Things you need to know ~
- Stocks await the JJ speech
- China protests go from boil to simmer
- Congress to pass legislation to avert a rail strike
- OPEC? What will they do?
- Try the Beef Stew
Stocks churned as investors pondered what JJ is set to say today during his speech to the Brookings Institution. Now while no one expects him to announce a change in policy – some of them are hoping that he ‘hints’ at a possible change….to which I’d say – stop it! Have you not been listening? Did you hear the 3 speeches on Monday? Did you hear Bullard, Williams or Brainard even hint a policy change? No, they did not, in fact quite the opposite…. they made it clear that the FED has more work to do before they would even think about thinking about changing the path of monetary policy. Did you forget that Jimmy B suggested earlier this month that the terminal rate could go as high as 7%? Now some will say that’s just him jawboning….suggesting that it could happen when it most likely will not – that’s a FED ploy to try and stop ‘pivot speculation’ – which might be true – but if inflation does not respond to the recent hikes – then 7% is very much on the table.
And while the FOMC mins last week – revealed that the ‘team’ at the FED thinks it might be appropriate to slow the pace of hikes, it did not suggest that they would go in reverse…. Today – JJ is expected to repeat that narrative and tell the group that when they finally get to the terminal rate – which right now is 5.25% by March 2023 – they will keep it there for some time and watch how it works its way through the economy.
The only thing that could force an earlier change in policy would be to see ‘significant’ decreases in all 3 inflation data points…the PCE (due today) and next month’s CPI and PPI report just ahead of the next FED meeting…and by significant – I am not saying a 0.2% decrease – I imagine it would have to be closer to a 0.7% – 1% decrease in one months read….and that is not happening. So, stop wishing you’ll win the lottery and pay attention. By the way – this is the last major scheduled speech for any FED official before the next meeting – which takes place on December 13/14th.
In addition – they have to consider the looming strike by the railroad workers – which is set to be averted at some point today – when Nancy and Chucky bring legislation to the floor for a vote – essentially forcing the unions to accept the deal that was negotiated one month ago – citing too much risk for the economy if they do nothing….Nancy saying that
“I don’t like going against the ability of unions to strike, but weighing the equities, we must avoid a strike. Yes, jobs will be lost, even union jobs will be lost, water will not be safe, and product will not be going to the market.”
And so, there you have it…..She and Chucky will bring the legislation to each chamber for the vote. Now, it will pass the house with ease – as Dems still control the majority, Chucky might have an issue in the Senate – as they need a clear 60/40 vote to pass – and the currently the senate is split 50/50 – so it will need to be bipartisan….
So, the question now is – Can Mitchy deliver or not? The risk for Republicans here is high….if they don’t cooperate and the vote fails – then the risk of a strike rises and the cost to the economy surges….some estimating a $2 billion daily hit – not to think of what it will do inflation…..so while it’s all very dramatic – my sense is that they will pass it in the 11th hour – just to make it even more dramatic. It’s called ‘job security’!
And then there is the China issue – and while it is no longer boiling over, it is simmering on the back burner….but not weighing on investors’ minds the way it was on Monday. Remember – what we said – politics does create chaos for the markets – which in turn creates opportunities for investors – but it rarely prices stocks in the long term. I still don’t invest in China directly..(my exposure is via Apple)….my thoughts are there are better places to put your money with less risk – but that’s me…you do you.
Eco data yesterday revealed what we expected….Housing prices across a 20 city sample are down by 1.25% m/m – while prices across that same sample showed that prices are up by 10.4% y/y…which yesterday, I told you is a useless data point….Who cares what housing prices did on a y/y basis – You are not selling your house today – up 10.4% over what it was worth last year….. so, let’s move on. And Consumer Confidence – that also fell vs. last month – suggesting that consumers are tiring – of course they are tiring…. but I have to say – they aren’t tiring of all the Black Friday, Cyber Monday sales taking place are they? Recall – we spent $9 billion on Friday and another $11 billion on Monday….so I’m saying that there is a disconnect between the conference boards data point and what American’s are doing. Clearly someone is not ‘less confident’ or maybe they think – ‘Hey, the banks are expecting credit losses/defaults, so let’s give it to them!’ Spend now, no pay later?
In any event – it was a non-event….the Dow gained 3 pts, the S&P lost 6 pts, the Nasdaq lost 65 pts, the Russell gained 5 pts while the Transports were the clear winner gaining 224 pts or 1.5%. The rail names responsible for 25% of that move…. CSX +1.5%, UNP +2%, NSC + 2%. Other participants that performed well in that sector yesterday included UPS +2.7%, CAR +2.2%, FDX +2.7%, ODFL +1.3%, JBHT +2%.
Of the 11 S&P sectors – Energy – XLE and Real Estate were the best performers up 1.5% and 1.7% respectively. Tech – XLK and Utilities – XLU were the worst performers – down 1% and 0.7% respectively.
Gold gained $8 and is up another $9 this morning – trading at $1773/oz. The dollar index is holding steady at $106.55
Oil rallied on the back of a rumor that OPEC + will consider production cuts at this weekend’s meeting on Sunday in addition to an expected drop in US inventories – The EIA (Energy Information Admin) is due to report today. Yesterday oil rose by 2.1% to end the day at $78.90.
This morning oil is up another 2.3% trading at $80/barrel. Remember that the Saudi’s have targeted $80 as the floor they are willing to accept. If it stays there on its own, great, if not – then expect them to cut production to reduce supply and now that Joey is allowing CVX to drill for more oil in Venezuela (increasing supply) we can expect that the Saudi’s and OPEC will have a decision to make at some point.
This morning – US futures are up -Dow futures up 17 pts, the S&P +7 pts, the Nasdaq + 40 pts and the Russell +2. Eco data today includes Mortgage Apps, ADP Employment – which is expected to show an increase of 200k new jobs, 2nd revision to 3rd qtr. GDP – exp to be +2.8%, Retail Inventories of +0.5%, and Pending Home sales m/m of -5.7% and y/y of -35.2%!
Tomorrow brings us the FED’s favored inflation read – the PCE and that is expected to be +0.4% m/m (up from 0.3%) and is expected to be 6% y/y down from 6.2%. Friday brings us the all important NFP report…and that too is expected to show an increase of 200k jobs. Investors will be looking at what the unemployment rate is, and what hourly earnings are m/m and y/y.
Stocks in Europe are up. Eurozone inflation dropped more than expected and that is fueling hopes that maybe record high inflation has peaked and that the ECB will consider ‘pivoting’…. Again -that’s laughable…Eurozone inflation is running at 10% y/y…..Now, yes that’s down from 10.6% last month, but it is still in the double digit range. So why would the ECB consider pivoting? At 6:30 we see stocks across the region up anywhere between 0.3% – 0.6%.
The S&P closed at 3957 – we did test a low of 3937 yesterday – keeping us well ahead of the 3920 level that I identified as the next level of support. We want to see a test of that level and we want to see it hold – but I am not sure that will happen today unless of course the algo’s throw a fit over what JJ says…..
As discussed – I think the markets will churn over the next 5 weeks…..I suspect that we will remain in the 3920/4030 trading range – support and resistance trendlines…. If the PCE, CPI and PPI suggest that inflation is falling faster than expected – then watch as investors/traders and algo’s take stocks higher with a test of the August highs in clear view. If the data suggests anything else- then watch as stocks continue to struggle.
Stick to the plan…
Take good care,
Chief Market Strategist
kpolcari@slatestone.com
Beef Stew
This is a great winter dish.
For this you cubed beef chuck (do not cut all the fat off), 1 c of red wine, 2 c of beef broth, onions, celery, carrots and mushrooms. S&P to taste.
Preheat your oven to 300 degrees.
Start by sautéing the vegetables. Add some olive oil and then add the onions, carrots and celery…. let them cook for about 10 mins. Then add the sliced mushrooms. Season with s&p and them cook for about another 5 – 7 mins. Remove and set aside.
Now – season the meat with s&p. Using the same pot – sear the meat. You want the beef to get a nice crust – Once all the meat is browned – you want to add the wine – let it cook until most of it evaporates. Now add the beef broth and stir to make sure you scrape up all the beef bits on the bottom of the pan. Now add back the veggies and mix well.
Now cover the pot and place in the middle rack of the oven and let it cook for about 2 hrs. or until tender. Remove and mix well. Now return it to the oven but this time – leave the cover open just a bit (off center) and cook for another 45 mins. This will allow it to thicken. By now the beef will be very tender and the stew should be thick. Taste and adjust seasonings.
Serve over mashed potatoes or polenta. Your call. Either way is great.
Buon Appetito.
