Things you need to know
- Macro data mixed, housing under continued pressure
- Treasury yields down – curve remains inverted
- Oil up 6% in one week – lower prices driving renewed demand?
- 4 FED members opine on the next move – is it all smoke and mirrors?
- Try the Pan Seared Halibut w/butter, lemon & capers
Initial Jobless Claims come in at 250k (better), Cont Claims of 1.437 (better), Philly Fed Survey 6.2 – (much better than the expectation) which surprised a lot of people, but the outlook remains cloudy and Existing Home Sales – Yeah down 5.9%. They continued to fall under the stress of higher interest rates and fears of the coming recession….…
And stocks continue to struggle for direction……swinging between gains and losses all day – while not moving dramatically in either direction (after the latest surge) ….as trading volumes decline by 20% (no surprise – end of August – we discussed that) and earnings and macro data fail to push the markets even higher….
Over the last 6 weeks – investors have piled into stocks – dismissing the risk that the FED will remain aggressive – many now convinced that inflation has peaked and that will allow the FED to pivot……..global equity funds has seen an increase of $9.2 billion over the past two weeks….on what I think is a FOMO trade – for all of those investors who try to pick the tops and bottoms….rather than staying in and riding the waves…..
By the end of the day – the Dow added 20 pts, the S&P gained 10, the Nasdaq added 28, The Russell up 14, and the Transports added 120 pts.
Treasuries rose in price – sending yields lower…. Leaving all 3 – the 2’s, 5’s and 10’s in an ongoing completely inverted and upside-down state continuing to suggest tougher times ahead.
Wednesday, we got the FED minutes and found that they have no intention of backing down – and that somehow continues to cause confusion – Why? Not sure. They said that have NO intention of backing down – so why would anyone think that the next move will be 50 bps vs. the expected 75 bps? To confirm – we then heard from not 1 but 4 fed presidents –
St Louis Fed President Jimmy B (a voting member) – told the WSJ that he is favoring a 75 bps move in September saying “why would you want to drag out interest rate increases into next year” (suggesting sooner vs. later) and then Kansas City Fed President Ester George (another voting member) – telling us ‘do not be wooed’ by what appears to be a slowing CPI – last month’s decline was hardly earth shattering….suggesting that she also favors a 75 bps hike….and then Minneapolis Fed President Neely Kashkhari (not a voting member) reiterates his ‘hold your feet to the fire’ mantra further supporting an aggressive hike saying ‘we must douse the fire’ and remain focused while San Fran’s Mary Daly (also not a voting member) said that the FED is in no hurry to reverse course next year – suggesting that rates are expected to continue to rise for the balance of 2022 and 2023….….…..balance this against what the ‘traders’ want and you have a diversity of thought…..FED fund futures (traders) has 100% bet that the FED raises only by 50 bps….in September while the rest of us are betting that the FED will raise rates by 75 bps.
So the question is – Will the FED stand up and do what’s right or will they cave to the traders – fearful of the temper tantrum they will throw if they don’t get what they want? Expect lots of back and forth over the next 5 weeks.
In any event – we will get the PCE deflator next week – and that is the Fed’s favored inflation gauge and that is expected to show a m/m increase of 0.3% and a y/y read of 4.8% – which is in line with the expectations….Another round of CPI and PPI are both due out in 3 weeks….September 13th and 14th…..and the jury is still out – estimates have not been posted yet….because the month is not over yet….so – slow down…..it’s coming.
In any event – I say – let it rip…. raise them by 75 bps and then see what happens……My guess is that – IF the PCE and the CPI, PPI show any further signs of cooling – then the FED will cave……. So this will be interesting to see how it plays out….Remember – midterms are only weeks away…and the Dems will need to take the focus off of the massive tax, spend and auditing bill that they just passed – they will need to point to how that bill – known as the Inflation Reduction Bill is ‘starting to work wonders already’! Amazing, no?
Oil – ROSE by $2.40 or 2.7% to end the day at $90.50/barrel……up 6% since last week…..(off the $85.73 low) – the rally a direct result of the optimism around improving demand for crude oil (so I guess that demand destruction story is out of favor for now)….and the idea now that the Saudi’s have had enough of the declining prices….down 24% off of the June highs….The new Secretary General for OPEC telling Reuters that OPEC+ could CUT production or increase production at the September meeting…..which leads me to ask – Isn’t that like saying stocks could go up or they could go down? I mean – that’s useless….and vague – which is exactly what they want…. This morning – oil traders are taking some profits sending it down $1 to $89.50 as the media re-ignites the recession fear story….
Gold is under pressure – ending the day down $3.70 to $1,773/oz…. the main headwind being the continued dollar strength – which is being fed by the idea that the FED will remain aggressive – raising rates and giving the dollar another boost. The dollar up 40 cts at $107.88. Earlier in the week – I said that if gold did not take back $1800/oz then we could see $1770 ish….and that is what we have seen…. Expect the lack of clarity (continued confusion) to cause gold to thrash around. This morning gold is down another $3 as the debate continues about what the FED will do – and the more pressure that gold is under continues to suggest that the FED will move by 75 bps in September.
US futures are down this morning……Dow down 200 pts, S&P’s down 35, Nasdaq off by 130 and the Russell down 20 pts. The algo’s reacting to the chorus of FED members calling for a more aggressive FED. And this will be the game over the next 5 weeks…Will they, or won’t they? It reminds me of the vintage 1957 Clairol commercial – ‘Does she, or doesn’t she? Only her hairdresser knows for sure!”
Today is also the monthly option expiry – and it is estimated that we will see $1 trillion worth of options activity….and while this is dramatic – it says nothing about where the market is headed…all it says is – volumes will surge not because of a change in psyche, but only because of the expiration of the contracts. There is NO economic data today – so the action will be driven by ongoing FED speculation.
In Europe – stocks are down…. investors there also trying to decipher what’s next….UK retail sales and German producer prices on the docket for today. Rising inflation pressures causing the BoE and the ECB to remain vigilant – think hawkish…. think higher rates….at 6:30 am – all markets across the zone are off between 0.5% – 1%.
The S&P ended the day at 4283 up 10 on the day…. That is down from the high we tested on Monday at 4325….as we kissed resistance and backed off. This morning – futures are lower…. real support won’t be found until we get to the trendline at 4100 – not a level I am suggesting we are going to today, but a level that I do believe we will test over the coming weeks. In any event – I think we are in for more chop in the weeks ahead…September and October tend to be volatile months and the final two weeks of August tend to be lower volumes causing exaggerated moves in both directions. We remain in a wide trading range – 4100/4325.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Pan Seared Halibut w/Lemon, Butter & Capers
For this you need: 1-pound fresh halibut, skinned and cut into 2 equal portions, ½ stick of butter, olive oil, kosher salt, black pepper, 3–4 slices Meyer lemons, 2 teaspoon fresh garlic, finely chopped, ¼ cup white wine, 2 tablespoons lemon juice, 2 tablespoon capers drained, 2 tablespoons fresh flat leaf parsley chopped
Salt the top of the fish with kosher or sea salt and black pepper.
Place ¼ stick of the butter and a splash of olive oil in a medium to large skillet or sauté pan and heat over medium heat.
Swirl the butter and oil around and once it starts to slightly brown, add the fish top side down. Sprinkle the side facing up with the rest of the salt and the pepper. Cook for five minutes then gently flip.
Add the lemon slices to the pan as the fish cooks and cook the fish about 3-5 more minutes. You want to stop the cooking just before it fully cooks – It will continue to cook outside of the pan.
Remove the fish and place on a platter along with the cooked lemon slices.
Keep the heat at medium and add the garlic and cook one minute. Add the wine and cook to evaporate. Then add the lemon juice, capers and parsley. Cook for a minute then remove from heat and stir in the remaining 2 tablespoons of butter and stir to make the sauce.
Put the fish back into the pan along and cook for 30 seconds then remove –
Serve each portion with a cooked lemon slice and some of the pan sauce. A side of steamed French cut green beans and a mixed green salad works well with this.
Buon Appetito.
