Good morning contrarians! Welcome to the Daily Contrarian, our morning look at events likely to move markets in the day ahead. Today is Monday, Dec. 18. The Bottom Line segment of today’s podcast starts at (2:52) for listeners who want to skip ahead.
State of Play
It was a quiet December weekend as the year winds to a close. We just had a pretty big cross-border M&A deal come through, with Nippon Steel saying it will acquire US Steel (X 0.00%↑) for some $8 billion. M&A is generally a good indicator of risk appetite but geopolitical tensions are not and there are some new ones to worry about in the Middle East. We’ll get to all that. But looking at our board of indicators at 0640, all is pretty quiet:
Stock index futures are flat as a board with no major US index moving more than 0.1% from the break-even point;
Bonds are seeing a few bids, with the yield on the 2-year down 4 basis points to 4.42% and the 10-year down 3bps to 3.90% (yields move inversely to prices);
Commodities aren’t doing much either. WTI crude oil is up 0.7% to trade around $72/barrel. Copper is unchanged;
Cryptos are seeing a bit of selling however, with Bitcoin down 2% to trade around $41,000.
Known Events
Very little going on today. The National Association of Home Builders publishes its Housing Market Index at 1000. This thing has been dwindling lately. In fact, the chart resembles a pyramid:
The index is actually expected to increase a bit, to 36 from 34, but as you can see it has a way to go to recapture any kind of bullishness.
And that’s all we got today. A couple of bond auctions in the afternoon and that’s it.
The Bottom Line©️
Two more weeks left in the year and from the look of things will be very quiet. There are some earnings this week. Highlights include Fedex (FDX 0.00%↑) tomorrow, Micron (MU 0.00%↑) on Wednesday and Nike (NKE 0.00%↑) on Thursday. On Friday we get the next iteration of the PCE Deflator, but that isn’t as important of a release as it has been this last year-plus, seeing how the Fed has all but declared victory over inflation anyway.
Maybe we see a stealth rally. Healthy M&A activity is usually a positive indicator for the stock market under the premise that corporations are actively taking on risk to expand and financial conditions are good (or loose) enough for banks to finance these deals. One M&A deal does not activity make of course. The Contrarian has not been tracking overall M&A activity for some time. Perhaps somebody else can speak to this.
Finally, it is of course worth paying close attention to geopolitics, which is always a driving force of risk appetite (or entrenchment). The latest flashpoint may be the Bab el-Mandeb Strait that connects the Red Sea to the Gulf of Aden, where Houthi rebels are apparently attacking all Israel-bound commercial vessels. US Defense Secretary Lloyd Austin is traveling to the region this week. So watch that space…
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.
Please take the listener survey! It’s like, five questions and should only take a few minutes of your time. You can win free merchandise. A lucky respondent will be selected each month to receive a classic crew-neck T-shirt.
Year-End Doldrums, M&A, New Middle East Flashpoint