Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets. It is Friday, April 26. The Bottom Line segment of today’s podcast starts at (4:02) for listeners who want to skip ahead. Be sure to check out the brand new ‘One Year Ago Today’ segment at the bottom of this page.
State of Play
Stocks dropped yesterday after first-quarter GDP came in below forecasts while inflation data ran a bit hot. After the close Google (GOOG 0.00%↑) and Microsoft (MSFT 0.00%↑) reported stellar earnings and those stocks rallied overnight as a result. As we look at our board of indicators at 0600, it looks like risk appetite could be back after a two-day absence:
Stock index futures are pointing to gains led by tech. The Nasdaq is up 1% with S&P 500 (SPY 0.00%↑) futures up 0.7%;
Commodities are showing some signs of life with copper up 1.5% and WTI crude oil up 0.5% to trade around $84/barrel;
Cryptos are unchanged for the most part with Bitcoin up <1% to trade around $64,500;
Bonds aren’t doing anything either. The 2-year yields an even 5% whilst the 10-year yield is 4.69%.
Today’s Known Events
Yesterday we had personal consumption prices as part of the GDP report, which showed Core PCE of 3.7% for Q1 (3.4% was anticipated). Today we get the PCE Deflator from the Bureau of Economic Analysis.
Economists who were surveyed expect the following:
Headline monthly PCE of 0.3%, the same as last month;
Headline annualized PCE of 2.6% (2.5% previous);
Core monthly PCE of 0.3% (0.3%);
Core annualized PCE of 2.6% (2.8%).
For sake of comparison, the CPI released last week for this same period (March) showed had slightly larger numbers than this: 0.4% MoM headline and Core CPI.
We do have some earnings today as well. Oil majors Exxon Mobil (XOM 0.00%↑) and Chevron (CVX 0.00%↑) report before the open along with consumer staples stalwart Colgate-Palmolive (CL 0.00%↑). The Contrarian sold down some of his holdings in that stock for long-term gains earlier in the month. Newell Brands (NWL 0.00%↑ ), not one of The Contrarian’s proudest moments, is also due out before the open.
The Bottom Line©️
The PCE Deflator should determine the direction of the day. If it comes in hot then investors could dump risk assets because it will mean that inflation is sticker than anticipated, which in turn will require the Fed to keep rates higher for longer(er). The number you’re looking for again is 0.3%, which is what is anticipated for monthly headline and Core PCE. That will then drive the annualized figure.
You’re going to want to keep an eye on Fed fund futures of course. Right now these are pricing in an 85% possibility of no change to the Fed’s key policy rate at the June 12 meeting. For the subsequent meeting on July 31, these chances are 65%. These are stark changes to what these numbers were a month or two ago. But now even Jay Powell has acknowledged the Fed can’t cut rates until inflation drops more.
It looks pretty unlikely that today’s data release will give the market what it so desperately wants. This just because the CPI came in north of what is expected for today’s PCE and the quarter PCE was above expectations as well. But then, things are rarely that simple, are they?
One Year Ago Today
Microsoft and Google had just reported bang-up earnings (sound familiar?), which The Contrarian said could mean an opportunity to buy Meta (META 0.00%↑), though he was of course very careful to qualify that he was not dispensing investment advice (Daily Contrarian, April 25, 2023).
Indeed Meta has more than doubled in the year since that pronouncement, outperforming Google and Microsoft by substantial margins, as the chart below illustrates:
Unfortunately The Contrarian didn’t take his own advice (which wasn’t investment advice) and didn’t buy Meta. This is mainly due to his distaste for the platform generally and its sociopathic CEO more specifically. Anybody who did however is now certainly rich enough to afford to gift a subscription to the Daily Contrarian.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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PCE Deflator to Crash Tech Party?