Things you need to know.
– Weak Eco data suggests rate cuts are not dead.
– Jan PPI is today’s KEY data point.
– Will the Algo’s overreact yet again?
– Oil and gold churn in line.
– Don’t forget – it’s a long weekend.
– Try the Alaskan Black Cod
Eco data was weak, – and that suggests that May rate cuts are still possible, yet FED commentary remains more hawkish and that suggests that rate cuts are not imminent. Retail sales -0.8%, Ex Autos and Gas – 0.5%, Initial Jobless Claims came in at 212k vs. the expected 220k…. Industrial Production of -0.1%, Manufacturing Production -0.5%.
At 4 pm the Dow gained 350 pts or 0.9%, the S&P added 30 pts or 0.6%, the Nasdaq added 48 pts or 0.3%, the Russell gained 50 pts or 2.45% (once again the outperformer), the Transports rose 83 pts or 0.5% while the Equal Weight S&P added 75 pts or 1.15%.
And today – Investors will get another bite of the apple….at 8:30 – we will get the January PPI report – this details inflation at the producer level…and it is expected to be up 0.1% m/m and 0.6% y/y. Ex food and energy of +0.1% m/m and +1.6% y/y. Interestingly enough – the PPI does not usually get the same amount of scrutiny as the PPI, but we can bet that that is not true about today….
The question is – will PPI surprise the way CPI did? Will the report be hotter than expected? And if it is – will investors/traders and algo’s respond the same way? Will the algo’s go into ‘super sell mode’ or have we had enough with the chaos? I mean think about it…..CPI was HOT, the algo’s go into sell mode, the headlines scream that inflation is alive and well – when the truth is it HAS been alive and well….Prices are still rising at a 3.4% pace….., stocks dropped (like a rock), Bond prices followed stocks down sending yields up and individual investors run for the door – something I keep saying is an ‘over reaction’. But everyone does what makes them feel right – in the end, if you are a long-term investor and you sold your stocks on Wednesday – what are you doing today when it feels like we are gonna make a new high?
In addition to PPI, we will also get data on Housing Starts – expected to be flat m/m and Building Permits up 1.3% and the U of Mich Sentiment Survey…. which are not expected to be veer away from the expectations…1 yr. inflation expectation to remain at 2.9%.
As discussed earlier this week – we had and still have commentary coming out of different members of the FED – Wednesday it was Chicago Fed President Goolsbee and Vice Chair of Supervision Barr, yesterday it was Atlanta’s Raffi Bostic and as expected – he is not in a rush to do anything…. saying
“There’s no rush to cut interest rates with the US labor market and economy still strong…” He went onto caution that ‘it’s not yet clear that inflation is heading sustainably to the central’s bank 2% target.’ Essentially – Victory is not guaranteed – even if the January CPI was an aberration….and stocks went UP.
And this isn’t (or shouldn’t) really be a surprise at all….Bostic has been playing on the cautious side of the fence for months now and the FED – think JJ – has been pushing back on the multiple rate cut narrative since it spun out of control late last year – warning that the FED needs more confidence that inflation is really moving towards the target…..And btw – who started that 5 – 7 rate cut narrative anyway? It was NOT the FED.
Bostic went onto say that he expects only 2 rate cuts in 2024 and he doesn’t think they start until the 3rd qtr. – which to me, makes ZERO sense – because the 3rd qtr. (July, August, September) is well within the 6 month election ‘window’ when the FED is NOT supposed to move on rates in either direction….for fear of being called out as ‘political’. Now, could they cut in November and December AFTER the election – sure, could they cut in March or maybe May – yeah…. but May is walking right on the line, could they cut in June? Of course, they could, But June is ‘over the line’ and I say they shouldn’t – but then again, I am not a voting member of the FED. And btw- you know me – I don’t think rates should be cut at all…there is nothing in the data that suggests our economy needs stimulation… no matter what the millennials think – 5% rates are normal – they need to understand that. 0% rates are NOT normal, and they need to understand that as well.
As stocks advanced – so did bond prices – the TLT and TLH both up 0.5%. The Bloomberg AGG ETF – was also up 0.25%. The AGG etf – tracks the Aggregate Bond Index- which includes all US investment grade bonds which includes Treasuries, gov’t related and corporate securities. Since the AGG etf is a broader security with more diversification it is not as sensitive to longer term rates….and does not move up or down as dramatically at both the TLT (20 yr. treasury bond) and TLH (10- 20 yr. treasury bond). So far this year – as rates have moved higher – the AGG is only down 1.8% ytd, vs. the TLT is down 5.6% and the TLH is down 4.4%. This morning the 2 yr. treasury is yielding 4.6% and the 10 yr. is yielding 4.26%. 30 yr. mortgages (conforming with a 740 FICO score or better) are set at 7.4%.
Oil – remains in a tight range…. $75/$80….and this morning it is trading at $77.40…. Forecasts by the IEA suggest that demand is slowing and they ‘trimmed their 2024 growth forecast’ – now remember – the IEA (Int’l Energy Admin) forecast is direct opposition to the OPEC+ or EIA (Energy Info Admin) forecasts…. In addition – the ongoing tensions is the mid-east will keep a floor under prices. News that the Israeli’s raided the biggest hospital in Gaza while Hezbollah fired dozens of rockets into Northern Israel, while the Hootie’s continue to cause chaos in the RED Sea all contribute to the ‘risk premium’ on oil right now and will most likely stick until such time that we see calm in the region- which doesn’t appear to be anytime soon.
Gold – which got whipped around this week – falling $40+ after the hot CPI report on Wednesday suggested that rates will remain higher for longer is trying to recover. This morning – gold is up $4 at $2020/oz as it runs up against 2 trendlines that are converging at $2025….so, I suspect that gold will test resistance, pull back and then test again…. before busting up and thru taking it back to the $2050 level.
US futures this morning remain confused and cautious ahead of the eco data that is due out in 2 hrs. Dow futures are -30, S&P’s +11, Nasdaq +100, and the Russell is flat. Remember – the Russell has been the most volatile sector – down 8% by mid-January to +1.7% this morning.
Now look – it is Friday, and it is a long weekend….it will be curious to see how investors/traders and algo’s will react? My sense is that the PPI – Unless it is way outside the expectation – will be a non-event. While I do think the path of least resistance is down – and I would like to see us go there, I do not think it happens today…5050 remains a level of resistance and while 4950 feels like support (that was Tuesday’s low) I think it more like 4800….which is a 4% move down from here….something well within the normal trading band and a level I would love to see us test!
European markets are all higher this morning….UK Retail sales – unlike ours – came in stronger than expected – which is interesting considering that that country is now in (technical) recession…. Sales rose by 3.4% m/m – double the expectation… It was the biggest rise since April 2021 and follows the biggest decline in December 2023. ECB board member Izzy Schnabel is due to address the region today….and European investors await our PPI report at 8:30.
The S&P closed at 5029 – up 30 pts…..erasing nearly all of the losses seen on Tuesday…..and futures are suggesting that we will retest that 5050 level – where I think we fail again…..Look – they just won’t let the rate cut narrative go….no matter what the FED heads keep saying…so let’s see what San Fran FED President Mary Daly has to say….but I caution you on her comments…..recall, she is the one who completely missed the SVB debacle….helping to send markets into a tailspin one year ago….We will also hear (again) from Mikey Barr – but he is Vice Chair of Supervision – so I’m not so focused on his comments….but you never know what the smart logic algo’s will focus on….so you just need to be prepared. Do your homework, know what you own, ‘Talk to me, Goose’!
Take good care.
kpolcari@slatestone.com
Sources: Bloomberg, CNBC, Reuters, Wall Street Journal
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Alaskan Black Cod (Aka – Alaskan Sablefish)
If you’ve never had this – you need to try it. Especially on Fridays in Lent – when fish is always on the menu.
This fish has a rich buttery taste, and its fatty texture lends itself to a great meal.
I order this from Jerry’s Meats and Seafoods (jerrysmeats.com – 1-877-789-0789) in Juneau, Alaska – it come flash frozen, packed in dry ice. ….it is now a family favorite…I have never seen this fish at the local fish market – so I order it from Jerry, and he sends it via UPS overnight.
You need – the fish, butter, s&p, fresh lemon juice, dry white wine (you can use chicken stock) and capers.
Set you oven to 400 degrees (bake).
Defrost it in a pan of warm water…let it defrost slowly…. Once it’s defrosted – rinse and pat dry.
Season it with s&p, fresh lemon juice and melted butter.
Place in the oven and let it roast for 10 mins…. then add a splash of dry white wine – Pinot Grigio Santa Margherita and capers. Allow it to roast for another 10 mins…. You can baste is with the butter and wine while its cooking….
When done, remove and place on your plate – (one-piece feeds two people). I served this on a bed of wild rice with roasted butternut squash and a large mixed salad. A chilled glass of the Pinot Grigio finished the meal.
Buon Appetito.
