PPI explodes higher, markets advanced, CPI this week

• PPI explodes higher…..will CPI follow?

• Powell takes to 60 mins and says again – ‘Don’t worry’.

• Big macro data week and earnings are set to begin on Wednesday.

• Global markets all lower as consolidation begins.

• Try the Spaghetti al’ Tonno.

Friday 8:30 am……the gov’t was expected to announce the PPI report……and then nothing…….no announcement…. the screen was blank….…. the gov’t had a ‘tech failure’ that prevented the data from hitting the tape…. leaving investors, and markets to wonder what had happened…. the news finally hitting the ‘Twittersphere’ at about 8:45 am…and what did it show? It showed a surge in input prices, it showed exactly what we had feared and what the FED had been preparing for all week….

Producer Price Index - PPI jumped by 100% - going from the expected +0.5% to 1% and Ex food and energy – jumps by more than 3X the expectation…. going from +0.2 to +0.7%...........and Saturdays’ WSJ did not even have a front-page story detailing it….as if it is a non-event….as if it did not happen….in fact – the headline that would have drawn your attention was:

“Dow Rallies Record, While S&P 500 Notches Third Straight Week of Gains – Stocks soared this week led by technology….”

Other headlines that were of interest were

“Amazon Workers in Alabama Vote Against Forming a Union” and this sent Bernie and everyone else on the far left into a frenzy – no matter that it was an ‘overwhelming rejection of unionization’ with 71% of the votes in the NO column…..….suddenly he began wondering out loud if the company used ‘strong arm tactics’ taking to the media (and twitter) while appearing on MSNBC with Ali Velshi – telling the world that workers deserve a ‘seat at the table’ just because they are workers…..that they need to drive the conversation about what’s good for business….. (would anyone else like to opine on this argument…?)  

“Boeing 737 MAX Faces Fresh Inspections – potential electrical fault prompts airlines to pull aircraft from schedules.”   That stock lost $2.80 or 1%. 

“Saudi ARMACO Strikes $12.4 Billion Oil Pipeline Deal with EIG-Led Group.”
And –

“Prince Philip, Queen Elizabeth II’s Husband, Dead at 99”

Ok – you get it right?  No PPI at all…not even a whisper….

Back to the story…. now if you read the story…. they did not even mention the PPI …. yet it was the biggest macro data point of the week – all eyes were keenly focused on the report….… yet why was there NO mention of it in the story never mind the paper?  Because they do not want to stir up anxiety….

But let us be honest…. Fed Chair Jay Powell – did his level best to prepare the markets and investors for Friday’s strong report…. I mean ‘Come on man!’  He knew it was coming…. they all knew it was coming…which is why they played that game…. making sure to use words like ‘the FED expects prices to rise’ and ‘inflationary pressures will be temporary’ and ‘we have plenty of food in the fridge’ to make sure that it does not become a problem…. blah, blah, blah… The 10 yr. treasury rose to 1.657% (suggesting that there was a tight buyer) - well below the 1.77% seen two weeks ago…. the VIX also continued to fall – losing 26 cts to end the day at 16.69 – showing even MORE complacency….

Initial reaction was as you might expect…both the Nasdaq and the Russell sold off when the opening bell rang at the NYSE – the S&P struggled a bit and the Dow surged higher – ignoring the headline – expecting to benefit from the move out of the high growth names and back into the value trade…..that was until the general mood changed….the nervousness that has accompanied the idea of rising prices and inflationary pressures seemed to subside and investors started to go all in…..the Nasdaq swinging from negative to positive at 11:45 am….only to hug the unchanged line until 3:30 when it shot higher…..adding 80 pts to end the day up 70 pts or 0.5% while the Dow gained 300 pts, or +0.89%, the S&P’s gained 31 pts or 0.77% and the Russell ended flat – which was a win considering it has been down 13 pts or 0.7% at 10 am. 

It was a broad-based rally, with Consumer Discretionary – XLY – gaining 1.67% followed by Basic Materials – XHB + 1.66%.  Tech – XLK +1.35% and Healthcare – XLV +1.28%.   As you might expect – Utilities – XLU fell by 0.07%, Consumer Staples – XLP -0.12%, and Energy – XLE -0.32% led the path lower.    

For the week though, tech was the clear winner – the Nasdaq up 6% for the week - as investors no longer appear to be on the edge of their seats…..It was an interesting day – for being a Friday and going into the weekend with such a strong producer price report….volumes continued to retreat, while investors/traders and algo’s appear to be getting way more comfortable with the idea that inflation is alive and well (all while they tell us that it isn’t an issue) and 10 yr. treasuries prices get ready to test lower, sending yields higher and this was evident in the way the VIX reacted….So now the question is – Has the FED succeeded in jawboning any reaction?  Have they succeeded in calming investor fears of rising rates?  Will 1.85% or 2% be the big bad boogeyman that many feared only 2 months ago?  Maybe or Maybe not…. we do not know yet, but we are about to find out. 

And then last night- Jay appeared on 60 mins….in what is a full week of FED appearances….in his interview, he said a couple of things –

1. “We are at an inflection point - we are at a place with the economy is about to start growing much more quickly and job creation coming more quickly.”

2. He re-iterated that the Fed plans to wait until the economy’s recovery is complete before rates rise – saying – “It’ll be a while until we get to that place.” – confirming that rates will remain at zero through 2023.

3. And in a shocker – expressed confusion on how the Archego’s Family office disaster happened….

Now look - Tuesday brings us the CPI (Consumer Price Index) report….and now all eyes will be focused on what that data point reveals…. the expectation is for +0.5% m/m, ex-food and energy of +0.2% (interesting that they are the exact same read as we expected for the PPI) while y/y expectations call for +2.5% and +1.5% respectively.  Now recall that when the PPI spiked higher two months ago – causing markets to tumble, the CPI did not reflect increasing prices…the FED telling us that it takes about 2 or 3 months for higher prices to work their way through the system….

Which means that we identified late April/Early May – well it is now mid-April….so let us see what happens next….
In any event – other eco data this week includes Real Avg Weekly Earnings, Real Avg Hourly Earnings, Mortgage Apps, Import/Export Prices, FED Beige Book, Industrial Production, Capacity Utilization, Philly Fed Survey, Building Permits and Housing Starts – which are expected to surge by double digits….

Now over the weekend – Rick Reider – of BlackRock Fame (and he is good…) Tweeted out some interesting thoughts…..I’ll paraphrase - ‘we have entered a new investment regime, characterized by rising rates….as investors price in more robust real economic growth, all while the FED is set to maintain the current pace of accommodation as the Biden’s spend in excess of $3 trillion all while nearly a third of all money in circulation has been created since the onset of the pandemic (vs. the other 2/3rd that took a century to create) while recent disbursements by the Treasury represent direct cash injections of the M2 money supply to Main St for immediate consumption suggest that we are likely to see a significant growth in the supply of US treasuries that will have to be absorbed by the markets…..’ 

Essentially – expect a huge increase in US treasuries as the gov’t looks to investors to fund their borrowing – so expect US tax rates to rise and expect interest rates to rise to pay for the spending and draw interest in these newly issued securities. Period the end. Need I say more?

This morning US futures are a bit lower… - following both Asia and European markets.  The Dow -92 pts, the S&P off 10, the Nasdaq off 30, and the Russell down 7 pts.  Part of it is consolidation, part of it is the coming earnings season, part of it is news that the Chinese vaccine is not effective and part of it is the sense that the FED might end up getting behind the 8 balls rather than in front of the 8 balls and that would be a problem…..Remember – he said that we are there, we are at that inflection point….inflation is expected to rise – so investors are now wondering, is it the right move to let it run hot for a number of months before the FED reacts? Can it suddenly spin out of control?  Can they really control it?  Lots of questions and not a lot of answers -because there is no history to learn from, we are like the Starship Enterprise – going ‘where no man has gone before….’

Wednesday starts the earnings season…with JPM to kick it off – and if you think Jamie is about to disappoint you – think again… Estimates call for $2.99/sh (last year they were 0.78 cts/sh) and by all accounts – I believe he will report a number with a 3 handle on it…. then listen to the conference call at 8:30 - Call in number 866-541-2724 (replay number is 855-859-2056 Pin# 7238068) Get ready to rumble…

Oil continues to hold tight at $59.44 – news that Saudi Aramco has sold a 49% stake in a newly formed oil pipeline to an int’l consortium led by the US investment firm EIG Global Energy Partners doing little to drive the price of oil.  Rising supplies from OPEC+ and from Iran continue to put pressure on oil prices for now along with new variant viruses…and word that the Chinese vaccine doesn’t work….I think the terminology was ‘low effectiveness’  And while everyone expects demand to surge that surge won’t happen until the world reopens…..and with increased supply – prices may not spike – I disagree….Again I am going with surging prices as we move into late spring/summer….We remain in the $55/$65 range – with prices edging closer to $65 by June. 

The S&P closed at 4128! – a new closing high for this index and a level I did not think was in the line of sight just yet…..but that being said – the excitement is building….It is anybody’s guess what happens next….we have once again broken out of any reasonable trendline – We are now 6% above the 50 dma (3914) and on the north side of a drawn trendline off of the August 2020 high that suggested 4084 as resistance….how’d that work out?  In any event – this week’s macro data and the start of earnings season will be the ‘host of the party’…. Stay awake – this is not time to take a nap….

Any pullback would take us back to 4084 – unless the macro data really disappoints, and earnings are not what they are expected to be – something I am not subscribing to…. but we are well ahead of the 50 dma and that alone could cause a pullback….

Spaghetti al' Tonno

This recipe comes to us from the Island of Sicily – just off the tip of the boot…. Sicily is all about fishing and contains numerous fishing villages that are responsible for catching much of Italy’s seafood, including most of its tuna. 

Giuseppe Garibaldi, Italian national hero was said to have eaten it upon his arrival in the Sicilian city of Marsala in the year 1860.  Whatever its origin….it is delish…

For this you need – Tuna in olive oil (not water), olive oil, s&p, red pepper flakes, dried oregano, crushed tomatoes – (or you can buy whole peeled tomatoes and crush them yourself), capers, garlic, anchovies, white wine, and 1 lbs of spaghetti and freshly chopped parsley.  

Bring a pot of salted water to a rolling boil.

In the meantime – in a large skillet, turn heat to medium – add some olive oil, 1 or 2 anchovies (depending on your tastes), and drained capers.  Sauté until the anchovies melt – now add in thinly sliced garlic…. (3 cloves).  Sauté for 3 – 4 mins….do not burn….
Now add in about ¾ c of dry white wine – I use a pinot grigio – turn the heat up to med-high and bring to a boil, add some red pepper flakes and dried oregano reduce to about 1/3…. stir and reduce….

Now add in the crushed tomatoes…I use San Marzano…. stir to mix…. season with s&p.  Let it simmer for about 10 mins…….

Now add in the tuna and oil…. break it up …. stir to mix well, add in the chopped parsley – now lower the heat to simmer and let it simmer as the pasta cooks.

Add the spaghetti to the boiling water and cook for about 8 mins…. you want this to be aldente…. Strain – always reserving a mugful of the pasta water.  Add the pasta back to the pot…. add a splash of the pasta water and toss to moisten.  Now add in the tomato sauce – mix well.  Cover and allow to sit for 3 mins…. Open and look – does it need a bit more of the water to keep it moist?  If so – add a touch more, if not, then not.

Now serve in a warmed bowl – top with a drizzle of olive oil and some more chopped parsley and grated parmigiana.