Things you need to know.
– Get ready for the 8:30 am CPI read – the best is for it to be weaker.
– Stocks ready to rumble…. You can just feel it….
– Bond yields back off just enough yesterday, will they move lower today?
– Guess what? China oil demand to hit a new annual RECORD!
– Try the Italian Style Sweet Sausage Stuffing for Thanksgiving.
OK- stocks did very little yesterday as the market and investors patiently awaited today’s inflation data……Now while stocks did open lower – they teased on both the north and south side of the unchanged line as morning moved to afternoon – mimicking what was going on in the bond market – where yields rose in early trading -thus the pressure on stocks – and then eased a bit in later trading – allowing stocks to take back a bit of those losses.
BA +$8 or 4% was the clear winner for the Dow yesterday (adding 52 pts) …. after Emirates Airlines (Dubai) announced that they ordered 95 new airplanes totaling $52 billion – this brings their total Boeing backlog to 205 – 777x planes and 35 787’s or something in the range of $112.2 billion. And then the ‘rumor’ was that China is considering ‘lifting its commercial freeze on the Boeing Max 737 jets – making this a ‘blowout week’ for the aircraft manufacturer. Now the China story is just a rumor – Xi Xi is NOT expected to make any formal aircraft announcement after he meets Jo Jo tomorrow.
At the end of the day – the Dow gained 55 pts or 0.2%, the S&P lost 4 pts, the Nasdaq gave up 30 pts, the Russell ended the day flat while the Transports gave back 47 pts. The biggest winners for the Dow were BA, CAT, CRM, WMT, MCD & GS while the biggest losers were HD, MSFT, NKE & AAPL.
The 10 yr. ended the day yielding 4.63% after reaching a high of 4.696% and this morning it is down 2 bps at 4.612%…. The 30 yr. ended the day yielding 4.75% after teasing a high of 4.805%. Shorter duration 3- and 6-month bills continue to yield 5.45% and 5.54% respectively. Remember – the bond market plays a big role in determining the direction of stocks – especially now that investors are actually getting paid to own the debt. So, yields kissing 5% are very attractive for some investors and when they go over 5%, they will be even MORE attractive to some investors…. Capisce?
Oil – which has seen a significant pullback over the past 3 weeks – due to ‘waning US and Chinese demand – is down 12% since October 20th…….Yesterday it found support at the 200 dma trendline ($76.73) bouncing higher by $1.35 or 1.7% – this after it was reported that OPEC raised its 2023 forecast – why? Get ready…. Expectations of ‘record’ crude imports from China and India…. Wait, didn’t they tell us yesterday that Chinese demand was waning? This latest report tells us that ‘Chinese crude imports remain on track to reach a NEW annual record high for this year.’ Which is in direct contrast to what they told us only 24 hrs. ago…. Funny how that happens, no? OPEC went onto report that world oil demand will rise by an additional 2.5 million bpd up from the prior forecast of 2.44 million bpd taking daily demand to better than 99 million bpd. Leaving me to ask – wait – what happened to that ‘waning demand’ story? In the end – fossil fuels are not going anywhere anytime soon, and OPEC’s production cuts remain in effect.
Now – in just a couple of hours – we will get the October CPI print and the Core reading is expected to be up 0.1% m/m and +3.3% y/y – while Ex food and energy is expected to be up 0.3% m/m and 4.1% y/y (still 2x’s greater than the target) ….And if we get those numbers then I would expect stocks to rally – because while they point to ongoing ‘sticky’ concerns – the markets will focus on the lower read….and that would suggest that the 11 rate hikes that we have already seen are beginning to take root…leaving the FED in a position to do nothing further…Remember – they need to ‘keep hope alive’ on two fronts….
One is that they have succeeded so the hope is that they do nothing allowing stocks to rally….while two – they need to keep the idea of another rate hike alive just in case inflation surprises us and moves up and not down…forcing them to hike rates in the near future which will put pressure on stocks….…..Fed Fund futures are pointing to a potential January hike – but that could change at 8:30 this morning.
Keep your eyes on medical costs – that seems to be a key metric for this report – its open enrollment season and medical costs are surging…. …. All the while they tell us that used car prices continue to decline – you know why? Because used car financing rates are better than 10%…. who is kidding who? So, a $35k used car at 4% cost you $790/mo for 4 yrs. (which was the norm) …. Now that same car at $30k at 10% will cost you $555/mo for 6 yrs. (which is NOW the norm) ……Capisce? So, they will tell you that you are paying $240 less/month, but you’ll be paying that ‘lesser amount’ for an additional 2 years…. which means you paid an additional $13k ($555 x 24) for that car that costs less. It’s comical really…. but it is what ‘we’ voted for I guess…… All I know is that the stuff we need on a daily basis is not going lower…. anyone who goes food shopping can tell you this…Cereal is now $7/box…. it’s cereal…. never mind steak, chicken, fish, and veggies… and of course Haagen Daz Dulce di Leche….
In addition, we will get Real Avg Hourly Earnings y/y and weekly earnings y/y. The weekly is not a survey estimate but last month the hourly number was +0.5% while weekly number was revised to 0%. And then tomorrow we will get the October PPI report and that will tell us what prices are doing at the producer level – and the preview tells us that they are expected to be lower as well….so, this is setting us up for stocks to rally….
US futures are up… The Dow +60 pts, the S&P +10, the Nasdaq is up 55, and the Russell +4. And this is suggesting that the markets are expecting price pressures to slow….and that interest rates have peaked…. And while higher prices remain sticky – the report will lead the administration to accentuate the positives while eliminating the negatives. If they can convince the markets that there are no more rate hikes coming and that the FED has navigated a soft landing – then it will be ‘Risk On’ for stocks….the algo’s will trample over each other trying to be the first one out of the gate…and a move towards the 2023 highs of 4600 would not be out of the question…at least for today….Watch for FED Heads Philly Jefferson at a conference in Zurich and Austan Goolsbee here in the states to speak later today….and both have been on the dovish side of the fence – so expect to hear dovish comments which will only fuel the upside….Adding to the excitement this morning are slightly lower yields on the 2’s, 10’s and 30’s….
European markets are all higher this morning…. not dramatically, but they are cautiously higher as investors there await today’s US inflation data along with a range of eco data points across Europe. Eurozone 3rd qtr. GDP (which declined), Eurozone unemployment (it fell), and Germany’s ZEW Survey of economic sentiment. The UK unemployment came in at unchanged at 4.2%.
Gold is steady at $1950, the Dollar index which kissed resistance last week at 105.89 – is a bit lower this morning at 105.54 and that suggests that the market is expecting a better CPI which means the FED does nothing….If the dollar were higher, that would suggest that the FED is raising rates – but that does not appear to be the message this morning.
The unrest on Capitol Hill remains, but word is that House Speaker Mikey Johnson is making headway on the coming gov’t shutdown issue. GOP members that initially opposed him, are now warming up to him…. but the proof will be in the pudding…. rumor is that the House is set to vote on a continuing resolution (CR). So, sit tight…. but again, no matter what happens A gov’t shutdown is NOT a gov’t default…. there is ZERO risk of default on US debt, ZERO…so don’t get caught up in the histrionics, the US is NOT defaulting….….
Jo Jo is on his way to a newly cleaned up San Franscisco…. where he will meet Xi Xi at the APEC summit (Asia/Pacific Economic Cooperation). And?
The VIX is holding steady between $14/$16 –
The S&P closed at 4411 – down 4 pts You know what I think today…the report will show CPI better than expected….setting us up for a Risk On Rally….that will further ignite the year end Santa rally….Remember though, JJ himself is not convinced that we have won the war…so proceed with caution…which doesn’t mean stay out, it just means proceed with caution. Don’t chase….
Feel free to reach out – always happy to discuss.
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Italian Style Sweet Sausage Stuffing
For this you need – Garlic -sliced, Onions- diced, cubanelle peppers – chopped, s&p, Sweet Sausage meat (out of the casing), celery – diced, Italian bread- cut into cubes, chicken broth, mashed potatoes, Olive oil, and white wine.
Cut up the Italian bread into cubes – maybe like 1 cup and set aside.
In a lg sauté pan – heat up the olive oil and sauté the garlic, onions, cubanelle peppers & celery until soft – maybe 10 mins…now add in the sausage meat and brown nicely (using the back of a fork to break it up as it cooks). Season with s&p Next add in a cup of chicken broth and a splash of white wine (this is optional) – If you don’t add it to the mix then pour yourself a glass – and let it all simmer together. Remove from heat and let it cool.
Next up – mix 2 cups of mashed potatoes along with the bread into the sausage mixture and mix well. Now transfer the mixture to a lg buttered baking dish and bake in the oven – uncovered for 20 mins on 325.
Buon Appetito
