Things you need to know.
- T-2 hrs until the CPI report – anxiety if running hot
- Futures doing nothing, Treasuries rising sending yields lower
- Democrats running into a problem suggesting that taxes and spending may not be as high as originally expected
- OIL remains above $70/barrel and Bitcoin bathing in the sunlight of El Salvador
- Try the Angry Lobster
8:30 am – Enter stage left: The CPI Report and with-it inflation expectations. By now you understand we are expecting a surge in the inflation – Consensus estimates call for an increase of 4.7% y/y and 3.5% ex food and energy y/y, m/m estimates at +0.5% core and ex food and energy….and so we wait for the moment. The big question – How will investors/traders and algo’s react?
Futures and treasuries are holding steady – there is NO pre-market reaction at all….and I guess we could credit that with the fact that they have warned and warned over and over that they expect a surge in the numbers and that that surge will be temporary – so nothing to see here – move on. At 6 am – Dow futures are up 40 pts, S&P’s up 2, Nasdaq down 28 and the Russell up 3 pts. The VIX is at 17.82 (complacent – not fearful) and 10 Yr. Treasuries ended the day yielding 1.49% and this morning they are sitting tight…. More on the recent pullback below….
Now, here is another view of why we may see the temperature cool off a bit……It appears that the Democrats are having a bit of a difficult time getting all of their members on board and that the massive tax and spending proposals that they floated months ago – may be running into some roadblocks and if that happens then the expected surge in gov’t spending that many feared would also help fuel the inflationary pressures may in fact be subsiding…and if THAT is true – then maybe it will be more transitory than many think….. That part of the story is still in production….and we will not know that for some months to come….so sit tight.
Now while the Democratic version may not make it, there are some though that are holding out hope for a big ‘bi-partisan’ bill that will answer the call of the moment…. It may be a bit smaller, but it is expected to be significant enough to address the challenges that face the infrastructure needs of the country without causing a surge in inflation – but that is another story.
Now back to the treasuries…. the recent pullback in yields is significant…considering last week they were yielding 1.6% and this morning they are yielding 1.49% – why the move lower? Well, investors sold Treasuries earlier this year (which sent yields up) because they were optimistic about a Covid-19 vaccine and optimistic about the massive government spending-fueled economic rebound that would have generated higher inflation and then, eventually, interest-rate increases. But now – that thesis is under scrutiny; inflation may remain elusive after one or two months of a surge as the FED suggests and this is causing investors to once again pivot. The other reason is that the FED does remain the biggest buyer out there and has promised to peg their buying at a level that controls the 10 yr. yield as they attempt to manage the situation. In any event – it is what it is….
Now while fears of spiking inflation have been a concern for investors – stocks have not collapsed at all…in fact – a look at any chart reveals that prices are at all time highs vs all time lows……which is just another suggestion that investors are not that concerned about inflation. It is hard to figure out how high the number would have to be to cause investors and markets to worry…. Look, we are already expecting a high number and the market appears ok with that…so what would elicit a negative reaction? A 5 handle? And what if the number is less than the expectation? Oh, boy now that would light the fire under stocks as the FED would be expected to hold the line and do nothing.
Remember – the FED is expected to hint at thinking about tapering next week….and the consensus is that the process will begin in late 2021 – think November/December. So – sit tight…
European markets are churning slightly higher as they await this morning’s CPI report…. Tomorrow brings the ECB (European Central Banks) monetary policy decision and press conference featuring none other than Christine Lagarde….no change is expected at all…. And then we have the G7 formal meeting that begins tomorrow in Cornwall, England. In mid-morning trade we see the FTSE +0.35%, CAC 40 -0.05%, DAX +0.16%, EUROSTOXX +0.09%, SPAIN +0.00% and ITALY -0.26%.
Dollar holding above 90, Gold trading at $1,880.
Oil! Trading at $70/barrel as demand surges…and Goldy comes out and predicts $80 oil by end of summer….
Bitcoin is basking in the sunlight – regaining all their losses seen on Tuesday…. This morning it is up 4.7% at $38,000 – many crediting the El Salvador vote to make it a legitimate currency trying to become the bitcoin capital of the world. That is laughable actually…. Think about it. El Salvador, really?
Ethereum is trading at $2,600 while Doggey Coin is at 0.35 cts.
The S&P closed at 4219 – as it continues to churn in line. Today’s data will be the key driver for investors to consider and will set the stage for what we can expect next week out of the FED. I have been saying that the markets feel a bit tired, extended and needs some time to digest what is coming down the pike this month – and I continue to believe it…. BUT I suppose that if the data comes in – in line or slightly weaker – stocks will surge…the downside will come if the number is much stronger than the expectation….
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Take Good Care
Chief Market Strategist, Consultant
Angry Lobster – Thought this might be a good recipe today as it reflects the mood of the mkts and GS.
For this you need: 1 (2 pound) whole Maine lobster, cup olive oil, minced garlic, chopped fresh basil, lemon zest, red chili flakes, minced red onion, and lemon juice.
You have to prepare the lobster for marinating – so to do so you will need to break the claws off the body and crack them open. Then slit the underside of the body. Mix all of the ingredients together to make a nice marinade…..put the lobster in a large bowl and pour the marinade and let sit in the fridge for at least 4 hrs.
Light the grill….let it get nice and hot
Now when ready – remove the lobster – and place on the grill – allow to cook for 3 mins….turn all of the pieces just once…claws and body….cook for about another 4 mins…..just an fyi…a good rule of thumb for grilling lobster – is about 7 min/lb. So a 2 pounder would cook for 6 mins and then 8 mins…capisce?