USDJPY TECHS: Recovery Extends

Inflation pressures didn't appear to be much worse in the April Beige Book than in the prior edition, but it was clear that while overall price rises weren't particularly onerous, there was increasingly intense pressure across some sectors. Margins compressed, and tariffs continued to be a consideration. Overall, 9 districts characterized price increases as moderate/robust (was 8 in the prior Beige Book), with 3 seeing increases as modest (was 4 prior).

• The report describes price growth as having "remained moderate overall, with the vast majority of Districts reporting moderate increases and others pointing to modest growth. Generally, input cost increases outpaced selling price growth, compressing margins. Energy and fuel costs rose sharply in all Districts, attributed to the Middle East conflict, leading to higher freight and shipping costs and higher prices for plastics, fertilizers, and other petroleum-based products. Input cost pressures beyond energy-related increases were also widespread. Several Districts reported rising prices for metals due to tariffs, such as steel, copper, and aluminum. Technology costs rose for both hardware and software. Insurance premiums and health care costs continued to climb."

• US stock indexes trade near steady (SPX eminis +.5%) to mixed, the tech heavy Nasdaq (+1%) outperforming weaker DJIA (-.31%) in late Wednesday trade.
• Sentiment apparently buoyed by a lack of increased hostilities in the Middle East if not demonstrative reports of ceasefire reports and/or open egress through the Strait of Hormuz.
• IT and Financials led advances in late trade, software & services shares buoyed IT: Datadog Inc, ServiceNow, Intuit, AppLovin and Workday Inc gaining 5-8%.
• Supporting Financials: Robinhood Markets, Ares Management, Apollo Global Management and Morgan Stanley gained 4.5-9.0%.
• A mix of Industrials, Materials sector shares underperformed in the second half: Carrier Global, Lennox International, Stanley Black & Decker, Ingersoll Rand, A O Smith and Westinghouse Air Brake down 5.25-9.4%

The Fed's April Beige Book makes heavy mention of the conflict in the Middle East, which broke out after the response for the prior edition (February's) were compiled. That said, the portrayal of the economy in this edition was not substantially different, and arguably even more robust, with more districts on net (8 vs 7) reporting slight/modest growth and gains in employment (4 vs 3; and just 1 seeing declines vs 3 prior), with very little change in inflation reporting (9 vs 8 describing "moderate" price pressures). Our summary of the main sections is below.

• Economic activity was described as follows: "The conflict in the Middle East was cited as a major source of uncertainty that complicated decision-making around hiring, pricing, and capital investment, with many firms adopting a wait-and-see posture....On balance, consumer spending increased slightly despite harsh winter weather in some regions and higher fuel prices. Many Districts continued to report signs of consumer financial strain, increased price sensitivity, and rising demand at food banks and other social service organizations, while spending among higher-income consumers was resilient.
• On a sector-by-sector basis: "Manufacturing activity rose slightly to moderately in most Districts. Banking sector activity was generally steady with loan demand stable to up moderately.... Housing market activity softened across several Districts as heightened uncertainty and rising mortgage rates dampened buyer demand. Commercial real estate markets improved, with strength in industrial properties, especially data center projects. Office markets saw solid demand for Class A space but weaker demand for lower-tier properties. Energy activity was up slightly as oil prices rose, though many producers remained cautious about increasing drilling due to uncertainty about the persistence of higher prices. Agricultural activity was mixed, and several Districts reported that rising crop prices helped offset steep price increases of fertilizer and fuel. Business outlooks varied amid widespread uncertainty about future conditions."