Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Thursday, Jan.11, 2024. The Bottom Line segment of today’s podcast starts at (4:08) for listeners who want to skip ahead.
State of Play
Stocks eked out a small gain yesterday in a relatively quiet session. The major news of the day came after the close with the long-awaited approval of spot Bitcoin ETFs. This will cause crypto bros to be even more obnoxious than before. God help us all. As we look at our board of indicators at 0635, a little bit of risk-on is developing:
Stock index futures are pointing to a higher open led by tech, with the Nasdaq up 0.5%;
Cryptos are advancing, as can be expected, though maybe not quite as much as one would think. Bitcoin is up 3% to trade north of $47,000. The bigger moves are in some of the other
scamscoins, presumably on expectations of ETF approvals for them. Ethereum is up 10%, Cardano +16%;Bonds are seeing a few bids, with the 10-year yield down 4 basis points to drop below 4% again, to 3.99% (yields move inversely to prices);
Commodities are advancing as well. WTI crude oil is up <2% to trade around $72.50/barrel. Copper is up 0.5%.
Known Events
Inflation is back on the menu today. The Consumer Price Index at 0830 is the main data release of the day. Economists expect an increase of 0.3% month-over-month to the headline CPI, an increase from the 0.1% recorded last month, which would raise the annualized headline CPI to 3.2% from 3.1%.
The more closely-watched Core CPI, which excludes food and energy, is expected to print at 0.3% MoM, the same as last month, which would drop the annualized figure to 3.8% from 4.0%. As you can see the Core CPI has been declining steadily since peaking in September 2022:
It’s Thursday so we’ll get initial jobless claims at the same time as the CPI. The expectation here is for 210,000 new claims, an increase from the 202,000 seen last week and ahead of the four-week average of 207,000.
The Bottom Line©️
To repeat: the headline CPI is expected to increase over last month. That is baked in and investors will be expecting it. So too will reporters who have already written the headline about “inflation reaccelerating.” Some may even throw in that it “re-accelerated unexpectedly” which will be an outright lie as the economist survey is clearly expecting exactly that. News organizations will be running with this (assuming the headline CPI comes in as anticipated) in an attempt to generate shock, because shock generates clicks, which helps their bottom line. It’s all simple economics, after all. Indeed, we already have CNBC reporting that today’s report “could challenge the market outlook for big rate cuts.”
Happily, we all know better than to fall for this nonsense. Besides, the core CPI is more important — at least for the Fed, which sets interest rate policy. It is mostly ignored by headline writers. And this figure is expected to hold steady on a monthly basis, which will actually drop the annualized figure somewhat. Scroll up for the exact numbers.
The point is that yes, inflation is softening. Not quite to where the Fed needs it to cut rates, but getting steadily closer. For now, Fed fund futures are pricing in just a 3% chance of a rate cut at the next Fed meeting on Jan. 31. It is going to take a very soft inflation print to move that needle. It will also likely require very soft job figures, though we won’t get another non-farm payrolls report before the next meeting.
More interesting will be the subsequent meeting on March 20, where 67% of futures traders are now pricing in a rate cut of 25bps. You’ll want to keep an eye on that number, not just after this CPI print but through the next several weeks.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Inflation Day