Bad news is good news for stocks, PPI posts biggest drop in nearly three years

US stocks are rallying as the economic data continues to soften and as corporate updates support the idea that the economy is gradually weakening.  Bad news is once again good news for stocks. ​ The US dollar softened after soft PPI data and rising jobless claims bolstered Fed rate cut bets.

US data

Today’s inflation readings showed a little bit more softness as supplier prices fell 0.5% in March, well below the consensus of a flat reading and the biggest drop in since the start of the pandemic. All the PPI readings came in softer-than-expected, which is good news for disinflation trend momentum to remain in place. 

The latest jobless claims report does support the narrative that the labor market is gradually weakening, but it is still relatively near historically low levels. Jobless claims are now at the highest levels in over a year, but overall the labor market is still relatively strong.  For disinflation trends to continue throughout the summer, labor market weakness will need to pick up.     

Delta ​

Delta delivered soft first quarter results but their outlook for the second quarter was rather surprising, forecasting robust EPS growth between $2.00-2.25, vs $1.61 analysts expectations.  CEO Bastian shrugged off fears of a weakening consumer.  He noted that the air travel “is something the consumer’s prioritizing, they may be pulling back in other areas ... but I don’t see it in our credit card data, I don’t see it in our bookings”.

Fastenal

Fastenal shares opened lower after reporting in-line earnings that included a rather downbeat assessment for March.  Fastenal noted, “March daily sales growth was relatively softer, likely due to manufacturers tightening spending and adjusting production to reflect more streamlined supply chains.” Fastenal posted a two-cent earnings beat and saw revenue exactly hit expectations.

This early industrial report might provide some optimism that earnings might not be as terrible, but it is hard to be confident with any outlook given all the uncertainty with all the inflation/banking/political(debt ceiling)/monetary policy mistake risks that remain on the table. 

Oil

It looks like the rally in crude prices has finally hit a wall.  It was a busy week for energy traders with the EIA short-term energy outlook, Colombia’s global energy summit, the OPEC monthly report, and nationwide strikes impacting French oil product shipments.  WTI crude couldn’t quite rally above the $83.45 level and traders decided that might be it for now.  There was no strong catalyst for the oil price drop towards the $82.40 region as the dollar was steady and risk appetite was healthy as stocks extended gains. In fact, there was good reason to be optimistic about the short-term outlook for air travel demand following the Delta CEO’s comments. 

The oil market looks like it will remain tight but if this profit-taking selloff is gaining steam, prices could still have more to give as this rally started from the mid-$60s. 

Gold

Gold prices are surging here as cooling PPI data and rising jobless claims bolsters Fed rate cut bets.  This could be the moment for gold (in dollar terms) to make record highs. Gold is a hop, skip and a jump from record territory and it might take a major retail sales drop and disappointing start to bank earnings for it to get there.  If gold can rally above the current record of $2,075.47/oz, it might not have much difficulty targeting the $2100 level. 

Cryptos

Today is all about Ethereum and its successful Shanghai Upgrade.  It took more than a few years, but now Ethereum is fully Proof-of-Stake.  Withdrawals are allowed but it doesn’t seem like any serious dumping is occurring.  Ethereum is up 5.4% on the day, while Bitcoin has recaptured the $30,000 level, rising 1.6%.