Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Thursday, March 28. The Bottom Line segment of today’s podcast starts at (3:08) for listeners who want to skip ahead.
State of Play
Stocks rallied yesterday with small caps leading the charge. This despite there not being any real news to speak of. As we look at our board of indicators at 0635, most of the action is in the bond market:
Bonds are selling off. The 2-year yield is up 6 basis points to 4.63% whilst the 10-year yield is up 2bps to 4.22% (yields move inversely to prices). That’s the first major movement for bonds this week. It is likely due to comments from Fed Governor Chris Waller last night about the FOMC being in “no rush” to cut rates due to persistent inflation;
Stock index futures are flat as a board with no major index moving at all from the break-even point;
Commodities are showing a few signs of life, with WTI crude oil up <1% to trade around $82/barrel and gold up 0.6%. Copper is flat. Cocoa prices, which have attracted a lot of attention lately, are up ~4% in New York trading but slightly off of the all-time high;
Cryptos are unchanged for a change with Bitcoin trading around $70,400.
Today’s Known Events
It’s another quiet day. Walgreens Boot Alliance (WBA 0.00%↑ ) reports earnings before the open. A pretty good consumer staples gauge that is worth watching for that reason.
We get initial jobless claims at 0830 as we do every Thursday. Economists who were surveyed expect 212,000 new claims, roughly in line with the 210,000 seen last week and right in line with the four-week average of 211,000.
We’ll also get another reading of fourth-quarter GDP, the third, which can be safely ignored seeing how it will simply confirm what was in the first two. We’ll also get another reading of the Michigan Consumer Sentiment report, which can also be ignored for the same reason.
The Bottom Line©️
So yeah another slow day but yesterday showed us that we don’t need a catalyst to move higher. This is how things go in bull markets. We had the crypto rally earlier in the week, so the equation of cryptos being a leading indicator for stocks still holds up.
It’s the last trading day of the week and of the first quarter. It was a very solid quarter for stocks — the best one in five years for the S&P 500, as it turns out. It’s the second straight winning quarter and fifth straight winning month for the S&P, which gained 10% over the last three months. The Nasdaq is right behind it, up 9% and change. Seems the optimism we saw at the start of the year may have been justified after all. It didn’t look that way at first, but we noticed a change on Jan. 24 that has so far held up.
It looks like things will be quiet today. The higher prices for cocoa and gold can be explained in part by inflation. It would appear that some elements at the Fed have gotten religion on that, judging by Waller’s comments yesterday. This makes tomorrow’s PCE release very interesting to watch indeed. Too bad markets are closed, but Fed fund futures should be trading.
Friday Update
Updating this briefing rather than starting an entirely new one. Markets are closed around the world and there’s no way to gauge investors’ reaction. But there are a couple of things going on.
First up, the PCE Deflator is at 0830. Numbers we’re looking for:
Headline 0.4% MoM (0.3% previous)
Headline 2.8% YoY (2.8%)
Core 0.3% MoM (0.4%)
Core 2.5% MoM (2.4%)
Personal Spending 0.5% MoM (0.2%)
As you can see expectations are for slightly elevated headline readings while monthly core prices are expected to drop a tiny bit. The jump in personal spending will not help matters. As a whole, these numbers are still elevated and will not allow inflation to drop any further. As you can see the annualized numbers are expected to inch up. We’re at the stage where we need more substantial decreases in monthly inflation for it to have an impact on the annualized.
On this topic we have Fed Chair Jerome Powell speaking at 1130 at the San Francisco Fed’s Macroeconomics and Monetary Policy Conference. That will be broadcast live at the preceding link if you want to follow along. It’s highly unlikely Powell will take any questions. Hopefully he will address today’s PCE Deflator and maybe Waller’s comments from Thursday.
Unfortunately there’s no way to gauge today’s market reaction other than through Fed Fund Futures (right? They should be trading today regardless). At the time of this writing traders were pricing in a 95.8% chance the Fed will stand pat at its next monetary policy meeting on May 1. But for the subsequent meeting on June 1, there is a 61% chance of a rate cut.
All of this will surely impact Monday’s open in the US. Markets in Europe and Asia will be closed for another day for the Easter Monday holiday.
Housekeeping
The Contrarian may be back tomorrow to preview the PCE Deflator, but maybe not seeing how markets are closed. It will likely be a game time decision.
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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