Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Tuesday, Dec. 12. The Bottom Line segment of today’s podcast starts at (4:00) for listeners who want to skip ahead.
State of Play
Things were quiet yesterday, though stocks did close a bit higher even as cryptos sold off. As we look at our board of indicators at 0635, all is pretty quiet ahead of the CPI print:
Stock index futures are up a tiny bit, with the S&P 500 and Nasdaq pointing to gains of 0.2%;
Cryptos are continuing to drop, though less dramatically than yesterday. Bitcoin is down 1% to trade around $41,800;
Bonds are seeing a few bids, with the yield on the 2-year down 4 basis points to 4.69% and the 10-year yield down 5bps to 4.19% (yields move inversely to prices);
Commodities aren’t doing much. WTI crude oil is unchanged trading at $71/barrel. Copper is up 0.6%.
Known Events
Today is all about inflation. The Consumer Price Index prints at 0830. Economists expect headline inflation to come in unchanged on a monthly basis, which would drop the year-over-year figure to 3.1% from 3.2%. The more closely-watched Core CPI, which excludes food and energy, is expected to increase 0.3% month-over-month after a 0.2% increase last month, and rise an even 4.0% year-over-year, the same as last month.
As you can see, the annualized Core CPI has come down quite a bit from its peak last fall, with recent months showing a nice step ladder downward:
The Bottom Line©️
The question now being asked is how soon the Fed can cut rates. Fed fund futures are pricing in zero chance of this happening at this month’s FOMC meeting which concludes tomorrow and at the subsequent one on Jan. 31. But traders are now pricing in a 42% chance of a rate cut at the meeting after that, on March 20.
Chances are, a lot would need to change in the next three months for that to happen. You would need inflation to drop further and more importantly the economy would kind of need to fall off a cliff. Those prospects seem extremely remote at this time.
But that’s all the story for another day. For now we have this inflation print to deal with. If headline inflation manages to print negative it will surely cause a bunch of headlines about the return of deflation, blah blah. We may even get those headlines if the monthly number comes in as expected at 0.0%. You’ll know better than to believe the headlines of course. Look to the market to see the real reaction, specifically bonds and Fed fund futures. That will tell us how investors are viewing this data release.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Consumer Prices