Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Friday, June 28. The last trading day of the second quarter (and first half) of 2024. The Bottom Line segment of today’s podcast starts at (4:11) for listeners who want to skip ahead.
State of Play
Stocks didn’t move much yesterday, just as we had anticipated in light of the dearth of known events. After the close Nike (NKE 0.00%↑) earnings disappointed and that stock sold off overnight to the tune of 15% at the time of this writing. We also had the little matter of the Presidential debate here in the US, which appears to have increased the likelihood of Donald Trump returning to the White House. As we look at our board of indicators at 0630:
Stock index futures are pointing to gains, with the Nasdaq up 0.5% and S&P 500 up just a little less;
Commodities are gaining ground, with WTI crude oil up 0.8% to trade north of $82/barrel. Copper is up 1.2%;
Bonds are unchanged. The 2-year yields 4.73% whilst the 10-year yields 4.31%. The 10-year has actually moved higher this week. It was around 4.20% on Monday morning;
Cryptos aren’t doing anything at all. Bitcoin is changing hands around $61,500.
Today’s Known Events
It’s all about Personal Consumption Expenditures, out at 0830. Also known as the PCE Deflator, this is the Fed’s preferred inflation gauge. We’ve been building to this all week.
The numbers we’re looking for:
No change to month-over-month headline PCE after an increase of 0.3% last month;
This would drop annualized headline PCE to 2.6% from 2.7%;
Core PCE of 0.1% MoM versus 0.2% previous;
Core PCE of 2.6% YoY versus 2.8% previous.
Each month we get two inflation readings: CPI and PCE, The CPI is first. This month those numbers were pretty soft, showing no change in monthly headline CPI. Maybe that’s why economists are expecting no change to today’s monthly PCE.
The core CPI figure came in at 0.2% MoM. Perhaps that’s where economists got their estimates?
The Bottom Line©️
Whatever the source, this is one number that economists usually get pretty right. It very rarely misses by more than 0.1 percentage points. Economic data from employment, retail, and housing point to growth softening a bit. That would lead to lower inflation. Maybe not right away, but eventually. Assuming the trend holds.
The Fed has already ruled out additional rate hikes this year and is telegraphing that the next move would be a cut. Futures traders are pricing in just a 10% chance of this happening at the next FOMC meeting, which is on July 31. For the subsequent meeting on Sept. 18 we are looking at better than even odds (58%) of a cut. Optimistic? Today’s inflation data could provide ore clues. The Fed is probably not going to cut with annualized inflation at 2.6%. But if it gets below 2.5%?
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
This Substack chat tracks The Contrarian’s trades in (almost) real time. The full portfolio is available upon request.
If this daily thing is drowning your inbox and/or you CBF to bother with it and prefer to just get the guest feature or actionable highlights — you can control these settings on your account page.
Finally, if you enjoy this and want others to experience it, please gift a subscription to your friends (or even your enemies).
PCE Deflator