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Fresh Signs of Economic Turning

Fresh Signs of Economic Turning

Softening inflation and labor market data are suddenly making the case for rate cuts. Just be careful what you wish for…

Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Friday, June 14. The Bottom Line segment of today’s podcast starts at (2:59) for listeners who want to skip ahead.

State of Play

Stocks eked out another gain yesterday after softer-than-anticipated producer prices and initial jobless claims that surprised to the upside. Bonds gained on this data, which speaks to slowing inflation and labor markets. As we look at our board of indicators at 0640, some risk-off sentiment is emerging:

  • Stock index futures are pointing to a lower open with small caps leading the drop. The Russell 2000 is down 1.5%. S&P 500 (SPY 0.00%↑) futures are down 0.6% with the Nasdaq 100 (QQQ 0.00%↑) down 0.3%;

  • Over in commoditiesland, the most notable move is in precious metals and that is upward. Gold is up 1% with silver up 0.6%. WTI crude oil is unchanged trading around $78.50/barrel. Copper roughly unchanged;

  • Bonds aren’t doing anything after yesterday’s rally. The 2-year yields 4.68% with the 10-year yields at 4.21%.

Photo taken by author, Crowders Mountain State Park, N.C. ©️2023

Today’s Known Events

The University of Michigan’s Consumer Sentiment Survey is out at 1000. There are two of these each month, with more emphasis on the first one, which is today’s. Economists who were surveyed expect a reading of 72.1, a substantial increase from the 69.1 recorded last month.

That’s for the overall survey. The University of Michigan also polls consumers on current conditions and their expectations. Current conditions are expected to come in at 71.0, versus 69.6 at the last reading. Expectations are earmarked for an even 70.0, a versus 68.8 last month. The survey also polls consumers on inflation expectations but there is no economist estimate for that, unfortunately.

The Bottom Line©️

Suddenly it looks like the Fed’s dovish stance may actually be justified. Not only are producer prices receding but you also have unemployment inching up, judging by yesterday’s initial jobless claims at least. That number printed at 242,000 yesterday, more than the 225,000 anticipated and the highest in almost a year — you have to go back to last August to see anything bigger.

Remember to be careful what you wish for. There are very rarely mild recessions. Usually rate cuts only help in accelerating the onset of the next economic expansion. They generally don’t do anything to cushion the fall. The 2020 Covid recession was one of those weird outliers only because it was so short. It was also unique in that it was caused by an exogenous shock — a worldwide pandemic — rather than an economy that overheated, grew old, and died. The last time that really happened was in 2007.

For now all this talk is still a bit premature. The economy is still humming along and AI stocks are still all the rage. Today’s Michigan survey could provide us some more information on the state of the consumer however.

One Year Ago Today…

The Fed kept its policy rate unchanged after raising rates the previous 10 meetings (Daily Contrarian, June 14, 2023).

…and What Happened:

It would be a one-month pause. At the next FOMC meeting the following month, interest rates were raised again, to the level where they currently find themselves. Maybe in retrospect the Fed shouldn’t have paused, given what we know now about inflation?


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The daily podcast discusses the major market activity and economic data release schedule for the day ahead, with a contrarian bent. Also includes regular podcast episodes a day (or more) early and without ads or announcements.