you are American at or near retirement age and are interested in Social Security,  you will certainly not like the latest update from the Social Security Board of Trustees, released on June 9^th.  The conclusion is that the social security trust fund will be depleted by the 4Q2032, and benefits will be reduced by circa 22% when this occurs (as the system will effectively be converted to “pay as you go”).   

Have you heard the U.S. President or a single member of Congress on either side of the aisle utter the words “social security”?  I haven’t at least in several years in seems, but the programme will be in trouble without reform.  Although the article is dated, I wrote about Social Security in my blog in August 2023 in an article that you can find here: “Social Security: Crash and Burn”.  Since then, the situation has worsened in terms of the expected depletion date being brought forward.

Recent reads

If you missed last week’s market update in EMC, you could catch up and read it here.

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