NFP stronger, OPEC+ holds steady and China relaxes COVID-19 regs

• OPEC+ holds the current production levels which include the cuts made last month.

• The NFP report suggests that inflation is becoming a bit more entrenched.

• Investors now wonder what the real terminal rate will be.

• China decides to relax covid regulations – this after many companies look elsewhere.

• Foxconn to resume 100% production before year end – Amazing no?

• It is the Christmas season – here is the 1st Christmas Eve Fish dish – Linguine and Clams.

The Non-Farm Payroll report hit the tape at 8:30 am on Friday – and it was stronger than many expected……(myself included) – and that is not so good for the outlook going forward.  Along with the strong labor market is also the fact that wages continue to push higher so that keeps the FED on track for that half point rate hike next week, but is also confirms what they have been worried about all along – inflation is becoming entrenched which will make the FED’s job that much more difficult. 

The report revealed that employers added 263k jobs in November (vs. the expectation of 200k), the unemployment rate held steady at 3.7% and wages continued to accelerate…..wages grew by 0.6% m/m and by 5.1% y/y – vs. the expectations of 0.4% and 4.7% and higher than the October report that had them at 0.4% and 4.9% respectively – not something that they wanted to see. 

Initially – the report sent US futures plummeting – with the Dow, S&P, Nasdaq, Russell and Transports down sharply in the pre-mkt and then down sharply when the opening bell rang….-  the negative reaction suggesting that good news is bad news for the markets and that the terminal rate might be higher than the current expectation.  Now look – the FED is already expected to continue to raise rates thru March 2023 taking the terminal rate (neutral rate) is expected to be 5.25% after the March meeting….so, the initial dramatic reaction suggested that the FED will have to get ‘more aggressive’ in 2023 and push the terminal rate beyond 5.25% – and that would continue to cause investors to re-price risk.  But by the end of the day – the tone had calmed down leaving the indexes mixed -  the Dow up 35 pts, the S&P down 5, the Nasdaq down 21, the Russell gained 11 pts while the Transports gave back 20 pts.  

And that concern helped bond yields surge in the morning before retracing a bit – this morning yields are up slightly…. the 2 yr. yielding 4.31%, the 5 yr. 3.7% and the 10 yr. is yielding 3.51%.  What is becoming another popular theme for investors that are concerned about more volatility in the months ahead is the 1 month T-Bill – that is currently yielding 3.6% while a 12 month CD is yielding 4.5%.

And it’s a big week for oil…..or it could be  Day 1 for a European Energy Crisis -
Yesterday OPEC+ and the Saudi’s agreed to stay the path and continue with their announced 2 million bpd of production cuts through 2023 – they did not announce NEW (additional) cuts that had been the rumor last week – which helped oil rebound from the low 70’s to the low 80’s. 

Today brings the European Union ban on Russian oil along with the G7 decision that puts a $60 price cap on any Sea borne Russian oil….leaving Vlad to threaten to cut supply to any country adhering to the price cap.  Now - the EU will need to replace Russian oil with oil from the US, Norway and the middle east… In addition you have Joey who announced that the US will need to buy oil to refill the SPR and has a GTC (Good til Cancelled) buy order in at $72/barrel.  So it appears as if there is plenty of demand and that will keep oil prices up.

Now coincidentally, China chooses today to announce that they are beginning to relax the extremely restrictive Covid 19 regulations that have caused so much disruption to the supply chain and the oil demand story.  Apparently – someone (think Xi Xi) is smartening up after the recent nationwide protests across the country brought so much unrest,  as well as the realization that big tech (think Apple)  - along with a host of others – think Amazon, Google, Samsung, Volvo to name just a few are moving away from complete and total dependence on the China’s manufacturing chain.

Timmy Cook – Apple CEO telling us that he is moving ‘some’ production out of China to India and Vietnam and at the same time Foxconn (Apples biggest supplier) tells us that their Chinese plant in Zhengzhou is about to resume FULL production (of Apple products)  by late December/Early January –Amazing right?  And that translates into more energy demand.  And all of these issues are causing oil to rally today….at 5:45 am this morning we see oil trading up $1.55 or 1.9% at $81.50/barrel.

Now oil remains below all 3 trendlines but appears ready to challenge the short term trendline at $83.65/barrel so depending on how the Russian oil story and the China Covid story unfolds – will determine what the next move for oil will be.  

Gold – which had rocketed higher last week is trading down $1.50 at $1808/oz.  Recall that we did kiss resistance at $1824 and backed off – which I think is just temporary for now – gold remains in the broader trading range of  $1740/$1824 with many traders expecting oil to find plenty of support at $1800. 

The dollar index has broken down significantly over the past month and has dropped by more than 7%  breaking all 3 trendline supports.  But we are trading at a level $104.70 that should offer some near term calm. 

This morning US futures are lower…..Dow down 130, the S&P down 20, the Nasdaq down 35 and the Russell -7. Eco data today includes S&P Global Services PMI and that number is expected to be 46.1 – well into contractionary territory.  ISM Services PMI is expected to be 53.3 – so those two data points are in conflict – since they both measure the same thing….Which one will investors pay attention to?   In addition look for Factory orders – exp of 0.7%, and Durable Goods – expected to be +1%.   

Stocks in Asia rallied hard (after the Covid announcement) – Japan +0.15%, Hong Kong +4.5%, China +2%, Australia +0.3% while Taiwan was up 0.1%.

Stocks in Europe are mixed as the official start of the ‘Russian oil drama’ begins….UK +0.3%, CAC 40 -0.3%, DAX -0.5%, Eurostoxx -0.2%, with Spain and Italy +0.1%.  There is no eco data to speak of, so investors there trying to assimilate all of the latest moves.

The S&P closed at 4071– as stocks churned….4045 is now considered support (at least in the short term) and it appears that we will test that this morning…..It will be important to see it hold otherwise we could be on the path that will test the intermediate trendline at 3925 – something I think will happen before we make that end of year Santa rally back into the 4000/4100 range.   Investors are now putting JJ’s speech behind them and are now once again beginning to focus on what lies ahead in 2023.  To be clear – rates are going to rise in December, January and March (at least) and if inflation is not responding at the pace he thinks it should, then we might see rates rise in April, May and June…..

Christmas Eve - fish dish #1 - Linguine and clams 

Ok – so it is now December and as many of you know – for me, it’s about what we cook on Christmas eve….you see the Italian tradition is for us to serve 7 fishes on Christmas eve and you can ask why or you can just accept the fact that we do it!  Over the next couple of weeks I will give you the 7 dishes that we make – with a couple of alternatives in case you want to mix it up!

Today I am giving you Linguine w/clam sauce -It is one of the staples and you can find me cooking it here on my YouTube channel. I tell you the whole story – I hope you enjoy.

For this you need: Linguine w/White Clam Sauce  2 dozen clams, plus a container of chopped clams, Olive oil, garlic, onions, s&p, clam juice and white wine, 1 lb of linguine and fresh grated cheese.

Bring a pot of salted water to a rolling boil.

Start with the clams - a couple of dozen or so should do nicely (in the shell) - wash thoroughly to remove any sand from the shell.    Drain.  In a saucepan - heat olive oil next add sliced and crushed garlic - sauté around until it takes on a nice golden hue add the chopped onions and sauté until translucent.

Next add the clams in the shell,  and the chopped clams, S&P, a splash or two of white wine and a bottle of clam juice and cover.  Reduce heat to med....continue to move the clams around to get them to open up.  If you need a more juice - feel free to add another bottle of clam juice.

When the clams have opened - remove some of the clams from the shell - return the clam itself to the sauce and discard shell -   While keeping some in their shell for the presentation to come. 

Put the linguine in the pot of boiling salted water to cook for 8/10 mins....or until aldente.  Strain - always reserving a mugful of water.....return the pasta to the pot - add back 1/2 mug of water to re-moisten.  Toss - wait a min or two and then add the clams and the clam sauce....re-toss and serve immediately in warmed bowls.  You should have grated Romano or Parmegiana cheese available on the table for your guests - although some Italians would cringe at the thought of putting cheese on a fish dish....but I gotta tell  you - it is delicious! 

Enjoy this dish with toasted garlic bread (sliced Italian bread always the best) and a glass of white wine.  Nothing fruity.....I always like a Pinot Grigio with this dish as I find it complements the sweet taste of the clams.  This dish should take you no more than 40 mins...start to finish.