Things you need to know
- ECB raised by 50 bps and introduces a new initiative
- Draghi resigns – Italy to hold Snap elections in September
- Speaking of SNAP….SNAP SNAPPED! – stock is down 27% in one move
- Is AT&T telling us to get ready for tougher times ahead?
- Try the Pan Seared Rib Eye – Bathed in Butta!
The ECB (European Central Bank) raises rates by 50 bps – vs. the 25 bps that President Christine Lagarde had been telling everyone…. the fact that inflation (running at 9.1%) is at record highs is at the root of the decision – she then introduced a new concept into the central bank narrative. The Transmission Protection Instrument (now known as the TPI) – It is now another tool in the toolbox which is supposed to ‘ensure that the monetary policy stance is transmitted smoothly across all Eurozone countries.’ It can be activated to counter unwarranted disorderly market dynamics that pose a serious threat to the transmission of monetary policy, and it will allow the ECB Governing Council to ‘more effectively’ deliver on its price stability mandate. (It sounds a lot like ‘we are in serious trouble, and we do not know what to do, so we produced a new complicated program to divert attention away from the fact that we’re screwed).
The TPI will buy the debt of the ‘most vulnerable economies’ as it tries to protect the Eurozone as it ‘navigates the twin threats of skyrocketing inflation and slowing economic growth’. Lagarde also made it clear that the ECB does NOT expect a recession this year or next year…. Well, that is nice…. we can only hope.
I cannot wait to see how this instrument protects against13 yrs. worth of bond market stimulus and artificially low interest rates that have completely disoriented/disrupted the European financial system. But hey – let us give her some space and see where this goes…What could possibly go wrong?
While we are in Europe – yesterday also saw Italian PM – (Uncle) Mario Draghi call it quits as support for his gov’t collapsed and inflation – which is running at 8% continues to surge out of control. Italian President Sergio Mattarella is now calling for snap elections on September 25th.
Next – Putin allowed the Nordstream pipeline to be turned back on – but at a slower rate than Europe had hoped for but that is better than not turning it on at all.
At home – we saw the Philly Fed Survey decline by 12.3 pts (vs. the expected +0.8) and the Leading Economic Indicators fell by 0.8% – more than expected – both signs of a slowing economy.
AT&T reported earnings and yes, the report shows that they beat on the bottom line – reporting earnings per share of 0.65/cts vs. the expected 0.61 cts. They made sure to tell us that raised their forecast for mobility revenue growth while lowering their full year cash flow as they ramp up investments in their 5G network. They also revealed that revenues declined by 17% which reflects the spin off of its media division to Warner Brothers Discovery. And the algo’s took it down by 7.6% to end the day at $18.92 – in fact they gapped it down on the opening by $1.44 or 7% finally filling the gap UP in April – during the last reporting season. You see – at some point it all comes out in the wash.
So, why do you ask? Because they also reported that customers are making ‘late’ payments on their accounts – and that is cutting into their free cash flow by $2 billion! Which then suggests that just maybe – AT&T will have to cut its dividend (28 cts/qtr. or $1.12/yr.) to maintain the robust capital spending on its fiber network. Now, we have to ask – Could that be the canary in the coal mine concerning the broader economy? Because when economic conditions deteriorate – people prioritize how they will pay their bills….and when they start making late payments on their cell phones, cable bills and utilities – that reveals a lot about the underlying economy. (Will we also see that same narrative when VZ reports today or TMUS reports next week?)
And Blackstone (BX) fell by 5% after reporting disappointing results – Fee based earnings coming up short while total revenues and assets under management were better than expected. In addition – CEO Jon Gray told Bloomberg that they expect inflation to be ‘stickier than expected’ forcing the FED to be more aggressive than the markets currently think.
And so – stocks whipped around all day – swinging from positive to negative to positive again as investors try to price all this in as speculation builds around what the FED will do next. Yes, it is now assumed that we are getting a 75-bps rate hike next Wednesday – taking rates to 2.5% – but what will he say in the press conference? Will we see another 75-bps hike in September? Fed Fund futures are suggesting yes….and if so, that gets us to 3.25% by the fall…. leaving 2 more meetings this year for the FED to decide whether or not the hikes are working.
By the end of the day – the Dow added 162 pts or 0.5%, the S&P up 40 or 1%, the Nasdaq added 162 pts or 1.4%, the Russell added 9 pts or 0.5% and the Transports gave up 54 pts or 0.4%.
The treasury curve remains inverted with the 2’s yielding 3.05%, the 5’s yielding 2.92% and the 10’s yielding 2.81%. This inversion is now 2 full weeks old – so the idea that a recession can be avoided continues to slip away….and no matter where you are on the risk scale – you have to recognize that is coming, now you must ask – How long and how deep will it be?
Oil – continues to trade right in line at $96.50/barrel leaving it solidly in the $87/$100 trading range. The idea that demand is weakening in the US (the world’s biggest consumer) along with new supply coming from Libya helping to keep oil in line. Data this week revealed that gasoline demand in the US has dropped 8% y/y as prices rose to record levels – all during what is usually a high demand ‘summer driving season’. And that is good for consumers as the price at the pump in now averaging $4.52/gal vs. the $5.25/gal last month. Demand though, in Asia and India continues to build…. with total refined consumption rising by 18% y/y in India.
And then SNAP reported after the bell – and boy was it ugly…. they missed on already slashed expectations; advertising revenues slumped so the aftermarket trading community took it down…. Let me define that- they took the stock down 27% within minutes of the report and this morning the stock is quoted at $11.85/$11.90 vs. last nights close of $16.35……now off 87% from the October 2021 high of $83.34. Active users coming in a bit above, it was ad sales that blew the company up. Demand growth on the advertising platform has slowed significantly…Forward looking visibility remains extremely challenging….and this report is now dragging other social media names with it…Facebook – which changed its name and symbol to META is quoted down 5%, TWTR down 3%, PINS down 7%.
This morning US futures are indicating a lower open…. Dow futures down 30 pts, S&P’s down 8, the Nasdaq lower by 60 pts (think SNAP) and the Russell off 3 pts.
Eco data today includes S&P Global US Manufacturing PMI and Services PMI of 52 and 52.7 respectively. That would put both reads weaker than last month….as the trend is down – recall 50 is the dividing line…. south of 50 puts us in contraction territory and the one that is the KEY to watch is the services number…because the US is a 75% services economy…. Capisce?
It is another big earnings day…. watch for results from AXP, SLB, VZ, ROP, TWTR all before the bell, there are no aftermarket reports – it is Friday.
Expect TWTR to fill the airwaves today….do people really care about the fundamentals at this point? Can you even believe the fundamentals any longer? In the end – while the drama is exciting you are in this to make money and there are plenty of places to put your money that actually provide opportunity. In my opinion – TWTR is dead money for the long-term investor – do not waste your time.
European markets are choppy – but they are higher this morning…. all markets across the eurozone up about 0.3%. Eurozone business activity unexpectedly shrank in July – manufacturing and service sector growth slowed…. the composite Eurozone PMI which includes both manufacturing and services pierced 50 – coming in at 49.4 – which puts them in contraction territory – the zone now joins both Germany and France that have seen their individual PMIs enter the contraction zone…maybe someone should tell Christine Lagarde.
UK PMI came in at 52.8 – down from 53.7 last month while British consumer confidence remains at record lows at minus 41 (think inflation and rising interest rates). Minus 41 is well below levels that have previously been seen before they enter a recession.
The S&P closed at 3998 – after testing as high as 3999.29…. just a hair below the next century mark of 4000. Now, you know, I have been saying that we are in this 3600/4000 trading range….and here we are. Now if you look at the chart – you will see that it gapped down on the opening on June 10th – going from 4017 to 3974…and then gapped down again on June 11th going from 3900 to 3838 We have filled the gap created on the 11th and will most likely fill the gap created on the 10th this morning….The S&P needs to trade up to at least 4018 to fill this gap – and it needs to trade there not GAP UP to get there….If it does, that will be a bullish signal and could see us trade up to the trendline at 4140 over the next week.
But remember – we still have 3 weeks left in the earnings season…and we have the Fed meeting next week along with a lot of economic data points – one of the most important is Friday’s PCE Deflator (Fed’s favored inflation gauge) and that is expected to come in at +0.9% m/m and +6.6% y/y – BOTH HIGHER than last month…and that would confirm what we learned last week when both the CPI and PPI raced to higher highs.
Remember we are in the ‘quiet period’ – don’t expect to hear anything ‘formal’ from any FED member – but it is the weekend – and you never know if Minneapolis Fed President Neely Khashkari (not an FOMC member) will make a call to his friends at Goldman to ‘leak’ a story….indicating what the FED WILL do on Wednesday – this way they can control the narrative and send stocks higher!
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Pan Seared Rib-Eye – Bathed in Butta!
This is a simple, yet mouthwatering recipe – but you need a thick cast iron pan that can go from the oven to the stove top.
For this you need: 1 – 1 lb. rib-eye steak, peanut oil, kosher salt, black pepper, 3 crushed garlic cloves, and butter.
Preheat your oven to 450 degrees. – place the cast iron pan into the oven and allow it to heat the pan.
Using some of the peanut oil – massage the rib-eye on both sides and then season with the kosher salt and black pepper. Set aside until the pan is ready.
Once the cast iron pan is heated – remove it from the oven – (remember to use mitts) – and place on the stove top burner set to medium. Place the rib-eye in the skillet and let it sizzle for 2 mins…. now flip the steak – top it with the crushed garlic and place the whole thing back in the oven – let it cook for 7 mins….
Remove from the oven and place back on the stovetop – flip the steak over and add the butter….(3 or 4 slices should do) – the butter will melt immediately – tilt the pan and using a spoon – scoop up the butter and the garlic and keep dripping it over the steak – turn the heat off and cover with tin foil and let it rest for 5 mins. Serve on a warmed plate with your favorite veggie or potato, a large mixed green salad and a nice robust bottle of red wine. Here is where I would drink a Brunello di Montalcino….
This dish will cost you about $22/pp. PLUS the wine.
Buon Appetito.
