Things you need to know.
- What is going on in China? Do we believe any of it?
- Oil surges…. but I thought China was in decline?
- Inflation runs at 4% yet DIS raises prices by 20% on streaming services.
- UAW setting it up…. Expect higher car prices.
- CPI out at 8:30…. What will we learn?
- Bond yields down, Dollar down, Gold up
- Try the Stuffed Chicken Cutlets
China CPI dips into ‘deflationary territory’ – sending the worlds 2nd largest economy into the danger zone – July CPI fell by 0.3% – that’s a negative number not a slowing positive number…… they tell us that exports are dropping, youth unemployment is at record highs and the housing market is circling the drain, and Chinese consumers are pulling back…. – Hmmm, that doesn’t sound good…… …. The issue is – if the ‘expectation’ of falling prices increases then current demand falls (as the consumer expects cheaper prices in the future) and that then creates a trap for policymakers. But those same policymakers are dismissing the risk of ‘deflation’…. The other risk here is that falling prices in China would make their exports even cheaper – allowing them to flood the international markets with more low price ‘made in China’ products….and that risks hurting foreign competitors (in the developed world) which will lead to job losses in those markets potentially sucking those economies down the drain as well. Now this assumes that you believe the data out of China……I for one remain very skeptical…. But that’s me…
Oil – continues to surge higher – WTI trading at $84.40/barrel…. boosted by production cuts by the leading suppliers – the Saudi’s and the Russian’s as well as the rising tensions between the Russian’s and the Ukrainians that threaten oil shipments. Apparently the slowdown in China – that usually sends oil prices reeling – is not helping oil prices this time….Recall – that any mention of a weakening China would cause oil traders to panic and hit the sell button….but that is not happening this time…..Curious, no?
Next – DIS is raising prices by 20% – for the second time in 12 months – for Disney + and Hulu streaming services as they crack down on password sharing customers. Think about this – the gov’t tells us that inflation is running at 3% y/y (and today we’ll get another look at that data point), yet Bobby Iger decides that his services need to go up by 20%…… Just sayin’.
And as I pointed out 2 weeks ago – the UAW is setting it up for a brawl with the auto industry…..they are demanding a 40% increase in wages, better benefits and a shorter work week – analysts estimate that this will raise labor costs by more than $80 billion – think about what that will do to car prices…. UAW President Shawn Fain said it like this.
“The Big Three have collectively amassed so much money in north American profits over the last 10 years, they could have bought every NBA team, every MLB team and every NFL team and still have $50 billion left-over.”
He also pointed out the ‘bloated’ pay packages of the top 3 CEO’s – Barra (GM) $29 mil, Farley (F) $21 mil and Tavares (STLA) $24 mil.
So, in the end, all he wants is for the workers to get their fair share…. why? Because they can’t keep up with inflation – that has been sapping the paychecks of nearly every American.
And investors are preparing for today’s July CPI report – which is expected to tick UP (just a bit) ……
And all of these headlines helped to send markets lower again yesterday…the Dow lost 190 pts, the S&P down 32, the Nasdaq down 162, the Russell down 16 while the Transports lost 135 pts.
And as we have been saying – when the markets get antsy – what is the first thing to happen? Investors/traders and algo’s start to hit the sell button on the BEST performers – these names up double and triple digits ytd….…….NVDA fell 5% TSLA -3%, AAPL down 1% (bringing its losses to 10% in one week), AMZN -1.5%, META -2.4%, GOOG – 1.3%, MSFT – 1.2% – You get the picture right?
And all this means is that the markets are vulnerable as we enter this seasonal period of volatility and consolidation….and that is something we have been discussing…. And this doesn’t mean you panic and exit the market – it just means that you understand it and then take advantage of the opportunities created.
The best performers yesterday were – Utilities – XLU +0.2%, Consumer Staples – XLP +0.15% and Energy – XLE + 1.1%, Coal and Nat Gas companies up nicely…BTU +5.2% and CRK +1.3%…These have been the underperformers all year….
Tech – XLK was the leading underperformer yesterday, down 1.3%, followed by Consumer Discretionary – XLY – 1.2%, Communications – XLC down 1.1%, Semi’s -SOXX – 1.8%, AI – 9% – these also happen to be the year’s best performing sectors.
Eco data today is all about the July inflation report…..and as noted above – it is expected to tick up a bit….CPI y/y at +3.3% (vs. 3% last month) CPI m/m is expected to be unchanged at +0.2% – but the whisper number is suggesting a +0.3% report. Now this morning we learn that rents keep going up and rents are also a part of the CPI report – so what role will it play in today’s number…? In fact – rents in NYC are at an all time high…a 2 bedroom, 1 bath with maybe one closet rents for $5600/month…think about that for one minute…. $5600/month….
Expect the administration to ignore that data and sing the praises of declining inflation (even as the number goes up) as they try to manipulate the data…..but hold on – because the naysayers are already preparing for the August read (that comes out in September) That is expected to show a sharp increase due to surging oil prices….But that is a story for next month….. As far as today is concerned – even if the CPI report is a bit stronger than the expectation – the sense is that investors still think the FED policy is restrictive enough…. Until they don’t….
The markets are expecting a soft landing…..a ‘Goldilocks’ type of not too hot and not too cold, but just right type of landing…something that I just don’t see….and while I am not suggesting a CRASH landing, I am not in the camp that it will not be all wine and roses. I suggest you expect bumpy and be pleasantly surprised if it is not!
Tomorrow brings us the July PPI report and that is expected to show continued improvement…. And then Friday brings us the Consumer Sentiment data….and what the FED and the markets want to see is that the Consumer remains upbeat and positive.
In the meantime, yesterday saw a robust desire for the newest 10 yr. notes – the demand for them sending 10 yr. yields down to 3.984%…before settling at 4.005%. The 2 yr. is yielding 4.79% while the 3- and 6-month bills remain at 5.4%. The robust demand could mean two things… First bond investors want to lock in 4% or bond investors expect the FED to cut rates in the future which would send bond prices surging (while yields fall)…….Well, I don’t expect a rate cut until sometime in the second half of 2024….but that’s me….there are plenty of investors that still think rate cuts are coming before year end……and those are the investors that need to see a shrink! That is NOT happening….
The dollar index is down 32 cts at 102.16 and is once again below the trendlines…. this as currency traders are betting that the FED remains on hold in September – because they are also betting on an improving CPI read today….so, sit tight – 8:30 is only 2 hrs. away….
Gold did fall yesterday and is now below all 3 of its trendlines as well….and that suggests that gold traders are also expecting inflation to subside….but if inflation does subside and the FED goes into pause mode – then you can expect the dollar to decline and gold prices to rise…..It’s a tangled web we weave….
US futures are up…as the churn continues. Monday saw markets rise while Tuesday and Wednesday saw markets fall…..and today – traders are searching for dislocated (oversold) names (that might bounce back if the CPI report is comes in at or below expectations) ….Dow futures are up 160 pts, the S&P’s up 21, the Nasdaq up 82 and the Russell is ahead by 10 pts. The trader types are hoping for more signs of easing…. I think it’s all a knee jerk reaction and still expect lower prices in the weeks ahead.
Both Atlanta’s Raffi Bostic and Philly’s Patty Harker expected to speak today…. recall both think the FED can pause….
European markets this morning is all higher as well – a string of strong earnings responsible for today’s move – but remember – those strong earnings are against a lowered bar…. European investors are also awaiting today’s CPI data. At 7 am – all of the markets except the UK are up better than 0.8%, the UK is flat.
The S&P sits at 4467 – down 31pts. Futures suggest that we will test 4480/4500 today on the opening……but that could change at 8:30…..or maybe it could become more emboldened….if the report is more muted….In any case – I am not changing my outlook – I have been saying that I think the mkt is tired….and I still do…. I still expect it to back off over the next 8 weeks, but I am not expecting a major drawdown (+10%) …. Why? Because, I think that there are a lot of buyers out there (that are holding cash) that had been looking for a meltdown that never came – and we are now in the second half of the year and they can’t afford NOT to get involved…so any pullback is sure to be bought – Keep your eyes on AAPL – it is down 10% in one week and is now sitting atop its intermediate trendline at $177 – a level I identified as a buying opportunity….….…. Do not chase names that are running away…. There are plenty of opportunities that will balance out and stabilize your portfolio for the longer term. Remember – Investing is a ‘long game’….
Take good care,
Chief Market Strategist
kpolcari@slatestone.com
“The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of Kace Capital Advisors”
Stuffed Chicken Cutlets
Stuffed chicken is so versatile – as you can stuff it and roll it with anything you like, and it always comes out great. Today – try this one…
For this you will need: 8 Thin sliced Chicken Cutlets, sliced ham and sliced Swiss cheese, s&p, Olive Oil, butter, garlic, Chicken Broth, Dry White Wine.
Preheat the oven to 350 degrees.
Lay the cutlets out flat on wax paper and lightly season with salt and pepper. Layer a piece of Ham and Swiss and then roll it and pin it with a toothpick.
Now – In a large, heavy bottom skillet, add butter and a splash of olive oil over med high heat and add the sliced garlic. Sauté for about 3 mins – now add the chicken and brown on all sides, about 3-5 minutes. Remove and set aside in a Pyrex baking dish.
When done – deglaze the pan with white wine and bring to a boil and let the alcohol burn off. Now add some chicken broth and bring to a boil. Turn off the heat, add another dollop of butter and then pour this over the chicken in the baking dish…allowing the chicken to bathe – not drown.
Cover tightly and place in the oven – cook for 20 mins.
Remove and serve with a large mixed salad. Simple, Easy and delicious.
If you want – you can add a side of garlic and herb flavored rice pilaf.
(I made this last night and used boneless chicken thighs vs. breast cutlets – was nice and juicy….)
Buon Appetito
