Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Friday, March 15. The Bottom Line segment of today’s podcast starts at (3:23) for listeners who want to skip ahead.
State of Play
Stocks sold off yesterday as investors finally reacted to the latest inflation data. Small caps saw the worst of it, with the Russell 2000 giving up nearly 2%. Bonds sold off as well. As we look at our board of indicators at 0630, the biggest move is in cryptos and that is decidedly negative:
Bitcoin dropped by 7% overnight to trade below $68,000 and other cryptos sold off as well, most by double digit percent. As the riskiest of risk assets this may tell us something about the fear versus greed pendulum…
Stock index futures are quiet, with Nasdaq and S&P 500 actually pointing to small gains of about 0.3%;
Commodities are mixed. Copper is up 1% — generally a positive reflection on risk appetite — while WTI crude oil is down 0.5% to trade around $80.70/barrel;
Bonds are unchanged after yesterday’s sell-off. The 2-year yields 4.69% whilst the 10-year yield is 4.28%. Yesterday at this time those were 4.61% and 4.17%, respectively. So not a huge move yet in bonds.
Today’s Known Events
It’s a slow Friday. The key economic data release is probably the University of Michigan’s Consumer Sentiment survey. There are two of these each month and the second mostly just confirms what’s in the first. Today is the first. Economists expect a figure of 77.1, slightly better than the 76.9 recorded last month. Consumer expectations are expected to drop a tiny bit to 75.1 from 75.2. The Contrarian has still not manage to figure out what these numbers mean, but they have risen over the last year.
Worth pointing out that yesterday retail sales came in short of forecasts and the previous month was revised downward. Could the US consumer finally be losing steam?
The Bottom Line©️
So two things to worry about: Firstly the potentially slowing US consumer. Secondly persistent inflation. This is a deadly cocktail known as stagflation. The US last experienced this in the 1970s and initially tried to cut rates to stimulate the economy, inflation be damned. When that didn’t work the late Paul Volcker came in and jacked up rates high enough for long enough to kill inflation. That lasted 40 years. It’s back now and does not appear to be going anywhere.
So the Fed could be in quite a pickle here. If there’s any consolation it’s that we’ve stared down this premise before. It was in September 2022 that Axel Merk came on this podcast to warn against stagflation. A year before that we mentioned it on this daily briefing. Probably chances were more real of it happening back then than now. And yet, here we are talking about it again…
This week’s podcast guest, a student of financial market history, believes the Fed is determined to not repeat the mistakes of the 70s. That would imply higher-for-longer interest rates. Maybe even an interest rate hike? Powell went on the record last week saying that would not happen this year. Will that come back to haunt him?
Housekeeping
Obviously this is not investment advice (duh). Do your own research, make your own decisions.
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The Return of Stagflation Fears?