Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Friday, March 8. The Bottom Line segment of today’s podcast starts at (3:47) for listeners who want to skip ahead.
State of Play
Stocks rallied yesterday, with the S&P 500 closing at a fresh record high and Nasdaq within shouting distance. As we look at our board of indicators at about 0300 (not 0400 as erroneously referred to in the podcast), things are pretty quiet though perhaps leaning to risk-on:
Stock index futures are flat as a board with no major US index moving more than 0.1% from the break-even point;
Commodities aren’t doing much either, with WTI crude oil up 0.6% to trade north of $79/barrel again while copper is unchanged;
Cryptos look to resume their surge, with Bitcoin up 2% to trade around $67,300;
Bonds are seeing a few bids, which makes sense in light of the dovish rhetoric supplied by Fed Chair Powell this week. The 2-year yield is down 2 basis points to 4.49% whilst the 10-year is down 1bps to 4.08% (yields move inversely to prices).
Today’s Known Events
Non-farm payrolls are the main (only) data release worth mentioning. Even here it’s difficult to see how markets will react strongly, just because of the clear language supplied by Powell in his congressional testimony this week.
The numbers we’re looking for are 198,000 non-farm payrolls, down significantly from the 353,000 seen last month, which would leave the unemployment rate unchanged at 3.7%.
The Bottom Line©️
If we get another hot NFP report it could spook markets, particularly bond markets. But again, the Fed has been very clear with what they’re looking to do the rest of the year and that is loosen monetary policy. Yes, the Fed is ultimately data dependent and no they will not be able to cut rates if the economy is at risk of overheating and prices (inflation) remain elevated.
Dispatch
On the topic of inflation, The Contrarian had an interesting experience in Switzerland this week. From past visits over the years he has grown accustomed to experiencing sticker shock upon landing in Zurich. Well, not this time. The Instagram account had a whole series on this. Also in the photo gallery:
Swiss prices, at least for food, seem about in line with the US in generally and downright cheap compared to major cities like New York. Groceries, transportation, meals at restaurants — all compare favorably with NYC prices, especially when one factors in the layers of taxes, fees, and tips one is charged in the Big Apple.
The experience of inflation in the US has been a little like boiling a frog; it doesn’t know what’s happening until it’s too late. Americans shrugged and went along with higher prices, especially as these were partly offset by higher wages and government handouts during Covid. Now it’s gotten to a point where we don’t even notice we’re being boiled alive. It takes a visit to what is widely considered the most expensive country on earth to bring the reality home.
In light of this experience, The Contrarian remains very skeptical that the Fed is anywhere close to cutting rates. But that is just one individual’s opinion.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Non-Farm Payrolls