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All Eyes on Powell, Again
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All Eyes on Powell, Again

Stock futures are quiet ahead of the Fed chair’s speech this afternoon…

Good morning contrarians! It is Wednesday, Nov. 30.

Yesterday was a pretty quiet trading day as anticipated. Not much movement at all. The Nasdaq’s 0.6% decline was the major move of the day.

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State of Play

As of 0630, things are still quiet:

  • Stock futures are doing very little, effectively unchanged;

  • Commodities are continuing to advance, with WTI crude oil up close to 3% to trade north of $90/barrel. Copper is up 2%;

  • Cryptos are gaining ground again, with Bitcoin up 2% to trade around $16,900;

  • Bonds are unchanged. The 2-year yield is 4.48% and the 10-year 3.73%.

Powell Speech

Fed Chair Jerome Powell is due to speak at the Brookings Institution at 1330. The topic of the speech is “The economic outlook, inflation, the labor market,” so right in Powell’s wheelhouse. Investors will be paying close attention to how this speech differs from his comments at the last FOMC meeting.

This matter was discussed at some length with Michael Pisani of SmartOptionTrader.com yesterday. The actionable highlight reel is available here. The full length podcast will be released to premium subscribers today.

Economic Data

It’s a busy day for economic data releases:

  • Today being Wednesday we’ll get MBA mortgage applications at 0700. Last week this figure increased by 2.2% from the prior week;

  • ADP nonfarm payrolls are out at 0815. The expectation here is for 200,000 new jobs, slightly less than the 239,000 seen last month;

  • The second reading of Q3 GDP is out at 0830. The first reading gave us a 2.6% print after two consecutive quarters of negative GDP. A print of 2.7% is anticipated, so this should probably not move markets very much;

  • Job Openings and Labor Turnover Survey, or JOLTS, is out at 1000. About 10.3 million job openings are expected, a bit below the 10.7 million seen last month. The devil is in the details however. Watch for the quits levels, which are still near all-time highs;

  • Also at 1000 we’ll get pending home sales for October. This is expected to shrink by 5% month-over-month after dropping by 10.2% MoM at the last reading;

  • Finally the Fed’s Beige Book is out at 1400. No number out of this but it will be interesting to see what respondents have to say about economic conditions.

Earnings

Hormel Foods (HRL) and Build-A-Bear Workshop (BBW) report before the open at 0930. After the close at 1600 we’ll hear from Salesforce (CRM), Five Below (FIVE), Snowflake (SNOW), and Victoria’s Secret (VSCO).

The Bottom Line©

Powell’s speech could potentially be a watershed risk-on event. This was what this week’s guest said, but it does stand to reason if you keep in mind that his comments were the only thing that sank the market at the Fed meeting. We’ve had a softer-than-anticipated inflation reading since then, so the calculation is that this will maybe get Powell to say something a little more dovish that can send stocks on their merry way.

Just keep in mind that Powell has twice this year killed such ‘Fed pivot’ hopes (the other time was at Jackson Hole in late August). Other guests have spoken of the need for a more hawkish Fed over a more sustained period.

It’s entirely possible that Powell doesn’t deviate at all from his last message. That would probably be bad for risk appetite, but any indication at all of a less aggressive Fed will likely lead to buying.

You’ll want to watch Fed Fund Futures as well. Not just for what they say about the next meeting (currently pricing in a 68% chance of a 50 basis point rate hike) but about future meetings. Right now we’re looking at traders pricing in a 50% chance of rates being 100bps higher then.

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