Good morning contrarians!
Stock futures are down a bit as of 0630. The Nasdaq is down 0.4%, with the S&P 500 and Russell 2000 off about 0.3%. Dow Industrials are down 0.2%. Bonds are being sold, with the yield on the 10-year rising to 1.483%. The 2-year is back up to 0.45%. Cryptocurrencies are down, with bitcoin about 1.6% lower to trade around 66,700.
Today is all about inflation. The Bureau of Labor Statistics’ Consumer Price Index reading for October is due at 0830. Economists expect a month-over-month increase of 0.6%, an uptick from the 0.4% in September. The core CPI, excluding food and energy, is expected to have increased 0.4% MoM versus 0.2% last month. Year-over-year, the CPI is expected to have risen 5.9%, which would be the fastest pace since 1990 and the fifth straight month of increases north of 5%. The core CPI is anticipated for 4.3% compared to 4% a month ago.
These are obviously gaudy numbers and the Federal Reserve isn’t even pretending they are transitory anymore. The question is how much fear of rate hikes gets produced by this report. If it exceeds estimates, the headlines will be extremely dramatic and one would figure it to be substantial. The Fed isn’t expected to raise rates until the middle of next year, but if inflation continues to come in hot, it will certainly increase the pressure on them to do something. That’s the thinking, at least.
Update: Inflation came in hot, increasing 6.2% YoY and 4.6% YoY ex-food and energy. Take a look at the damage:
We also have initial jobless claims out at the same time as the CPI report, but this will surely be overshadowed. (Initial jobless claims are usually on Thursdays, but they moved them up a day due to the Veteran’s Day holiday tomorrow). For what it’s worth, estimates there are for a new post-pandemic low of 265,000 claims. If I’m not mistaken we’ve set fresh post-pandemic lows each of the last three weeks.
Earnings today as well: Wendy’s (WEN) before the open. Disney (DIS) and Beyond Meat (BYND) after the close.
Later on we have industrial production in China, out at 2100. This is an official government report so worth taking with several grains of salt. But it will be interesting to see what officials are willing to admit. The number has been dropping since March, when it was 35%, to 3.1% last month. Those are significant decreases and this could help inflation seeing how China is the world’s chief importer of raw materials and industrial production is the major driver of this. Of course, it won’t paint a rosy picture of China’s economy.
Bottom Line
Fear of inflation is already having an effect, seen most prominently in bond prices. With cryptos dropping as well it doesn’t bode well for risk assets. But a benign inflation reading could have us reverse course, perhaps dramatically. With so much riding on this CPI report it would be foolish to make a prediction at this stage other than to expect there to be pretty significant moves one way or another.
Yesterday’s Bottom Line incorrectly predicted a higher close for stock markets based on the direction of cryptos.
Bottom Line Record: 5 wins, 2 losses, 4 abstentions.
The Bottom Line is done for entertainment purposes only and should not be taken as investment advice.
Inflation Watch: Daily Contrarian, Nov. 10