Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Wednesday, June 12. The Bottom Line segment of today’s podcast starts at (3:10) for listeners who want to skip ahead. Be sure to check out the new ‘One Year Ago Today’ segment at the bottom of this page.
State of Play
The Nasdaq and S&P 500 closed at fresh record highs yesterday, probably thanks to Apple (AAPL 0.00%↑), which surged on reports of its AI software. This demonstrates that any focus on AI continues to work as a stock pump, which in turn means we can look forward to companies everywhere stuffing their earnings statements chock full of anything “artificial” and “intelligence.”
As we look at our board of indicators at 0625, all is quiet ahead of the latest inflation data reading and Fed meeting:
Stock index futures are flat with no major US index moving more than 0.1% from the break-even point;
Things are quiet in commoditiesland as well. WTI crude oil is up 1% to trade close to $79/barrel. Copper is unchanged;
Bonds aren’t moving. The 2-year yield sits on 4.83% whilst the 10-year is 4.40%;
Cryptos aren’t doing anything either with Bitcoin up just 1% to trade around $68,000.
Today’s Known Events
After two days of quiet, today is massive. Things get started early with the Consumer Price Index, out at 0830. Economists who were surveyed expect a 0.1% month-over-month increase to headline CPI, below the 0.3% recorded last month, which would keep the annualized figure at 3.4%.
Core CPI, which excludes food and energy and is therefore more closely watched by the Fed, is expected to run hotter than headline, at 0.3% MoM — the same as last month. That would still drop annualized Core CPI a bit, to 3.5% from 3.6%.
We then have the Fed interest rate decision at 1400. The FOMC is widely expected to keep its key policy rate at 5.5% again, which means the devil will very much be in the details — both from the policy statement, which is released at 1400, and Jerome Powell’s press conference that follows at 1430.
The Bottom Line©️
Friendly reminder that for all their (numerous) faults, economists usually get the inflation figures pretty right. The monthly Core CPI hasn’t missed their estimates by more than 0.1 percentage points since November 2022. So chances are the number will print at or extremely close to the forecasts.
Investors are wise to this and will likely (over)react to any minor deviation from the forecast — to the extent that there is one. But whatever happens there could be undone by Powell’s presser. If he says something — anything — dovish, then stocks and bonds will rally, regardless of what happens with the CPI.
That may all just prove the point that there is still too much liquidity sloshing around the system. Core CPI continues to grow at a pace beyond the Fed’s comfort level of 2% annualized. Recent months have showed a worrying upswing in this metric.
But then you figure Powell and the FOMC members (and others) will tailor their language to the CPI print, right? Or is that assuming too much competence of Fed officials?
One Year Ago Today…
We were gearing up for big week in central bank-land, with the Fed, European Central Bank, and Bank of Japan deciding on interest rate policy (Daily Contrarian, June 12, 2023).
…and What Happened:
The three central banks kept interest rates unchanged as expected. The BOJ has since raised rates once, in March. The ECB raised rates twice more, in July and September, and then cut at its meeting this month. The Fed raised once more, in July, and has kept its key policy rate unchanged since.
Housekeeping
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Consumer Prices, Fed Meeting