Things you need to know
- Jamie Dimon tells us to ‘brace ourselves for the coming hurricane’ while Marko Kolanoic says ‘Don’t be Ridiculous’
- The Saudi’s remain ‘strategically ambiguous’
- Russia is expected to remain the + in OPEC
- More FED members calling for aggressive interest rate moves
- The Platinum Jubilee has begun as Britons across the nation sing ‘God Save the Queen’
- Try the Baked Chicken Thighs
Well – they tried to start June off with a bang and instead it was another bust….
The Dow losing 177 pts, the S&P off 30 pts, the Nasdaq fell 90 pts, the Russell gave back 10 and the Transports lost 106 pts.
Investors parsing the macro data points recognized that the FED has not succeeded in slowing growth enough to impact inflation and that they will need to get more restrictive in order to slow those ‘run-away’ price gains. S&P Manufacturing PMI coming in at 57 just a hair below the expected 57.5 while ISM Manufacturing PMI came in at 56.1 stronger than the expected 54.5. The prices paid component rose to 82.2 (not good – inflationary), New Orders rose to 55.1 (suggest still strong demand). The job openings report showed that there are even more jobs available than expected – suggesting that wages will surge as employers will be forced to pay up for talent- both to attract them and to pay them a wage that will allow them to live in a world with high inflation…. and that will help to fuel the 1970’s style ‘wage/price inflation spiral’
Then JPM CEO Jamie Dimon told analysts that he is preparing the biggest US bank for an economic hurricane on the horizon – caused by ‘the FED and the Ukraine war’ – he then advised that investors do the same. His comments took the financials (XLF) down 1.6% after he also said that private borrowers ‘may be stranded as conditions tighten’ suggesting a tough time ahead for the banks that have all extended way too much credit…. And to tie up any loose ends he suggested that as the FED became more restrictive it would threaten to ‘tip’ us into a recession…. We need to define ‘tip’…. did he mean ‘gently tip’ or did he mean ‘fall off the cliff tip’? Now what is interesting is that JPM’s Co head of Global Research Marko Kolanovic thinks that Jamie is WRONG! Either way – that is what makes a market – both buyers and sellers and differing opinions.
Now, what is funny about that is that yesterday was June 1st, and do you know what that is? The start of the ‘hurricane season’ here in Florida and coincidentally there is a storm brewing in the Gulf of Mexico – likely to become a tropical depression and if it does – his name will be Alex. Mimicking Jamie – Weather.com is telling us to also ‘brace ourselves this weekend as the storm hits.
Then at about 1 pm – St Louis’s Jimmy Bullard took to the podium telling listeners that he is urging policy makers to be more aggressive raising the chances of a 3rd 50 bps increase in September. (Recall what Chris Waller said on Monday – see yesterday’s note). Chiming in was none other than San Fran Fed President Mary Daly – and guess what she said? Oh yes, ‘Get more aggressive!’ This after Atlanta’s Raffie Bostic ‘clarified’ his September pause comments from 2 weeks ago. Do you now see how they used Waller (a none voting member) to start to raise the idea of a more aggressive Fed? He floats it (in Germany no less) and then the ‘voting’ members speak out in support of it – AHEAD of the June meeting……. Today we will hear from Cleveland’s Loretta Mester and guess where she stands?
We also found out that manufacturing PMI and New Orders in both Italy and Germany fell sharply – suggesting that the Eurozone is on the verge of a recession – couple that with what the US CPI & PPI data detail and it is not hard to see a global recession brewing…. No matter what the FED’s favorite inflation gauge (PCE Deflator) tells them. Remember – JJ Powell (along with the whole committee) were the ones that refused to see inflation brewing, he was the one to tell us all that we were wrong, that everyone was getting hysterical for no reason…Inflation was TRANSITORY….Yeah, that’s what Janet Yellen said too and did you hear HER mea culpa on Tuesday?
And before you go and take sides – recall that inflation in this country started to spike in May 2021 – when it went from sub 2% to 3.5% in one month – THAT was the clue and that was well before Vlad started the war and well before the latest China lockdowns and THAT was when I said – the FED needs to begin raising rates ‘gently’ – but alas – no one was listening! Had they begun raising rates back in the summer of 2021 – inflation would NOT be running at 8.5%.... but hey – what do I know?
10 yr. treasury yields spiked higher surging to 2.94% before settling in at 2.91% and this morning yields are holding steady.
Oil had a wild day – rising to a high of $117.60 just ahead of that OPEC + meeting to discuss supply issues and whether or not Russia would remain part of the alliance. By the end of the day – oil pulled back and closed at $115/barrel as some analysts started to suspect that there is a solution.
This morning we are seeing pressure on oil – it is down 2.2% – trading at $112.76 – Investors are ‘cashing in’ on the recent rally as the Saudi’s remain ‘strategically ambiguous. Will they boost production? Will some of the other members chip in – think Kuwait & Qatar? And what will Russia’s role be going forward? In any event – RBC’s Helima Croft and other oil analysts are suggesting that OPEC + will figure this out and raise production just enough to meet global demand without causing oil to tank and that is causing traders to ring the cash register. Look, oil rallied 14% during the month of May and is up 61% ytd – and while I think it goes higher – the trader types are paid to ‘trade it’. It would not surprise me to see oil pull back to $110/barrel.
US futures are up this morning – attempting to take back 3 days’ worth of losses. At 5 am – Dow futures were up 120 pts, the S&P’s up 20 pts, the Nasdaq is ahead by 88 pts and the Russell up 9 pts. Much of the talk today will be about oil, it will be about monetary policy, it will be about Jamie Dimon’s comments yesterday and it will be about speculation around what the FED is thinking now.
Economic data today includes the ADP employment report – expect 300k new jobs created (restored), Unit labor costs are expected to remain elevated at 11.6%. (Think wage pressure). Factory orders of +0.7%, Durable Goods Orders of +0.4% and Capital Orders and Capital Good Shipped.
European markets are up. The celebrations have begun in the UK as the country honors the Queen’s Platinum Jubilee…that is 70 yrs. on the throne! In addition – investors there are still digesting the inflation numbers that hit them on Tuesday….German, French and Eurozone rates are at all-time highs and that suggests that the ECB (European Central Bank), like the FED will be forced to finally do something…..They too, must stop pretending that their actions haven’t caused run away inflation. At 5:30 am the markets are up about 0.5%.
The S&P closed at 4101 – after piercing 4100 and trading as low as 4073 before it found support. This morning’s action – like yesterday morning – feels like they want to try and take them higher (again), but the jury is out…. lots of commentary to digest and lots of macro data to consider. Tomorrow will bring us the May Non-Farm Payroll report and there will be lots to discuss after it gets released. That report is also expected to show an increase of 325k new jobs, a loss of manufacturing jobs, and Average Hourly Earnings y/y of 5.2% – which would be down from last months reading. All this as inflation remains elevated at 8.5% and likely going higher in the short term. Trendline resistance is at 4276 while true support is at 3800.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Baked Chicken Thighs w/Tomatoes & Goat Cheese
For this you need: Olive oil, Lemon Juice, peeled garlic cloves, oregano, s&p, 1 tablespoon pesto 8 bone-in chicken thighs – trimmed, 2 cups sliced cherry tomatoes, goat cheese, pitted black olives.
Start out by mixing the oil, lemon juice, garlic cloves, oregano, s&p, and pesto in a blender and pulse until smooth. Place the thighs and marinade into a zip lock bag – shake to mix and refrigerate overnight.
The next day remove the thighs from the refrigerator an hour before you plan to bake them, remove from the zip lock, and discard the marinade.
Preheat the oven to 400 degrees
Place the thighs in a baking dish and bake for 35 minutes.
Remove the chicken from the oven and place the tomatoes and olives around the chicken.
Spoon some of the chicken juices over the chicken and tomatoes, then crumble the goat cheese on top.
Bake an additional 15 minutes, or until the chicken is cooked through and the tomatoes have softened.
Place the chicken on a platter and spoon the tomato and olive mixture on top.
Serve with a large mixed salad.
Buon Appetito
