June 11, 2022

Hot CPI Crushes September Rate Hike Pause Hopes

Hot CPI Crushes September Rate Hike Pause Hopes (June 10 Market Recap)

Indices

Dow 31,392 (1507) or (4.6%)

Nasdaq 11,340 (672) or (5.6%)

S&P 3,900 (208) or (5.1%)

USD10Y 3.156% +19.9bp or +6.7%

If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review.

Inflation Moderating? Survey Says No!

The week started off benign enough but by Wednesday it seemed as if the smart money had an inkling that the CPI data was going to be disappointing and started selling. Sure enough, on Friday, both May Headline and Core CPI came in hotter than expected and sank the markets. Headline CPI was +1% month over month (MoM) vs expectations of +0.7% which translated to a +8.6% year over year (YoY) number vs expectations of +8.3%. Core CPI (ex food and energy) was +0.6% MoM vs expectations of +0.5% and +6.0% YoY vs expectations of +5.9%. The Core CPI year to date (YTD) is now annualizing at 6.24% (vs 6% through April) which while lower than the Core YoY number, is still accelerating as opposed to flattening or declining.

When Someone Tells You Who They Are, Believe Them

Several Fed officials came out two weeks ago to pump the brakes on the September rate hike pause hypothesis. It seems the market (and this blog) should have listened to them. However, there is still quite a bit of negative economic data that should eventually drag down the inflation figures. This week’s highlights (lowlights)…

Target (TGT) guided their current quarter lower, just three weeks after guiding 2022 lower during their earnings call.
The Atlanta Fed’s GDPNow metric printed at an annualized rate of just 0.9% GDP growth after printing at +1.3% last week.
Jobless claims spiked to their highest levels since January at 229,000 claims.
At a Bank of America (BAC) conference, Intel (INTC) stated that semiconductor demand is flagging.

Next week the Fed will convene and is widely expected to raise rates 50 basis points (0.50%) and state that they will do so again after their next meeting in late July. While there had been hope that data would support a pause in rate hikes in September or at the very least, a smaller rate hike, that looks all but impossible now. There are still three more CPI and Core Inflator/Deflator numbers to come prior to that September Fed meeting (June, July, and August) and the Fed has repeatedly said they will be data dependent. We shall see..

Next Week

The economic calendar heats up again next week. The highlight will be Fed Chair Jerome Powell’s press conference discussing what is widely assumed to be a 50 bp rate hike and more importantly what the Fed might hint in terms of future actions after the July meeting (widely assumed to be another 50 bp hike or will they now consider being more aggressive and raise 75bp?). Manufacturing data from New York and Philly will also be released as well as housing starts.

Monday – N/A
Tuesday – May Producer Price Index (final)
Wednesday – Federal Reserve Open Market Committee Announcement, June Empire State Manufacturing, May Retail Sales.
Thursday – Initial Jobless Claims, May Housing Starts, June Philadelphia Fed Manufacturing Index.
Friday – May Leading Economic Indicators

June 10 Daily Trading Recap…

Monday – Dow +16 to 32,915, Nasdaq +48 to 12,061, S&P +13 to 4,121, USD10Y +8.1bp to 3.038%.

Eight of eleven S&P sectors traded higher today, led by Consumer Discretionary, Communication Services, and Materials.
Markets rallied slightly on news that China has begun to ease some of their Covid restrictions.
July WTI Crude continued to rally higher, settling at $194.40/bbl.

Tuesday – Dow +264 to 33,180, Nasdaq +113 to 12,175, S&P +39 to 4,160, USD10Y (6.6bp) to 2.972%

Ten of eleven S&P sectors traded higher today, led by Energy, Materials, and Healthcare.
July WTI Crude continued its upward trajectory settling at $119.65/bbl.
Target (TGT), just three weeks after guiding lower on its earnings call, the retailer guided down its current quarter citing bloated inventories.
The Atlanta Fed’s GDPNow metric printed at an annualized rate of just 0.9% GDP growth after printing at +1.3% last week.

Wednesday – Dow (269) to 32,910, Nasdaq (86) to 12,086, S&P (45) to 4,115, USD10Y +5.7bp to 3.029%.

Ten of eleven S&P sectors traded down today led lower by Real Estate, Materials, and Utilities.
July WTI Crude continued its relentless upward trajectory settling up 2.26% at $122.11/bbl.

Thursday – Dow (638) to 32,272, Nasdaq (332) to 11,754, S&P (97) to 4,017, USD10Y +1.5bp to 3.044%

All eleven S&P sectors traded down today led lower by Communication Services, Technology, and Financials.
Jobless claims spiked to their highest levels since Janurary at 229,000 claims vs 210,000 expected and last week’s slightly revised higher 202,000 print (originally 200k). Continuing claims remained unchanged at just under 1.31 million.
July WTI Crude relented a bit, trading down 50bp to $120.79/bbl.
Inflation fears hit the market especially hard today. The European Central Bank deferred raising rates for the first time in a decade today but confirmed they would raise rates in July and possibly again in September. They also increased their inflation expectations and decreased their growth projections.

Friday – Dow (880) to 31,392, Nasdaq (414) to 11,340, S&P (116) to 3,900, USD10Y +11.2bp to 3.156%

Both May Headline and Core CPI came in hotter than expected and sank the markets. Headline CPI was +1% month over month (MoM) which translated to an +8.6% year over year (YoY) number. Core CPI (ex food and energy) was +0.6% MoM and +6.0% YoY. The Core CPI year to date is now annualizing at 6.24% which while lower than the Core YoY number is still accelerating as opposed to flattening or declining.
All eleven S&P sectors traded down today led lower by Consumer Discretionary, Technology, and Financials.
June University of Michigan Consumer Confidence (preliminary) was also disappointing at 50.2 vs expectations of 58.5.
July WTI Crude closed relatively unchanged at $120.70/bbl.

Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities/assets…Bitcoin, Cardano, Chainlink, Ethereum, ETHE, GBTC, and TSLA.