Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Thursday, Aug. 31. The last trading day of the month.
State of Play
Another day of gains for stocks yesterday, albeit modest gains amid thin trading volumes. Still, that makes four winning days in a row and leaves the S&P 500 down just 1% for the month of August. As of 0600 all is pretty quiet:
Stock index futures aren’t going much of anything. The Nasdaq (QQQ 0.00%↑) is down 0.2%. The S&P is flat;
Commodities are mixed. Copper is down 1%. WTI crude oil is up 0.5% to trade around $82/barrel, its highest level in a couple of weeks;
Bonds are unchanged. The 2-year yields 4.87%. The 10-year 4.10%.
Known Events
First up, some earnings: UBS (UBS 0.00%↑) blew by estimates and that stock is rallying in the pre-market, to levels not seen since 2008. Good news for anybody who bought Credit Suisse stock, though there’s still a ways to go before those losses are recuperated.
Dollar General (DG 0.00%↑), a portfolio holding, is due out before the open at 0930 along with Campbell Soup (CPB 0.00%↑) and Olli’s Bargain Outlet (OLLI 0.00%↑). After the close at 1600 we’ll hear from Lululemon (LULU 0.00%↑), which rightfully should be riding the Taylor Swift economy (right?) and Broadcom (AVGO 0.00%↑), among others.
Personal Consumption Expenditures, aka the PCE Deflator, the Fed’s preferred inflation gauge, is out at 0830. Yes, it is this week. The Contrarian misread the economic data schedule. All apologies.
The headline PCE figure is expected to come in at 0.2% month-over-month, identical to last month’s reading. The core figure, which excludes food and energy, is also expected to print at 0.2%, making this an easy one to remember.
The annualized figure is actually expected to increase for both core and headline, to 4.2% year-over-year from 4.1% for the former, and 3.3% from 3.0% for the latter.
Seeing how it’s Thursday we’ll get initial jobless claims, also at 0830. Economists expect 235,000 new claims, essentially in line with the 230,000 recorded last week.
The Bottom Line©️
A rise in the Fed’s preferred inflation gauge would obviously crimp the narrative about the Fed making progress on inflation a bit, but 0.2% will be priced in due to the forecasts. Remember that these inflation figures very rarely miss forecasts by very much — and when it’s due to an external shock like Covid or Russia invading a neighboring country. That means that 0.1% or better should keep the rally going.
Will we recover the remaining 1% in the S&P to finish the month in the green? That might be difficult to pull off unless we get a negative month-over-month figure. For what it’s worth, our guest this week expects inflation to continue to run hot and force the Fed to hike rates at its next meeting, on Sept. 20. The full podcast episode is now available for you (and you only) to listen to. Non-premium subscribers have to wait a week or so and will then have to put up with annoying ads or announcements.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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PCE Deflator: 0.2% or Bust