Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Friday, May 31. The Bottom Line segment of today’s podcast starts at (2:53) for listeners who want to skip ahead. Be sure to check out the new ‘One Year Ago Today’ segment at the bottom of this page.
State of Play
Stocks sold off yesterday with tech seeing the worst of it but small caps rebounded from their drop the previous day. As we look at our board of indicators at 0640, things are quiet ahead of the PCE Deflator at 0830:
Stock index futures are pointing to a lower open, with the Nasdaq (QQQ 0.00%↑) down 0.5% and S&P 500 (SPY 0.00%↑) futures down 0.3%;
Commodities are relatively quiet. WTI crude oil is unchanged trading around $78/barrel. Copper is down 0.7%;
Bonds are unchanged. The 2-year yield is 4.95% whilst the 10-year yields 4.56%;
Cryptos aren’t doing anything. Bitcoin trades around $68,100.
Today’s Known Events
Personal Consumption Expenditures, the Fed’s preferred inflation gauge also known as the PCE Deflator, is out at 0830. That’s the only game in town today.
The number we’re looking for is 0.3% month-over-month increase for headline and core PCE, identical to last month. That would leave the annualized headline PCE at 2.7% and year-over-year core PCE at 2.8%. Very simple numbers this month.
The Bottom Line©️
It’s the same old game with the inflation data, with investors hoping for results that come in below forecasts so it can increase expectations of a Fed rate cut happening sooner rather than later. If the numbers exceed estimates it will move out expectations of a rate cut and result in risk-off, especially for bonds. That’s the traditional playbook at least.
It’s been a lousy week for stocks, with S&P and Nasdaq heading for their first losing week in five weeks. But the damage hasn’t been terribly with the S&P down 0.9% and Nasdaq down just 0.3%. We could make all that back if the PCE data comes in soft.
One Year Ago Today…
Disappointing PMIs from China led to a drop in oil prices, with WTI crude oil trading around $68/barrel (Daily Contrarian, May 31, 2023).
…and What Happened:
The drop would be short-lived as oil hasn’t been that low since. A rally in the late summer actually had crude prices north of $90/barrel before a drop into year end. Things have been a bit smoother this year, as the chart below illustrates:
Housekeeping
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