Things you need to know
- Jimmy B – hints at a 1% move – who will join in?
- Oil – surges higher yesterday after Libya halts exports and China hints are re-opening parts of Shanghai
- It is another big day for earnings – bottom lines beat, but top lines are hinting at tougher times ahead.
- The path of least resistance is lower…. Stay tuned
- Try the Slow Roasted Sirloin
***Masks are no longer required for public transit and now airlines are giving you a choice…. Jen Psaki is NOT happy and keeps talking in circles when pressed…***
Stocks closed lower (again) on Monday as investors continue to grapple with what lies ahead….and the FED is at it again…. all of the recent hawkish – 50 bps moves that they have been preparing investors for is not being pushed higher (again)…. Enter stage right – guess who? If you guessed St. Louis Fed President Jimmy B – you would be correct…. You see the FED now realizing – after last week’s blowout PPI inflation read…. – (if you forgot, it was a historic high of 11.2%) that they are not only behind the 8 ball, but they are well behind the 8 ball….so far behind that now they are pushing a full 100 basis point hike (equals 1%) vs. the 50-basis point (which equals ½ of 1%).
Bullard – saying that the central banks ‘needs to move quickly’ to raise interest rates to ‘around 3.5%’ by year end…. Now to be clear – 3 months ago – they were talking about a year end rate of 2.5% – 2.75%, then it creeped up to around 3% and now it is headed to 3.5%. He then went onto say that while more than 50 bps is not his base case ‘at this point…I would not rule it out’…. Which means – Get Ready for a 1% rate increase sooner vs. later. Now look – he said 75 bps, but you know that is just testing the psyche (because 75 is the new 100) –
I am in the camp that they are attempting to prepare the markets and investors for a 1% move fairly soon. Why? because after last week’s strong PPI report – we can expect the next CPI report to push higher as well…the current CPI report suggests that inflation is running at 8.5%…..a number which many don’t really believe anyway….is likely headed towards 9.5% to 10% before this is over…..and so they send Jimmy out to float the balloon…what you have to watch for next is who else joins him in the conversation? Will it be Goldman? JPMorgan? Citibank? Blackrock? Mohamed El Erian? Or any of the other FOMC (Federal Open Market Committee) members…. Chicago’s Charlie Evans is set to speak today and tomorrow he will be joined by San Fran’s Mary Daly while FED chair Powell will discuss the global economy with ECB President Christine Lagarde on Thursday. In any event – we have seen this play before…. now we have to see how investors, traders and algo’s react.
At the closing bell yesterday – the Dow had given up 40 pts, the S&P was flat, the Nasdaq gave back 20 pts, the Russell lost 15 and the Transports were down 45 pts.
10 yr. yields are at 2.89% this morning….30 yr.’s is yielding 2.97% and only going higher – 30 yr. conforming mortgages now solidly in the 5.25% range while ‘non-conforming’ (think jumbo) is trading at 5.75% or higher….…. The Bloomberg Commodity Index (BCOM) is up 12% in the last 2 weeks teasing the highs reached on March 9th.
And – on a side note – my recent FPL (Florida Power & Light) electric bill is up 40% from February to March….I was a bit confused and thought it was a mistake – so when I called FPL – I learned that electric utility rates increased by 18% in February (because the cost to produce the electricity has risen – think surging energy – natural gas prices)…and that apparently translates into a 40% increase in my monthly bill…..Just sayin’……That being said – expect the Utility ETF – XLU to continue to outperform the broader market – it is up 6% ytd vs. the S&P which is down 8% ytd (a 14 pt. spread) and think about all those dividends! (Currently yields 2.65%).
And speaking of dividends – JNJ reports this morning $2.67 vs. $2.58 – so beat on the bottom line but missed slightly on the top line – the stock is quoted down 3% in pre-mkt trading – a move I think is ridiculous….but it does speak to the level of angst in the broader market…….News that they are increasing their quarterly dividend by 6.6% – from $1.06 to $1.13 doing little to blunt the selling…The dividend move is 2 cts greater than what analysts expected….bringing their yield to 2.54%.
Other earnings announcements today – include IBM, OMC, FITB, HAL, PLD, HAS, LMT
Energy – XLE was the clear winner yesterday – up 1.5% after oil traded as high as $109.85 before ending the day at $107.60 up 0.6% on the day. Word that Libya was forced to stop some exports (think tighter supply) and that China was thinking about letting Shanghai re-open (think increasing demand) sent oil higher. This morning is giving back $1.80 to trade at $106.45/barrel
Behind that were the financials – XLF up 0.6% after getting beaten up a bit over the last week as earnings hit the tape….it feels like the selling pressure for this sector is abating…. And with rates now expected to go higher faster – then the financials should benefit. The worst performer? Healthcare – XLV – It lost 1.1%
And…….US futures were lower this morning but are trying to turn up at 7 am….. – Dow futures – 17 pts, the S&P down 4 pts, the Nasdaq off by 20 pts while the Russell is lower by 1. It will be another busy day of earnings….as noted above. In addition – economic data today includes Housing Starts – expected to be down 1.6% and Building Permits – also expected to be down 2.4%….and as mortgage rates continue to move up – we can expect housing data to weaken in the weeks ahead. That includes today’s reports as well as Existing Home Sales and New Home Sales. Tomorrow will bring us Mortgage Apps and they have been down trending for a few weeks now, let us see what tomorrow brings.
European markets are open today after the Easter Monday holiday…and they are all weaker…Russia has launched their long expected offensive push into the Donbas region raising the intensity of assaults across the north and eastern part of the country and that is causing continued angst for investors. In addition, the French election season is under way and Macron and Le Pen are due to debate on Wednesday. At 7 am – markets across the region are all down by about 1%.
Stocks continue to trade lower as reality sets in…. the idea that inflation is peaking is laughable….and pre-mature and now with a 1% interest rate hike on the table, I would expect the markets to continue to thrash around. The S&P closed at 4391 – below the trendline at 4418 and this morning, the weakness is suggesting that the market wants to test a bit lower to shake the branches a bit more.
Bitcoin is trading at $40k this morning while Ethereum is trading at $3k.
Take Good Care
Chief Market Strategist
kpolcari@slatestone.com
Slow Roasted Sirloin
Get yourself a nice sirloin roast – 5 / 6 lbs….. season with salt and let rest for 20 mins on the counter. While this is resting, slice fresh mushrooms, chop 2 lg carrots, 2 celery ribs, 1 large onion, a can of low sodium beef broth and a can of tomato paste. Next select a nice bottle of red wine –
After resting – season beef with pepper and sear it in a frying pan with Olive Oil making sure to brown on all sides even allowing a crust to form. When complete – place in a V rack in a roasting pan and place in a preheated 275-degree oven uncovered. Allow to cook for 2 1/2 to 3 hrs. or when ready according to the meat thermometer.
After putting the roast in the oven – return to the frying pan – as the chopped veggies to the oil and sauté until tender – 8 / 10 mins. Add tomato paste and mix…. add 1/2 bottle of the red wine and stir – bring to boil and let the alcohol burn off a bit…3 mins. Add the beef broth and simmer – stirring occasionally. do not let it dry out…if necessary – you can always add a bit more broth. After about 10 mins…. taste to make sure you like it. If so – puree 1/2 this mixture and return to the sauté pan. turn off heat.
When beef is ready – take out of oven and let it rest for 10 mins – covered in foil. Reheat the sauce…thinly slice the roast and arrange on plate – top with sauce.
Serve it with mashed potatoes and sautéed peas – always include a large green salad and do not forget the wine.
Buon Appetito.
