Things you need to know.
– CPI did not surprise, what will the PPI say about the state of inflation.
– 10 yr bond yields kiss 4.48%.
– NON- OPEC Oil supply expected to increase in 2025.
– Commodities continue to come under pressure as the dollar advances.
– Expected rate cuts from the ECB, BoE and the FED continue to tease investors.
– Try the Thanksgiving stuffing – Italian style.
Stocks wavered as investors mulled over concerns that the market’s election rally is (or has) approached an overbought state, this despite expectations of another FED rate cut next month.
The Dow gained 47 pts, the S&P up 2, the Nasdaq lost 50 pts, the Russell down 22 pts, the Transports rose by 152 pts while the Equal Weight S&P added 3 pts.
Yesterday’s CPI data came in as expected – not hotter nor cooler and that is causing some street analysts to confirm that the Fed is likely to cut rates in December, something I do not support…. but I am only one voice…. I was at the Yahoo Invest Conference in NYC on Tuesday and Minneapolis’s Fed President Neely Kashkari was there and while he did not rule out a cut, he was cautious to say that it is not carved in stone and that the FED remains data dependent….
Today brings us the October PPI report – inflation at the producer level and that is expected to be up across the board…on the top and on the Core line – both m/m and y/y….and we also know that price increases at the producer level – find their way down to the consumer level over a 4 – 6 week period…which would suggest that the November CPI report due out on December 11th could reflect higher prices at the consumer level….and that COULD give the FED a reason to pause on rate cuts next month at the FOMC meeting on December 17th and 18th…. Just something to consider….
In any event – they are now discussing a pause (after the December cut) as they continue to assess economic conditions – my sense is that they should pause now – given the fact that the election is over and the sense is that more fiscal stimulus, trade, Tax and immigration policy all have the ability to reignite inflation and now that the GOP has taken control of Congress (both Senate and House) – any effects of these policies could be amplified.
Bonds took another hit and that sent yields even higher. The 2 yr is now yielding 4.29% while the 10 yr is yielding 4.465% after kissing 4.48%…Again, we ask – are yields rising because we have a strong economy or are they rising because bond traders are concerned that inflation is coming back? You will get a different answer depending on who you ask, but the bottom line is – as long-term investors we must consider the role that 5% 10 yr rates have on the market and investor psyche. The last time the 10-yr kissed 5% was October 2023 and when it did, the S&P lost about 6.2% while the Nasdaq gave up 8.5% – individual names gave up more…. but that’s always the case…. So, just something to consider as we watch yields tick higher all while the FED is telling us that rates are going lower…. At some point – something has to give.
Oil continues to churn in the $68/$69 range – news that non-OPEC capacity coming online from Brazil, Guyana, China, Angola, Senegal and Norway will only add to supply and that will continue to put a lid on higher prices. US Shale production is expected to slow to 320k b/d in 2025 (down from 540k b/d) while Brazil is on track to add 800k b/d of new capacity over the next 12 months. Guyana (assisted by XOM) is expected to add 250k b/d of new capacity next year. US Gulf of Mexico capacity is expected to expand by 170k b/d as well. Norway will add about 320k new b/d while China’s newest project will contribute 130k b/d. Senegal and Angola will add about 180 b/d in new supply. And these are just some of the Non-OPEC members….add in the OPEC+ members and we are awash in oil….so, in my view – this is not a waning demand story at all, it is a supply issue – thus I suspect that we will be seeing lower prices and that should be good consumers and it should be good for the cost of electricity and transportation – but remember – once prices go up they don’t really come down at all (unless we have a fairly deep recession), we just get used to higher prices. You have to hope that wages keep up….
Gold is trying to recover from the beating it has taken since November 6th…. Yesterday it traded right down to its intermediate term trendline at $2570 but this morning it breached that support line and is down another $40 at $2546….- a stunning move lower (down 10%) off the early November high of $2801…..The move in gold is being blamed on the surge in the US dollar – now up 6.9% off the September low – this as the market was beginning to price in a Trump win.
Now gold is still up 17% ytd (a big move for gold) but has now traded down to a level where it should find support. $2550 represents a level that was resistance for 5 months…April, again in May, again in July and then again in August so the idea that it backed off and appears to be finding support is a positive….But remember – rising treasury yields will also help support the dollar and that will be a negative for commodities. When yields rise U.S. assets become more attractive to investors seeking higher returns. As the world’s reserve currency, the U.S. dollar is widely used for global transactions, and U.S. Treasuries are among the most stable investments globally. High foreign demand for Treasuries typically supports the dollar, as investors need dollars to buy Treasuries. And we know that a strong dollar causes commodities (like gold and oil) to decline due to their inverse relationship.
We can see that as well in the BCOM index….(Bloomberg Commodity Index), it is now down 6.8% during that same time frame…this index includes a range of commodities – think wheat, corn, soybeans, coffee, sugar, live hogs, cattle, lumber etc.…lower commodity prices should also be reflected in prices at the register, but again, a strong economy will allow prices to remain elevated, Capisce? A recession that causes the economy to weaken is when we will see prices actually fall.
Now all this excitement Is causing the VIX to trade even lower…. suggesting that there is little fear in the markets at the moment. We are now below all 3 trendlines trading at levels last seen during the summer. Unless we get a spike in the VIX, stocks can continue to churn higher…5% yields on the 10 yr though, could provide that spike that some are looking for.
US futures are trading higher…Dow futures are up 45, S&P’s up 4, the Nasdaq is ahead by 10 and the Russell continues to rally- up another 22 pts.
Eco data today is all about the PPI, tomorrow brings us Empire Manufacturing (NY State), Retail Sales, Industrial Production and Capacity Utilization….
Fed speakers today include FED Chair JJ, NY’s Johnny Williams and FED Governor Adriana Kugler – pay attention to what they say and how they say it.
European markets are up… Traders are watching European GDP data and U.S. producer price index (PPI) numbers for further economic cues. Positive forecasts from chip equipment maker ASML and positive news out of Siemen’s energy (grid technology) and expectations of December rate cuts from central banks in Europe (ECB and BoE) and the U.S. are all lifting investor sentiment. The Eurostoxx index is up 1.4% Germany is up 1.2% followed by France up 0.9%. ASML ADRs are quoted up $20 at $693/$695.
The S&P closed at 5985 – up 2 pts. Futures this morning are suggesting that we will test 6000 again. I would not be surprised to see us back fill the gap created on November 6th… (5782/5864) before we move significantly higher…Today’s PPI report should set the tone – depending on how ‘hot’ it is. A weaker than expected number will cause investors to celebrate while a stronger than expected number will cause the algo’s to hit the ‘sell’ button.
Remember – Successful investing is a marathon not a sprint. Click on the link to send me a message – I’m happy to discuss.
https://slatestone.com/contact-us/
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
