BoE hikes and warns, Fed's mester suggests 4+% by Yr end

• Bank of England hikes rates by 50 bps and warns of tougher times ahead.

• Fed’s Mester suggests 4+% by year end and more next year.

• Oil – continues to retreat and that is good – Can it hold the trendline?

• Gold pierces resistance and then backs off as it readies challenge it again.

• Try the Perciatelli.

Stocks were mixed, Challenger job cuts up 36.3% and continuing claims were up by 31k coming in at 1.416 mil…….and of the 100 earnings reports that we got –  70% of  them beat – keeping us in line with the recent trend….Treasury yields FELL (prices rose) as investors price in rising inflation, rising interest rates and a slowing economy.  The yield curve remains inverted across the 2’s, 5’s and 10’s.

The BoE (Bank of England) hiking interest rates by 50 bps while they predicted that UK inflation will continue to rise – only peaking when it hits 15% by the new year….  In addition – the BoE also predicts that the ‘recession’ that is coming could rival the economic difficulties seen during the Great Financial Crisis…. hinting at the possibility that the FED is not being completely transparent……

Speaking of the FED – Cleveland’s Loretta Mester is apparently feeling a bit ‘mixed’ about the messages coming from the FED – telling us that the FED should raise interest rates to ABOVE 4% to help bring inflation down and must keep tightening through at least June of 2023 before ‘pivoting’ – and pivoting does not mean a cut or may just mean a slowdown. She qualified that by saying that she ‘would pencil in going a bit above four as appropriate’.  She was also very clear…. saying that she will need to see several months of declines before the FED can ease up…. When asked about what we can expect in September – she said she is keeping an open mind.  JJ has kept 75 bps on the table – although fed funds futures are pricing in a 50-bps increase. 

Remember – current rates at 2.25% - 2.5%....so to get us to 4+% by year end – means that we need another 1.75% increase over 3 meetings……so – do the math.

Oil retreated, falling 3.2% to end the day at $87.80 – it is the ongoing talk of an economic slowdown that continues to drive this move….…slightly piercing the long-term support trend line at $88.80 – a level I pointed out would be key to the next longer-term move.  If oil can’t take back the trendline then the expectation is that it will test lower still…. think $80/$85 range.  This morning oil is up just enough to hold the line – but is not up with any conviction and talk of a bigger slowdown will surely send oil lower…. (Or that is what they hope….)

At the closing bell rang – the Dow gave up 86 pts, the S&P lost 4 pts, the Nasdaq gained 53 pts, the Russell lost 3 and the Transports rallied by 52 pts.  The recent rally is being fed by the idea that inflation may have peaked here in the states and that will force the FED to back off…… today’s economic data will shed additional light on this argument…. – we are preparing for the monthly Non-Farm Payroll Report….and it is expected to show that we restored 250k jobs lost during the pandemic…. Unemployment is expected to remain low at 3.6%, labor force participation rate of 62.2%, Avg hourly earnings up 0.3% m/m and up 4.9% y/y. 

A reading that is stronger than the expectation could provoke a negative response by traders and algo’s as it would be seen as a reason for the FED to remain more hawkish than not. A weaker number would be seen as a positive – suggesting that the recent FED moves are working successfully so the FED can pivot and become more dovish….

Speculation was rampant all day about what Arizona Senator Krysten Sinema would do (or not do) concerning the massive spending program that the Dems are trying to shove down our throats and push to a vote by tomorrow.  Word this morning is that Sinema caved and is ‘buying into’ the bill…. What did she get?

According to the WSJ – Manchin got ‘a suite of commonsense permitting reforms that will ensure all energy infrastructure, from transmission to pipelines and export facilities can be efficiently and responsibly built’……and this will cost us $433 billion in spending and $327 billion in new taxes.  The article goes onto say that while that is what they are telling us – ‘nobody outside the negotiation rooms seems to know what specific terms are in play’ and Manchin’s office is NOT rushing to give us any answers.

The word is that Sinema saved the carried interest tax loophole – something that she has fought hard for while supporting a tax on corporate buybacks…. – so, expect lots of analysis today and over the weekend.  Tomorrow’s 12 pm vote will be keenly watched.  And in another kick in the pants – the Democrats are also hiring a bunch of new IRS agents – the IRS is getting some $80 billion in funding to go after Americans that are accused of ‘not paying their tax bill’….

On the geo-political front – China is turning up the temperature over the skies of Taiwan (after Nancy’s visit) - launching missiles that are flying all over the place, fighter jets and bombers crossing the median line while 10 warships remain in the waters off of Taiwan….Japan ringing the bell as 5 of those missiles landed in their economic zone….and all of this is expected to continue through Sunday….. Margaret Brennan – ‘Face the Nation’ is sure to dissect and analyze all of this on Sunday morning. 

Gold – traded up and thru trendline (resistance) at $1811 yesterday – …before settling at $1806…… This morning it is down $6 at $1800/oz as it digests it recent surge higher.  Gold is up 6.8% since mid-July…. talk of a recession and the global geo-political situation helping because that move.  Remember – Gold is considered an inflation hedge, and a store of value when political tensions heat up. $1811 is the level to watch…. IF inflation remains elevated and geo-political tensions remain HOT – then expect gold to continue to push higher….

Dow futures are churning in place…The Dow +25 pts, the S&P’s -3 the Nasdaq -20 and the Russell flat.

European markets are lower…. not big, but lower.  Markets across the board down between 0.1% - 0.5%.  Investors there awaiting our NFP report today and then look for more clues as to what’s next for the FED. 

The S&P closed at 4151 up more than 15% since the June low of 3600…..Excitement building that maybe that was the low….to that I would just say be careful…while the rally feels good, I think there is more chop ahead….There is not an FOMC meeting this month, but the Jackson Hole Boondoggle takes place at the end of the month….and then we hit the September/October time frame…..which is typically a tougher time for the markets.  While I remain bullish on the broader market going into year end, I remain cautious over the next 2 months….and all that means is – opportunity ahead!

A strong NFP report could see us test the recent rally …….as it would support a larger FED move in September…Next week will be an important ‘macro’ week…. the 10th brings us the latest CPI report and the 11th is the PPI report…both key inflation measures….and sure to be the focus for investors. 

Perciatelli with lemon/butter/sesame seed sauce 

This is simple yet delicious.... I mean - it takes only 10 mins to make....as long as it takes to boil the pasta.

Bring a pot of salted water to a boil - add the pasta. 
In a large sauté pan - slowly melt two sticks of butter on med low heat.... once melted add in fresh squeezed lemon juice - stirring as you add.... now - taste as you go...you do not want it to be all lemon - just enough of a hint so that you know it's there.

In a separate pan - toast the sesame seeds - do not BURN - just toss and toast - now set aside.

Once the pasta is done - strain (reserve a mugful of water) and add to the butter/lemon sauce.  Toss to coat.  Now add in 2 handful of grated Pecorino Romano cheese and the toasted sesame seeds - toss and serve immediately.... It is a great summer dish - Simple.