Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Wednesday, Sept. 13. Inflation Day.
State of Play
Stocks dropped yesterday, with the Nasdaq (QQQ 0.00%↑) all but giving up gains from the previous session. The Apple (AAPL 0.00%↑) event was blah as expected. Nothing really happened overnight. As of 0630 all is quiet as we await the Consumer Price Index release at 0830:
Stock index futures are down a bit, with the Nasdaq and S&P 500 off about 0.2% each;
Commodities aren’t doing much. Copper is unchanged and WTI crude oil is up 0.5% to trade around $89/barrel, a fresh high for the year;
Bonds are selling off a bit as we await this inflation print. The yield on the 2-year is up 3 basis points to 5.03% whilst the 10-year is up 4bps to 4.31% (yields move inversely to prices).
Known Events
We’ve been talking about today’s inflation print for some time and now the day is finally here. It concludes a relatively fallow stretch for economic data releases and a somewhat restless period for financial markets. With today’s Consumer Price Index and tomorrow’s producer prices we get the last inputs for next week’s Fed meeting.
Economists expect the headline CPI to come in at 0.6% month-over-month, significantly higher than the 0.2% MoM seen last month. This would push the year-over-year figure up to 3.6%.
The expectations for Core CPI, which excludes food and energy, are less worrisome: 0.2% MoM and 4.3% YoY, the latter constituting a drop from the 4.7% seen last month. Presumably this disconnect between core and headline figures is due to most of the last month’s price increases coming from fuel.
As you can see 4.3% YoY Core CPI would be a fresh low for this cycle:
The Bottom Line©️
The Fed is unlikely to move at its next meeting, which concludes a week from today. Fed Fund Futures are pricing in a 93% chance of that occurring. Fed officials have effectively signaled that they’re going to sit this one out and it’s unlikely that even a hot print will get them to change their minds.
Future policy meetings are very much in play however, and this is where the impact of today’s CPI will be felt. The Core figure is paramount here; investors can probably shrug off a resurgent headline number (as long as it’s within range of expectations) because that has never been the Fed’s focus. A resurgent Core CPI is going to be harder for investors to stomach. You’re going to want to watch bond yields to gauge their reaction. Stocks are a bit more nuanced.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Inflation Day