Things you need to know.
– CPI comes in HOTTER.
– Middle East temperature about to go higher.
– 8 GOP House members continue to disrupt the process; Democrats licking their chops.
– And Earnings are out…and they are NOT disappointing anyone…
– Try the Roasted Frech Country Chicken
**I will be on Fox Business with Stuart Varney today from 9 – 10 am. Join us, won’t you?
Oh boy…. CPI surprised to the upside…or did it? I mean, who in their right mind thought that CPI was going to drop? Haven’t’ we been discussing this?
The CPI rose 0.4% m/m and 3.7% y/y on the top line (higher than expected) …. Ex food and energy…it rose 0.3% and 4.1% respectively. …. and that suggests that the FED is not done doing what it needs to do……which now presents just a ‘teeny, tiny’ problem for them, the markets and investors….in fact Bloomberg said it like this…. ‘The data bolstered the speculation that the FED is NOWHERE near declaring victory over inflation’ and that caused investors to rethink the hike conversation. The key word in that sentence…. hmmm, I think it’s ‘nowhere’….it sounds very ominous….no?
In addition to the eco data, we have the ongoing crisis in the Middle East that appears ready advance to the next level, The Israeli’s urging Palestinians to ‘get out, move to the south, but get out of the north’ as they prepare for a well telegraphed air and ground assault which is sure to raise the temperature again as it appears they are ready to flatten the space…….And then we have the crisis in DC…..apparently – some GOP members of the House just refuse to fall in line….and that caused the front runner Stevie Scalese to withdraw his name from contention – leaving the House rudderless and leaving the Democrats licking their chops…because the only way to ‘neuter’ these 8 uncooperative GOP members is to make a deal with the devil – I mean make a deal with the Democrats (that was a Freudian slip….my bad….;)) Understand that, that comes with a price – a very high price….
Now the market was higher – prior to and then right after the release, but then did a 180 and ended the day lower…. the Dow lost 174 pts, the S&P down 28, the Nasdaq lost 85, the Russell gave back 40 pts and the Transports lost 162.
The kicker came when the gov’t tried to auction off a round of 30 yr. bonds – which found very weak demand….buyers were not willing to ‘pay up’ and that sent prices lower….causing yields to spike – now the long end of the curve got hit harder – and that makes sense – why would you tie your money up for the long term – if you think that bond prices are going lower forcing yields to go higher? The 30 yr rose by 19 bps to yield 4.85% which was up from 4.69% in the morning…the 10 yr. rose by 14 bps to yield 4.69% while the 2 yr. yield rose by 8 bps to end the day yielding 5.06%…..talk of a 5% 10 yr. is now the narrative…..and so investors who didn’t seem initially fazed after the report changed their minds and went for the exits….. The TLT (20 yr. bond ETF) fell 2.7% the TLH (10 – 20 yr. bond ETF) fell 2%.
So, at this point – we have to wonder, can the FED change the narrative now? Can they backtrack and raise rates at the end of the month – or are they going to try and tell us that ‘we got this, nothing to see here!’ (Think the temporary, transitory argument that they used on us for months in 2021 that proved to be anything but….). At this point, I am not even sure if it makes a difference now….but what does make a difference is understanding and redefining the ‘higher for longer’ mantra….Because – whether or not they hike by 25 bps, the clear message is that where ever they end up, we can expect them to stay for even longer than what the current thoughts were…..So, a rate cut in the fall of 2024 is now in question….and so the markets need to reprice, based off of that new realization….and re-pricing is not necessarily bad, but it is necessary…..and so it looks like the process has begun….which again, does NOT mean you panic and light your hair on fire…you just take a look, you talk to your advisor and you position yourself for the opportunities that are sure to come.
OK – and so it is officially earnings season…and so far, this morning – we have heard from UNH, BLK, WFC and all of them BEAT the forecasts and all of them are quoted higher in the pre-mkt…. JPM is due out at 7 am….and so we wait. Again, let me remind you – the bar is low (which should not be a surprise at all), so I expect we are going to hear lots of ‘beats’….but remember – those beats are history, what is important is the forward guidance…and today and next week – it will be important to listen to what these bankers have to say about their LOAN LOSS PROVISION accounts….Are they allocating more money to this account – acknowledging that they expect tougher times ahead?….and JPM just announced and BOOM! As usual – Jamie Dimon did NOT disappoint, not by one iota – EPS of $4.33 vs the expectation of $3.96 cts…. a 10% beat…. – they topped expectations due to higher rates…..3rd qtr. revenues – $40.6 bil vs the expected $39.6 bil….Jamie telling us that the consumer remains healthy, yet spending is down…..and that the high gov’t spending remains inflationary so he expects rates to go higher…..recall that he is anticipating rates to go as high as 7%…..But he also raised his forward guidance……and so we’re off….Again, we discussed this last week, so one should really be surprised with any of these results that we’ve heard so far…..DAL, PEP, BLK, UNH, WFC, & JPM all beat…..Citibank due out anytime now and I can’t imagine they will disappoint.
Oil is up $3or 3.5% – trading at $85.84 – think the Israel/Hamas war pushing up the oil markets ‘geo-political risk premium’. OPEC still expecting demand growth in 2024 but have said nothing about raising production and so expect prices to continue to rise….and that is not good for the inflation story….
Gold? Yes – it to is up again…. this morning it is up $18 and is now trading on the north side of $1900/oz,,,,,it has seen its largest weekly advance (+3%) in more than 7 months – again think the safety trade and the crisis in the middle east.
The dollar – well that had been in decline, but yesterday pushed up….80 cts to end the day at 106.60 up from 105.80 and this was direct result of the hotter than expected CPI report – which now means the currency markets expect rates to rise too and if that’s true – then expect money to move the dollar….(which it is….)
This morning US futures are down – now they were lower but then we started getting all of these ‘beats’ in earnings…and better forward guidance and so it has turned up…. Dow futures +5, the S&P still down 7, the Nasdaq down 60 and the Russell is down 3.
European markets also lower this morning…. down about 0.8% across the board.
The S&P closed at 4349 – down 28 pts…. this after trading right up to trendline resistance (again)…and failing…… My sense is that we remain in the 4200/4385 trading range……as we enter the earnings season.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Roasted French Country Chicken
You need: 6 lg. potatoes – sliced in half and then sliced in qtrs. Lengthwise, Chicken pieces, legs, thighs, s&p, like 5 crush garlic cloves, herbs de Provence, fresh chopped Italian parsley, dry white wine (you can use chicken broth if you prefer), olive oil.
Preheat oven to 425 degrees. Add enough olive oil to cover bottom of roasting pan…let heat up.
Combine – the garlic, oregano, parsley and white wine (or broth) in a small bowl – set aside.
Season the chicken pieces with s&p…toss in a bit of olive oil. (just enough to give it a glisten). Now add to roasting pan – skin side down. Bake for 15 mins…then turn, bake for 15 more mins…. juices should be running clear now…if not – then cook for another 5 mins or so……Now pour the garlic/wine mix over the chicken and cook for an add ’l 8-10 mins. Remove and serve on a family style platter with a large mixed salad dressed in a simple oil/vinegar dressing.
Buon Appetito
