Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Thursday, Sept. 14.
State of Play
The CPI came in pretty much as anticipated yesterday and stocks didn’t really move as a result, though small caps dropped, with the Russell 2000 giving back 0.7%. As of 0630 we are looking at some green shoots:
Stock index futures are pointing to gains led by small caps, with the Russell up 0.6%. S&P 500 and Nasdaq are up 0.5% each;
In commodity land oil is continuing its slow ascent, with WTI crude oil up another 1% to trade north of $89/barrel;
Bonds are unchanged. The 2-year yields 4.98%, the 10-year 4.26%.
Known Events
Yesterday we had consumer prices, today it’s producers who report at 0830. Economists expect the headline PPI to print at 0.4% month-over-month, effectively in line with last month’s 0.3%. This would move the year-over-year PPI up to 1.2% from 0.8%.
Core PPI, which excludes food and energy, is expected to come in at 0.2% MoM versus 0.3% last month, which would drop the annualized figure to 2.2% from 2.4%. There are gauges for PPIs ex-food, energy, and transport that are released as well, but no economist estimate for those.
At the same time as the PPI we get retail sales. This figure is expected at 0.2% MoM, down significantly from the 0.7% seen last month. There’s no economist estimate for the annualized figure but core retail sales are expected to drop as well on monthly basis, to 0.4% from 1.0%.
Seeing how it’s Thursday we also have initial jobless claims at 0830, making the 0830 hour a very busy one indeed. The expectation is for 226,000 claims, up from the 216,000 seen last week.
The Bottom Line©️
All yesterday’s CPI did was drop the chances of a Fed rate hike next week to 3% from 7%, at least according to futures traders. A rate hike at the November meeting is now seen as a 38% possibility, down from 44% a week ago. Bond yields reflect this sentiment as well, with short-term yields dropping.
The stock market reflects a different reality, of some concern. If it isn’t fear of a Fed and inflation, then it has to be something else. Perhaps this UAW strike is weighing on sentiment. Then there are recession concerns, which appear to have grown in recent weeks. Asset managers as big as BlackRock’s Rick Rieder are on the record saying an economic slowdown has already begun. In the case of Rieder, this marks a change from just two months ago when he said the US was likely to avoid recession.
Rieder speaks of “tangible slack in the labor force,” but the weekly unemployment claims certainly don’t reflect that. Friendly reminder that nobody knows exactly what is going to happen, much less when. All one can do is watch the data. If there is tangible slack in the labor market, it should show up in the weekly jobless claims pretty soon.
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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Producer Prices, Retail Sales