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Asking, Begging, Cupped, Giving, Hands, Human

Things you need to know

  • CPI suggests that prices are cooling, What will PPI tell us?
  • Another FED official bites the dust while Dallas’s Kaplan gets more aggressive
  • Biden appeals to OPEC to pump more oil – That’s funny…..
  • Infrastructure bill makes its way to the House – Will the Progressive Left kill it?
  • Try the Mussel – Trieste Style

So, stocks continue to see saw (and push higher) …. the Dow, S&P and Russell up one day while the Nasdaq goes lower and then it flips – the Nasdaq is up and the Dow, S&P and Russell are down…all this as investors and asset managers continue to try and read the tea leaves.  The move lower in the tech space can be tied to the beginning of the tapering conversation – a conversation that appears to be getting started sooner rather than later as expected…or at least that seems to be concern.  Now while most of us expect the tapering to begin in late 2021/early 2022 – the chatter is that the pressure is building on the FED chair to consider launching it earlier.  Which then explains the confusion for both investors and markets because there is no clarity yet…. it’s yes one day and then not the next.  In any event the FED should find some comfort in this report because it appears that the pressure for a September announcement is now off.

By the end of the day – the Dow ended up 218 pts, the S&P up 8 pts, the Nasdaq down 24 pts, and the Russell up 6 pts.  The 10 yr. yield ended the day lower at 1.32%, the Dollar index fell to 92.90 and the VIX fell as well to 16.06 – in another sign of more complacency.

And then there is more FED speak – Both George and Kaplan weigh in……

Now on Monday we heard a very aggressive Boston Fed President Eric Rosengren call for the process to begin in September while Atlanta’s Raffi Bostic – is a bit more patient…saying that yes, we need to slow the program, but that he is prepared to wait until later this year.  Now, they both join San Fran’s Mary Daly, Chicago’s Chucky Evans, St Louis’s Jimmy Bullard, and then yesterday – Kansas City’s Esther George – jumped the fence as well – moving from dove to hawk……saying it is time to dial back monetary stimulus…. And BANG – another one bites the dust…. In her statement she said:

“Now with the recovery underway, a transition from extraordinary monetary policy accommodation to more neutral setting MUST follow.  Today’s tight economy certainly does not call for a tight monetary policy, but it does signal that the time has come to dial back the settings.”

And then in what appeared to be a bit of a stealth move – Dallas’s Bobby Kaplan – a known hawk – came out and changed his ‘patient’ position and joined Eric Rosengren, becoming more aggressive – saying that the process should begin for both treasuries and mortgage-backed securities in October telling investors –

“It would be my view that if the economy unfolds between now and our September meeting the way I expect, I would be in favor of announcing a plan at the September meeting and beginning the tapering in October.”

So, the heat is on……the committee is beginning to fracture in their opinions…. Chair Powell needs to hold it together and get everyone on the same page and stop the confusing and anxiety producing interviews…. Because – while we all know it must start to happen, we are now getting hit from all sides – everyone suddenly finding their own voice and speaking their truths….
So, the jury is still out……the Kansas City Fed boondoggle in two weeks is leaving everyone on the edge of their seats…. will it be October?  November?  December?  I mean – again, do we need to spend $40 billion /month to support a runaway housing market? Or $120 billion / month to support a robust recovery – that has seen a complete dislocation in a variety of asset prices…. Is it me?

Next up is the economic data –

Yesterday we got the latest CPI (consumer price index) report and what did it show?  Well, it did show that prices remain elevated– that is not the question – but they did not go up MORE than the estimates, in fact – they came in spot on the estimate – both m/m and y/y – for both Core and Ex food and energy reports.  On a side note – here are some of the obvious price increases – Cars both new and used are up 41% y/y, Hotels and Leisure +24%, Food +5%, and Appliances +12%. Gas + 40%.   And then we find out that Shake Shack is raising prices AGAIN by 3.5% in the fall.   (They raised prices in December by 2%, February by 5%, May by 10% and now again in the fall by another 3.5%) – does that sound transitory to you? Because – hello?  Those prices are not going down anytime at all…. they are what we call ‘sticky’.
Yet, THAT report takes ‘some’ of the pressure off Jay Powell and the FED…because – he can use yesterday’s report to say –

‘See, I told you…while prices went up, they are stabilizing and that speaks to my transitory narrative….’

And then investors focused on DC and the $1 trillion infrastructure package that passed the Senate and is now on its way to the House and ‘industrial names were the beneficiaries…..CAT, HD, BA, MMM, IBM & HON.

Today we are going to get the PPI report and the estimates call for +0.5% m/m and +7.2% y/y while Ex food and energy is expected to be +0.5% and +5.6% respectively.   These numbers would be in line with last month and so if they come in line today – then that will further support his ‘transitory’ argument.  No matter that the numbers ARE very elevated…… We’ll see….8:30 is only around the corner.  Other eco data includes Initial Jobless Claims of 375k, Cont Claims of 2.9 mil.

US futures continue to thrash around…. Dow up 34 pts, S&P’s up 2, Nasdaq down 12 pts and the Russell up 2.  Many are expecting jobless claims and continuing claims to continue to move lower and that supports the strengthening job market narrative.  So much attention will be paid to the PPI and what that tells us….as investors continue to evaluate the implications of any FED announcement in the weeks ahead, the spread of the delta variant, the state of the infrastructure debate, and whether or not the Dems are going to go forward and jam thru a $3.5 trillion additional stimulus package via reconciliation – (think not one Republican vote) and then what the means for the economy and the country.

Now understand one thing – while there is a lot being read into the m/m and y/y CPI numbers and likely the PPI numbers – one month does make a trend at all…. It seems a bit early to take yesterday’s CPI report as conclusive evidence of cooling inflationary pressures – but let’s see what happens today.

European markets are flat….UK GDP rose to 1% in June – and yes was better than expected but remains well below the pre-pandemic level. Now an estimate of full 2nd qtr. GDP is suggesting a growth rate of +22.2% vs. last year when the UK economy and the global economy careened out of control. At 6:30 – all regional markets are up about 0.10%.

 Oil – which was up yesterday morning after getting slammed over the past week – made a U turn just ahead of the opening after Joey (Biden) appealed to the Saudi’s and the other members of OPEC to produce more oil, pump, pump, pump – because it is ‘their’ lack of production that has caused oil prices to rise and then by default gas prices to surge…..I mean that’s laughable, no? 

Then the Energy Information Administration revealed that US crude demand is averaging 20.6 million bpd over the past 4 weeks and that is in line with 2019 (or pre-pandemic levels) causing oil to do another 180 and surge higher to end the day up $1.06 or 1.55% at $69.26/barrel.   

Let me just remind you – it was only 2 yrs. ago when we were the world’s largest producer of oil, we were a net EXPORTER or oil and today we are left to beg the Saudi’s and OPEC to pump more oil.  What am I missing?  Do you KNOW how much oil we have????   In any event- oil is trading at $69.19.

The S&P ended the day at 4447 – another new closing high – we tested as high as 4449 and as low as 4436…recall that the trendline I drew a couple of weeks ago identified 4455 as a level that should provide some resistance for the market – but remember – we don’t have any hard data….we are at new highs – there is no previous action to help us with the technical analysis  – so we fly by the seat of our pants…..
Remember you can text the word INVEST to 21000 on your cell phone to get my digital business card. Feel free to download it and send me off an email or text. Happy to engage and talk markets, planning, thoughts, concerns, and ideas.

You can follow me on Twitter @kennypolcari and on IG @kennyp1961.

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Take Good Care

Chief Market Strategist, Consultant
kpolcari@slatestone.com

Mussels Trieste Style

Trieste is a seaport in the Northeastern part of Italy on the Gulf of Trieste…. – way at the top. It borders the Adriatic Sea on one side, the country of Slovenia to the north…its history and culture have been impacted by Austrian, Hungarian, German, and Latin influences.  It is the capital of one of the 20 regions in Italy – Friuli-Venezia Giulia.  At one point it was the 4th largest city of the Austro-Hungarian empire and was known for its contribution to literature and music.  After WW 1 and the collapse of the Austro-Hungarian empire – Trieste partnered up with Italy….and today is capital to one of the richest regions in that country.

Mussels prepared Trieste style are easy to make and easy to eat.   You need:   Mussels….2 doz… thoroughly washed of any sand.  White wine, Clam juice, garlic, slice onion, olive oil, s&p, Fresh Bay Leaves and Toasted Italian seasoned breadcrumbs….

In a pot – heat the olive oil and sauté the garlic, add the onion, and continue to sauté. – do not burn.
Add 1 1/2 c of dry white wine – nothing fruity – stir and let come to a boil –

Add the small bottle of clam juice and fresh bay leaves.  Season with s&p. Turn heat down to simmer.  Now add the mussels to the pot and cover tightly.  Cook until the shells open – should be maybe 5 to 8 mins more…. Discard any mussel that refuses to open.  Now add a couple of handfuls of seasoned breadcrumbs and toss well so that the breadcrumbs mix with the wine and juice to create a thickened sauce…. You do not want too much breadcrumbs – so add one handful and then decide…depends on the quantity of mussels you are making…capisce?

Again – set the outdoor table with place mats, linen napkins, and wine glasses.  – Hopefully there is a full moon to help set the mood.    Present this dish in a large bowl with the mussels bathing in the sauce.  This dish demands toasted garlic bread to dip in the sauce while you feast on the mussels.  Serve this with a chilled white wine – maybe a Fallenghina works for you.

Buon Appetito.