Good morning contrarians! It is Wednesday, Nov. 23. Thanksgiving Eve in the US.
Stocks rallied yesterday, led by the Nasdaq which added 1.4%. Cryptos recaptured some ground, with Bitcoin regaining the $16,000 level.
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State of Play
As of 0615, things are pretty quiet:
Cryptos are continuing to gain ground, with Bitcoin up another 5% to trade around $16,600;
Stock futures are flat, with major US indexes unchanged;
Commodities are mixed, though WTI crude oil is down 2% to drop below $80/barrel again. Copper is unchanged;
Bonds aren’t doing anything. The 2-year yield is 4.53%, the 10-year 3.75%.
FOMC Meeting Minutes
Minutes from the Federal Open Market Committee’s last meeting will be published at 1400. Investors will probably be looking for any signs of infighting — or at least debate — where interest rate policy is concerned. Anything that can shape a narrative that the Fed is struggling to pass through further interest rate hikes will be bullish for stocks.
Economic Data Dump
Before the FOMC minutes we’ll get a slew of economic data from various sources. First off, seeing how it’s Wednesday we will get MBA mortgage applications (2.7% increase last week) and the average 30-year mortgage rate (6.9%).
At 0830 we’ll get durable goods orders. These are expected to have increased by 0.4% month-over-month in October, matching the gain from September. Core durable goods orders, which exclude transportation items, are anticipated at 0.1% after dropping 0.5% in September.
Seeing how tomorrow is a holiday we’ll also get initial jobless claims today at 0830. Economists expect 225,000 new claims, roughly in line with the 222,000 seen last week. This figure has been stuck in this range for awhile.
Finally, new home sales are out at 1000. The expectation here is for 570,000 transactions, a decrease from the 603,000 seen a month ago. That would still be above the year’s low recorded in August, which was 511,000. To give you a sense of perspective, the peak came last April, at over 1 million new home sales.
The Bottom Line
It looks like we could be back to the same Fed pivot ‘hopeium’ playbook that sparked rallies last month and over the summer. The latest catalyst might have been comments from Cleveland Fed President Loretta Mester citing “some good news on the inflation front,” which she surmised could lead to smaller rate hikes.
None of this changes the fact that inflation is still high — finally dropping from the highs, but still elevated at 7% plus. This after a period when the Fed promised us that inflation was transitory. In light of this it’s very hard to make the case to stop (much less reverse) rate hikes anytime soon. Sure, the intrepid Fed watcher might catch something in the minutes to inspire this delusion hope, but it’s straight up foolish to think the Fed will risk any more of its credibility just to help markets. That’s not how bureaucrats work. I know the Fed is technically not a government institution, but still. Same principles.
Housing and employment data could help shape the narrative, though markets rarely react to these very violently. Also not sure what’s going on in cryptos. The latest news there is that SBF has apologized to FTX employees. I’m sure that all is forgiven now after that. The bankruptcy case is proceeding. For whatever reason, the world’s (hopefully) few remaining crypto investors have used this as an excuse to bid up digital currencies. An opportunity to add to short positions?
Happy Thanksgiving. No briefing tomorrow as markets are closed in the US. Probably not Friday either, which is a half day for stateside stock exchanges.
FOMC Meeting Minutes, Economic Data Dump