PPI better, Retail Sales ok, Fed cut, really?

Yesterday’s eco data was good,  The economy is supposedly doing what no man thought possible…….but unlike the reaction on Tuesday, stocks did not RIP higher on Wednesday – and while they advanced, there wasn’t the same sense of urgency… Partly because of the dramatic move on Tuesday that saw both stocks and bonds rally hard…..the buying included ‘panicked’ short covering, bargain hunters that found opportunity and algo’s that went into overdrive – sending stocks on a tear.  Yesterday’s more muted move – while welcomed – did not have that same sense of ‘Arrrghhh…. I missed it” tone. At the end of the day the Dow gained 164 pts or 0.5%, the S&P added 7 pts or 0.2%, the Nasdaq added 9 pts, the Russell added 3 and the Transports were ahead by 106 pts or 0.7%.  

PPI data showed a DECLINE of 0.5% in the October report for the top line m/m figure – this versus the expected 0.1% increase. Ex food and energy the number was 0%. The y/y report was equally good. The top line came in at +1.3% vs. 2.2% last month and ex food and energy the report was +2.4% down from +2.7% - all of this data reflecting a ‘win’ for the FED as they attempt to bring inflation down to the 2% target….Retail Sales numbers were a bit stronger than the expectation – but slowed dramatically vs. last month – so that is a mixed report – right?  But analysts explained it away as ‘nothing to see here, move on’….as they continue to tell us that the consumer is strong…...and with the holiday’s just around the corner – retailers NEED the consumer to stay the course…..with many predicting a strong holiday shopping season…..which is a bit counterintuitive to me…because on the one hand – we have data that shows Americans are working harder than ever to stay ahead and at the same time they are going to go out and spend money (they don’t have) on holiday gifts?  Whatever!

In any event – the overwhelming sense now is that the FED has navigated a soft landing, rates have peaked, and prices are cooling…. otherwise known as a ‘Goldilocks economy’…everything is just right…. not too hot and not too cold. Economic growth is humming along – and the sense now is that the FED will remain on hold for the December FED meeting that is one month away.

  Additionally, the market is betting on multiple 25 bps cuts by the summer of 2024 – again something I don’t see.  I mean – with this Goldilocks economy – is it really necessary for the FED to cut rates?  The ONLY reason the FED would cut is to ‘stimulate’ – Do we need to be stimulated? Look - Fed fund rates between 4% -6% are normal…. this idea that 5% rates are high is ridiculous – but look who is saying that…. (And it isn’t the baby boom generation….) …. what’s ridiculous is the idea that rates need to go down to 2.5% or 3% to be normal. I would argue that rates should stay right here, and the FED should hold them here just as they have been saying. I mean – you are telling me that the consumer is strong, that demand is constant, that inflation is cooling and that the economy continues to grow at a ‘robust’ pace…. So then, why exactly would anyone think that the FED needs to cut rates? It’s illogical…. the FED would need to cut rates if the consumer was weak, or demand was waning, or the economy was not growing at this ‘robust’ pace – No?

And I love how they say – Well, rates have gone thru the roof in a short amount of time…. Really? it took the FED 18 months (Jan 2022 – now) to get rates from 0% to 5.25%....that to me is not a short amount of time – a short amount of time would have been a 5% move in 6 months.….and it was also NOT a surprise at all..…If you had been paying attention to the conversation – it was very clear what was going to happen and what needed to happen – Once JJ strapped in, – he made it very clear….rates are going to rise until we find the neutral zone… Did you not hear that, or did you not believe that? In fact, I would also argue that had JJ begun the process in April 2021 – when the CPI shot up from 1.6% to 3.1% in one month – we wouldn’t even be here…..We would be closer to 4% rather than the current 5.5%....but he needed to guarantee his reappointment in January 2022 – so he had to keep rates artificially low even as inflation was screaming……..Come on, who is kidding who?

Bonds – which rallied hard on Tuesday – rising by 2+% gave a lot of that back yesterday…. the TLT and the TLH both lost more than 1% as traders and investors reconsidered the move and the pullback yesterday caused yields to rise. The 10 yr. ended the day at 4.5% up from 4.44% and that’s ok……Recall what I said yesterday….if bonds rally and yields fall, that would be like a rate cut…it would be stimulative and it would be counter to what the FED needs to happen…..and it would have the potential to re-ignite inflation – which leads me once again to say – Why exactly would anyone think the FED will or needs to cut rates by the summer of 2024? – Are they predicting that the economy will fail in the next 6 months? Are they predicting that the FED hikes will suddenly kick in sending the economy into a tailspin? It sure doesn’t feel like it to me…. but what do I know – I didn’t go to Harvard. (BU Class of ’83).

Oil continues to churn in the $75/$80 range…. Currently it is trading around the trendline at $76.75/barrel…. This after teasing as high as $79 just 2 days ago… One day it’s the waning global demand story (negative), the next day it’s China is importing oil at record rates and the Saudi’s predict global demand will rise (positive)…and then it’s about the possible supply disruption due to the middle-east conflict (negative) and then it’s the reiteration of Saudi production cuts thru year end (positive)….…..so, one day its up and the next day it’s down…but remember – the Saudi’s want $80+ oil….and the more it moves away  from that price – the more anxious the Kingdom becomes….

The other day I said that it would only be a matter of time before the King announced deeper production cuts in order to control the price……. Guess what? The Head of Energy Strategy at JPM – Christyan Malek - must have seen my commentary – maybe he is a reader?  This morning he leads with this headline today.

“OPEC+ May Surprise with DEEPER Oil Supply Cuts” (DUH!)

His story goes onto say that “the market is assuming a very little chance of a cut – but deeper curbs would be in order to get ahead of potential weakness in the first half of next year.  We could see them do sizable cuts from here…”  And BAM! There you go…. he laid the groundwork for OPEC….

And if that isn’t enough – Bloomberg runs with this story today -

“OPEC Watchers See Saudi’s Extending Oil Supply Cuts Into 2024”

The argument here – ‘faltering prices…’  That’s all you need to know.   This isn’t rocketing science…. it’s common sense……

Gold remains in the tight trading range I identified the other day…. support at $1939 and resistance at $1980 – This morning gold is trading at $1968 – smack in the middle…. this as gold traders continue to digest the latest economic news and what it means for the gold trade. My gut says that if they do nothing and remain in a holding pattern – the dollar will weaken and that will help gold advance…. I think we see $2025 before we see $1939.

And to that point- the Dollar got slammed Tuesday - when stocks and bonds went wild…. falling from $105.63 to end the day at $104.06 on that exact narrative to end the day sitting on trendline support…. ….…. Yesterday it churned trying to hold that line…and this morning it is at 104.44 – well below the 107.15 - a level that pushed gold down from $2,020 to $1939/oz. If the FED continues to assure us that they are holding rates with NO immediate expectation of a cut – then I expect the dollar to settle here…..If the mkt believes that the Fed will cut then it will only weaken the dollar more – which will empower gold to move higher….In any event – I like Gold.

Eco data today includes Initial Jobless Claims, Cont. Claims – both expected to be up, Industrial Production expected to be down 0.4%, Capacity Util at 79.4% and 3 FED surveys – NY Services, Philly Business outlook and the Kansas City Manufacturing activity.

This morning – US futures are down (small) and that should surprise NO ONE. Dow futures – 40, the S&P’s down 3, the Nasdaq off by 30 pts and the Russell is down 4. WMT and Macy’s both reported, and both beat – WMT e-commerce drives those results while Macy’s saw margin improvement…both consumer names – capisce…. WMT is quoted lower in the pre-mkt – partly because they ran it up 10% in the last 6 weeks….so can you say, ‘profit taking’? Macy’s is quoted higher up 60 cts, but they have been killing that name for months now….so a small pop is not a surprise.  CSCO is down 11% this morning after offering weak guidance for the quarter and the full year.

Expect the talk today to continue to be about the recent better inflation data…and what the FED will do next – stay, raise, or cut……

European markets are mixed…. Euro Stoxx, UK, and France are a bit lower, while German, Spain and Italy are a bit higher. Pedro Sanchez – wins re-election in Spain as the PM and is set to form a new gov’t. No new eco data there, so investors are just digesting the latest news and moves.

Jo Jo met with Xi Xi and they played nice in the sandbox – neither threw any sand in the face of the other – but Jo Jo tells us that he made significant headway concerning fentynal production and shipments to the US (via Mexican cartels). He also said that Xi Xi promised to pick up the phone when he calls….so don’t expect any of this to impact markets today.

The S&P closed at 4502 – up 7 pts – I still expect it to fill the gap created by all this good news……. it may not be today or tomorrow – but don’t be surprised when it does.  In order for the mkt to continue to advance – it will need to fill that gap and be sure that investors support it. I do not think any of today’s eco data will be a specific driver for investors or markets….so I expect more churn and more digestion. A pull back would not be a surprise at all and if you are a long-term investor – pullbacks are good for you….

Simple roasted cornish hens

This is such a simple yet good dish. The crisp skin dressed in a butter lemon sauce make these Cornish hens perfect for a simple meal.

For this you need:

4 Cornish hens - cut in half, s&p, olive oil, 1/2 stick of butter and the fresh lemon juice - maybe 3 or 4 depending on size. 

Melt the butter and add the lemon juice - set aside.

Preheat oven to 400 degrees.

Now - season the hens with s&p –

Next - using a cast iron pan - cover the bottom of the pan with the oil and get it really hot. Now put the hens in the pan - skin side down and then place in the oven and roast for 20 mins or until done. Remove the pan from the oven and then remove the hens from the pan. Let the fat drain off. Plate each hen and then drizzle with the butter lemon sauce. Serve with your favorite vegetable and a nice mixed green salad dressed with s&p, lemon juice, olive oil and oregano.

Simple yet delicious and it doesn't take more than 45 mins start to finish.