Things you need to know
- Chrissy Lagarde makes a move – now what?
- All eyes on today’s CPI and next week’s PPI/FOMC
- Global Mkts under pressure as recession looms
- Energy Secretary Jenny Granholm is tone deaf – as there is no end in sight for higher oil and gas prices
- Try the Baked Rigatoni
Bam! Stocks got slammed on Thursday after Christine Lagarde (ECB President) announced their plans to begin to tighten monetary policy in order to fight surging inflation across the Eurozone. Now to be clear – inflation in the Eurozone pierced their 2% target almost one year ago – just like it did in the US. (It happened here in May 2021). And then contrary to what all of the ‘people in charge’ kept saying – inflation in the Eurozone – like inflation in the US – was NOT transitory. And today inflation across the Eurozone is running at 8.1% – while here in the US it is running at 8.5% (and likely going higher today….)
The reasons are very much the same…..energy and food for sure fanned by rising prices on goods and services ALL caused by tight labor markets and endless supplies of ‘easy money’ as nearly every central bank around the world printed unprecedented amounts of money in order to help stabilize economies after both the GFC (Great Financial Crisis of 2007/2010) and then the global pandemic that saw the world go dark for nearly two years. Rates in the Eurozone today are still in negative territory -0.5% to be exact, and after today’s decision it is expected to go to -0.25% in July. (a 25-bps increase). The kicker came when she said that the bond buying program has seen its better days and that she could make the September increase larger (think 50 bps). She threw more fuel on the fire when she also said that she was revising her growth projections DOWN while revising her inflation projections UP.
Now, again, none of this was really a surprise (she has been hinting at it for a while) and anyone who is breathing and has not been living under a rock knew it, but it is now their reality and investors are not happy. They are not happy not because rates are rising – they are not happy because they are so far behind the 8 ball and the message is – What were you thinking? Inflation pierced 2% a year ago and has been creeping higher every month (sound familiar?) Average citizens were screaming about it on a daily basis – yet policy makers knew better and kept stimulating. Then that bully in Moscow launches a war in Ukraine and that only exacerbates the situation (it did NOT cause the situation) ….and now we have (global) inflation that is ‘out of control’
And it was this news that unsettled the US markets yesterday as investors here prepare for today’s CPI (Consumer Price Index) report. And while we have beaten this to death – the estimates call for the CPI to come in at 8.3% – which by the way was quietly revised up this week – because last week they (the gov’t) were calling for an increase of 8.1%. They were telling us how inflation ‘has peaked’ – notice the use of the past tense. And just to be clear – it has not peaked at all. The Janet Yellen commentary this week says it all, along with rumors out of the WH that are suggesting that even the 8.3% number might be a pipe dream – and so investors/traders and algos do what they do when it’s unclear…some hit the sell button while others remain buyers – just not buyers willing to pay Wednesday’s prices and so – down we go.
The VIX – fear index – rose 9% to end the day at $26.20 and that makes sense…. fear rises when prices go lower…. It is now kissing resistance at $26.60 and if it pushes up and through – then I would expect it to spike to $35 ish? A 33% jump from here. And it will push up if today’s CPI is HOT.
By the end of the day the Dow gave up 680 pts or 2%, the S&P lost 98 pts or 2.4%, the Nasdaq got crushed giving back 335 pts or 2.75%, the Russell lost 40 or 2.1% while the Transports suffered falling 290 pts or 2%.
Oil prices – retreated just a tiny bit – ending the day down 50 cts at $121.40/barrel – as the media cited renewed lockdowns in China as the reason for the ‘weakness’ (ridiculous). It was just a breather after the most recent surge up – it has nothing to do with China and everything to do with US energy policy. Two days ago, Yellen herself told congress that there is ‘little we can do to insulate ourselves from rising energy prices’ (which is not really true) while Energy Secretary Jenny Granholm told the media to warn Americans to ‘prepare for higher oil and gas prices over the summer.’ Then yesterday she tweeted that
‘The US energy dept. and the US Dept. of Transportation (Petey Buttigieg’s dept) are working together to ‘propose new rules for EV charging stations so that Americans across the nation can charge their EV’s without having to worry about range anxiety and charging deserts.’
Talk about tone deaf! Range anxiety? – is that now the latest mental disorder. Just to be clear – She is proposing new rules for EV charging stations while we are in the middle of a 1970’s style energy crisis! Is it me? Now while that is good in the long term – it does absolutely nothing to help the current situation and only serves to infuriate anyone that needs to buy gas to get to work or go to the store to buy food that has also exploded in price. But let us save that conversation for another day when there is not anything going on.
The yield on the 10 yr. treasury ended the day at 3.025% but not before testing a high of 3.07%. This as investors digested the latest move out of the ECB and what it means for the FED ahead of today’s report. This morning the yield is at 3.019%.
Housing is also now coming under pressure…as mortgage demand is the lowest since 2001, 30 yr. rates have doubled – current conforming loans at 5.25%, Inventory is up 10% and 20% of listings saw a ‘cut’ in prices in the last month. The ‘sight unseen’ buyers apparently taking a rest.
Communications XLC leading the pack down 3%, while the other 10 sectors lost just over 2% across the board. Airlines- JETS etf fell 3.5%, Disruptive Tech fell 6%, Coal stocks fell 5.3% (but remember they have rocketed higher this year up nearly 150%), Natural gas stocks down 5% too – but they too have rallied triple digits ytd. Both the Value (SPYV) and Growth (SPYG) fell 2% – as money moved out of stocks, value remains lower by 6.5% ytd while growth is down 24% ytd. Capisce?
This morning US futures are mixed…. the Dow down 22 pts, the S&P flat, the Nasdaq up 40 pts while the Russell is down 1. The focus today is all about inflation and the CPI. Then after 8:30’s announcement it will be all about Monday’s PPI (Producer Price Index) report – expectations of 10.8% (which is comical – because I think it will come in higher) and then what to expect from the FED on Wednesday. Expect to hear from all of the big investment banks and asset managers about what ‘their people’ see. What the FED will do, What the FED needs to do and what that means for stocks.
The S&P closed last night 4017 – down 98 pts…. right on the low of the day. Which usually means that we will test lower today. It is also Friday – the end of the week – so you might see the trader types of bail on stocks after the report – if it is hotter. Long term investors know this, so do not expect them to stand still and get run over…. they can be as strategic as anyone and in fact have to be more strategic in order to take control of the situation. At 6 am – futures are not suggesting anything – which suggests that investors/traders and even the algo’s are waiting….
Stocks in Europe are under pressure – down nearly 2% after European investors got a chance to dissect and digest Christine’s comments yesterday and as they prepare for the US CPI report today. The focus is all about European inflation, US inflation and the plan to take control of it. Right now, the market is telling you that they have little faith that the FED or the ECB can manage to navigate a ‘soft landing’…. Or a global recession.
Expect to hear the likes of Mohamed El Erian opine on what needs to happen – (remember he was also in the camp that inflation was transitory back in 2021) …but has conveniently changed that position and is now telling us everything that the FED did was wrong. They waited too long to recognize inflation, they waited to long to raise rates, they waited too long to reduce the balance sheet…. blah, blah, blah……
I said it last year and I keep saying it today….I think the FED needs to shock the markets and raise rates by 1% at both the June and July meetings, but that won’t happen – there isn’t a whole lot of support in DC – because that would be like yelling ‘FIRE’ in a crowded theater. But that is what needs to happen. Next week it will be all about the PPI (Producer Price Index) as well as the FOMC (Federal Open Market Committee) meeting results.
Sit tight –lots going on…. We remain in the broader trendline support / resistance range of 3800/ 4275.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Baked Rigatoni
Now this is the ultimate comfort dish…. All you need are the meatballs and the sauce you made on Tuesday along with 1 lb. of Rigatoni, shredded Mozz, fresh grated parmigiana (or Pecorino Romano), and some fresh Ricotta Cheese.
This dish should cost you no more than $15 to put together.
Warm up the sauce and meatballs.
Bring a pot of salted water to a rolling boil and toss in the pasta cook for 8 mins – leaving them a bit undercooked.
Preheat your oven to 350 degrees.
Now, take 4 or 5 of the meatballs – crush them in a large bowl and add some sauce.
When the pasta is done- strain it and put back in the pot. Add the crushed meatballs and sauce. Now add in 1 cup of the shredded mozz, 1 cup of the fresh Ricotta and 2 handfuls of the fresh grated parmigiana (or Pecorino Romano). Mix it well. Add more sauce if it needs it.
Now in a large Pyrex baking dish – add a ladle of sauce on the bottom. Now add the pasta and spread it out nicely in the dish. Add a ladle of sauce on the top and place in the oven. Allow it to cook for 15 more mins. Keep your eyes on it; you do not want the top to burn. Remove and let it rest for 5 mins or so.
When serving – make sure you have extra sauce on the table for your family.
Buon Appetito.
