Things you need to know
- Stocks ended the week lower as we moved into the long weekend.
- OPEC+ cuts production (small but it’s the message)
- Vlad – shuts down Nord Stream I until the West eliminates all sanctions
- Gold rallies on all of the geo-political unrest
- Try the Swordfish -Sicilian Style
So much for that ‘oversold position’…..stocks tried to rally on Friday only to get slammed as the day came to a close – remember is was Friday of a long weekend…we discussed this….we talked all month long about how the markets might react and how they would trade based on the fact that it was late summer – lots of people out during the month and for sure on Friday of a long weekend – and that left the algo’s in control and in the end – they found it easier to hit the sell button vs. the buy button…..by the end of the day the Dow lost 340 pts or 1%, the S&P gave back 43 pts or 1%, the Nasdaq gave up 155 pts or 1.3%, the Russell lost 13 pts or 07% and the Transports gave back 175 pts or 1.2.
At 8:30 we got the long awaited NFP report – and what did it show? Well – it showed we ‘restored’ 318k jobs – which was either right in line with what some expected or it was 20k MORE than what others expected –
The report also showed that manufacturing jobs fell by 14k vs. last month but were 7k jobs more than the estimate….so what does that show you? Is that better or worse? Unemployment ROSE to 3.7% – because more people supposedly tried to find a job but were unsuccessful – which is laughable since we have more than 11 million jobs available…. labor force participation jumped to 62.4% and that reflects the idea that unemployment rose – as people entered the work force. Avg hourly earnings remained steady at +5.2% …. OK – so what? What does this all mean? Let me make it clear – it means absolutely nothing when it comes to what the FED will do (or should do) at the end of the month.
Other eco data – Factory orders – they fell by 1%, ex transports and they fell even more at -1.1%. Durable goods -0.1%, while durable goods ex transports did rise by 0.2%. And again, I ask you…..what does any of this mean as we move into September – a usually volatile time of year anyway – a time when we are sure to start seeing many more ‘revisions’ to 3rd qtr. estimates…..Is any of this data that the media made so much about noise about really going to change the narrative? Absolutely not…. Let me be clear – there was nothing in this data set that ‘should’ cause the FED to alter their story.
And so, it was the weekend…time for a bit of rest and relaxation…. but would that be the case? While Saturday and Sunday were relatively quiet – the noise started on Monday….OPEC+ chooses to CUT production by 100k barrels/day (which you say is meaningless, but what it does say is that the Saudi’s ARE willing to defend the price of oil) – the media saying it was a surprise – to which I would say ‘It was NOT a surprise at all, in fact I featured 3 headlines on Friday that spelled it out…..and besides that – if you just listened to what the Saudi’s have been saying since oil fell 25% from the June highs….to the August lows ($115 – $85), they said that they were prepared to DEFEND the price of oil – again, so why anyone was caught off guard is comical…..Just to be clear – when you DEFEND the price of oil – you CUT production to create a supply shortage or to at least bring supply more tightly inline with demand…which usually stops the price from going down and in fact causes it to go up…..Yesterday oil rose to end the day at $87.70 ish….And this morning oil is up another $2.27 or 2.6% at $89.20.
Then – we heard what so many have been ‘whispering all along’, Vlad shuts down the Nord Stream I pipeline that supplies Europe with Natural Gas – indefinitely – leaving the continent to scramble just as winter approaches….….- Now Vlad did qualify this by saying then ‘when the West chooses to lift all of the sanctions on Moscow’ (think Ukraine) then maybe he would turn the pipeline on again…..and then to add fuel to the fire – China is buying Russian oil – marking it up BIG and then offering it to the Europeans….Never mind that China is once again locking down 2 of their largest cities (Chengdu and Shenzhen) in an attempt to eradicate Covid 19 all this as the polit bureau is about to ‘elect’ Xi Xi for a 3rd and final term – making him Dictator for life….….I mean you can’t even make this stuff up….
We also go introduced to the new UK Prime Minister – Lizzy Truss – yes she won a bitter race to succeed Boris – and now faces brutal economic conditions that may plunge millions of Brits into poverty this winter….She joins the ranks of Margie Thatcher – who ruled that country with an iron fist from 1979 – 1990 and Terry May – who was not so successful – running the country from 2016 – 2019….Let’s wish Lizzy good luck – shall we?
The Treasury curve remains inverted and most likely will remain inverted for the foreseeable future. Today marks the 12th week of the inversion…only cementing the fact that a recession is a certainty. Unless of course – someone changes the very definition/calculation of a recession – Because as the BLS (Bureau of labor statistics) tells us – the gov’t is changing the definition/calculation of the CPI starting in January 2023 – surely meant to bring it down now that they have passed the ‘inflation reduction act’ – the thinking goes that if inflation remains elevated – let’s change how we calculate it. Simple, no?
Gold was all over the place on Monday…trading as low as $1718 and as high as $1728 to end the day at $1722…. Overnight gold traded as high as $1735 and is now up $2.50 at $1724. Remember what I said – $1700 was and needed to be a level of support and it was….We tested that last week (again) – now the 5th time since the spring of 2021….We tested it in March, April, August, of 2021 and then July and September of 2022….Always holding as it is a level that finds plenty of buyers. With the latest geo-political drama playing out – look for money to flock to gold as a ‘safety trade’ – because in the end – when the geo-political landscape becomes ‘Hot’ – Gold is the ultimate asset class. As it rallies, it should not run into any resistance until $17605 ish…. that is where the 50 dma trendline is at the moment…and because it is a ‘moving’ trendline – that number changes on a daily basis – stick close – I’ll keep you informed.
European stocks ended the day lower (with the exception of the UK which ended flat) – no surprise there….It was the Russian gas crisis and oil crisis that caused all of the angst across the continent…..as the news that Russia will not resume gas supplies until the ‘collective West’ lifts the sanctions imposed over Russia’s invasion of Ukraine. The ECB meets later this week and there are all kinds of speculation about what that means for interest rates across the Eurozone. Expectations are for Christine Lagarde to raise rates by 75 bps taking rates from 0% to 0.75%. This morning we see markets stabilizing after the sell off yesterday. At 6 am- markets across the region are all trading just around the flat line.
US futures are UP – the Dow +130 pts, the S&P up 20, the Nasdaq up 75 pts and the Russell up 12 – considering all of the drama that took place yesterday, I think that’s pretty good….…so what does that say? Well, it says that none of it is REALLY a surprise at all…. rumors had been flying around for weeks now that Vlad would not re-open the pipeline after Gazprom announced the ‘closure of Nord Stream I’ for sudden maintenance issues. We knew that in the end Vlad controlled whether or not gas would flow – there may have been some that wanted to give him the benefit of the doubt – thinking he would never do that…. while others were making a bet that he would. And the oil thing? You would have had to live under a rock if that was unclear as well…They had been ‘hinting’ for weeks now – so what you can say is – Our markets had already reacted by ‘selling the rumors’ and now are ‘buying the news’….but let’s just see how long this lasts…My guess is that this is just a short term ‘flash in the pan’ and that markets will resume their downward bias as the coming US macro data really begins to weaken…..
Housing just the first leg to give way….latest data shows that the supply of new homes is at the highest since 2009, the price of a median home is down 6% in 2 months, mortgage rates are up 89% since January, more than 5 million mortgages are ‘not current’ – which means in default, mortgage demand continues to decline and new home sales are down 50% in 2 years….Surely the gov’t will figure out a way to fix that problem.
Overnight we learned that the Reserve Bank of Australia raised interest rates by 50 bps – taking them to 2.35% (expected).
We are due to get 8 FED speakers this week – mark you calendars
Wednesday brings us Barkin at 9 am, Mester at 10 am, Brainard at 12:35 pm, Barr at 2 pm. Thursday features JJ all by himself at 9 am. Friday brings us Evans at 10 am, Waller and George at 12 pm. If they are changing the game plan – this is the week that we will find out…I mean because they are due to meet at month end – and the market is expecting 75 bps – IF they are backing off, they need plenty of time to notify the markets so that it marinates among the paparazzi. Now remember – Every one of these people have been ‘aggressively hawkish’….so listen to the message they deliver.
Eco data today is all about US Services PMI – At 9:45 we get the S&P read and that is expected to show 44.2 – well into contraction territory and at 10 am we will hear from the ISM and they are expected to report a services PMI of 55.4 – still in expansionary territory – but trending lower…and why is this important – because the US economy is a 75% SERVICES economy.
The S&P closed at 3924 on Friday…. This is the start of the end of the year…. lots of people are back at their desks…Goldman demanding that all personnel report to 200 West St – and they are getting pushback from the ‘younger set’ who think that they don’t need to go to the office…. Surely there are a bevy of lawyers just waiting to launch a class action lawsuit – somehow arguing that GS can’t force anyone to come back to the office – It’s not ‘woke’ and it’s just unfair! Trophies for everyone!
In any event – we are now in the official beginning of the end of the year…. September and October are full of angst and volatility – I suspect this year won’t be any different. Stay focused – put money into your account and keep it in cash if you must – but be prepared to put it to work at some point…I always say it is better to remain in the game than sit it out, but that’s me. You do you.
If you own good, solid US mega cap names that are decent divvy payers then sit tight take advantage of weaker prices that will bring down your average cost. Sectors to be overweight in? Energy, Healthcare, Utilities & Consumer Staples all fit that bill. But you have to balance that with where you are in the life cycle…younger = more risk, older = lower risk.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Swordfish – Sicilian Style
a great dish from this Island that sits just off the toe of Italy.
Raisins, green olives, capers, pignoli nuts (pine nuts), tomatoes, garlic, onion, s&p, olive oil and the swordfish. This dish is easy to make – it will tease your senses – and tickle your pallet – only takes about 15 or 20 mins to prepare and 20 mins to cook…. enough time to set the table, pour the wine, light the candles, put on the music, and dim the lights….
**Preheat oven to 400 degrees (f).
Season the swordfish with s&p.
Next soak the raisins in warm water for about 1/2 hr… drain and set aside.
Heat the olive oil in a sauté pan on med high heat…. sauté the diced onion and crushed garlic until soft. Do Not Burn. Maybe like 5 / 8 min’s…. add raisins, diced tomatoes, chopped olives (no pits!), and capers – like 1 tblspn. (If you like capers feel free to add a bit more – but not too much as the taste will overpower the dish). Reduce heat to simmer and cover…stirring occasionally…. for about 15 min’s or so…
Place the swordfish in a baking dish (You could also grill the swordfish quickly and then place in the baking dish). Cover the fish with the raisin/olive/caper/tomato mixture – bake for 15 min’s or until the steaks are firm….
Present the fish on a warmed plate with steamed green beans and a large mixed green salad with red onions, cucumbers, grape tomatoes, maybe some fresh mozzarella…. dress with s&p, oregano, a splash of fresh lemon juice and olive oil.
Buon Appetito.
