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Macro data mixed, housing under continued pressure.
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Treasury yields fall – the curve remains inverted.
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Oil up 6% in a week – lower prices driving renewed demand?
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4 Fed members speak out on next step – is it smoke and mirrors?
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Try the seared halibut with butter, lemon and capers.
Initial Jobless Claims come in at 250,000 (best), Continuing Claims at 1,437 (best), Philly Fed Survey 6.2 – (much better than expected) which surprised many, but the outlook remains cloudy and home sales Existing – Yeah down 5.9%. They continued to fall under the pressure of higher interest rates and fears of the coming recession.
And stocks continue to struggle for direction……oscillating between gains and losses all day – not moving dramatically in either direction (after the latest surge)….as trading volumes decline 20% (no surprise – late August – we discussed this) and earnings and macro data fail to push markets even higher.
Over the past 6 weeks – investors have piled into stocks – dismissing the risk that the FED will remain aggressive – many are now convinced that inflation has peaked and this will allow the FED to pivot…. .. global equity funds have seen a $9.2 billion rise in the last two weeks…on what I think is a FOMO trade – for all those investors trying to pick the highs and lows…rather than to stay and ride the waves.
At the end of the day, the Dow added 20 points, the S&P gained 10, the Nasdaq added 28, the Russell up 14 and the Transportation added 120 points.
Treasuries have risen in price – driving down yields…. Leaving all 3s – the 2s, 5s and 10s in a continuous fully reversed and upside down state, continuing to suggest more difficult times ahead.
On Wednesday we received the FED minutes and found that they had no intention of backing down – and it continues to kind of confuse – Why? Not sure. They said they have NO intention of pulling back – so why would anyone think the next move will be 50bps vs the expected 75bps? To confirm – we then heard from not 1 but 4 federal presidents.
St Louis Fed President Jimmy B (a voting member) – told the WSJ he was in favor of a 75 basis point move in September saying “why would you want to extend rate hikes of interest next year” (suggesting sooner rather than later) and then Kansas City Fed President Ester George (another voting member) – telling us “don’t be seduced” by what appears to be a slowdown in the CPI – last month’s drop was hardly earth shattering…suggesting it is also supportive of a 75bp hike…and then Minneapolis Fed Chairman Neely Kashkhari (not a voting member) reiterates her ‘keep your feet to the fire’ mantra further supporting aggressive hiking saying ‘we need to put out the fire’ and stay focused while Mary Daly of San Fran (also not a voting member) said the FED n is in no rush to reverse course next year – suggesting that rates should continue to rise for the remainder of 2022 and 2023….….…..balance that with what the “traders” want and you have a diversity of thought…..FED futures fund (traders) is 100% betting that the Fed will only hike 50 basis points….in September while the rest of us are betting that the Fed will raise rates by 75 basis points.
So the question is, will the FED stand up and do the right thing or give in to traders? Expect a lot of back and forth over the next 5 weeks.
In any event – we’ll have the PCE deflator next week – and it’s the Fed’s favorite inflation indicator and should show an am/m increase of 0.3% and a y/y reading of 4.8% – which is in line with expectations….Another set of CPIs and PPIs due out in 3 weeks….September 13-14…..and the jury is still out – estimates have yet to be out posted….because the month isn’t over yet….so – slow down…..it’s coming.
In any case – I say – let it rip…. raise them by 75 bps and then see what happens…… My guess is – IF the PCE and CPI, PPI shows other signs of cooling – then the FED will crash. ……So it will be interesting to see how this plays out…Remember – the midterms are only a few weeks away…and the Democrats will have to focus on the huge bill on taxes, spending and audit they just passed – they’ll have to point their finger at how this bill – known as the Cut Inflation Bill – is “already starting to do wonderful things ” ! Incredible, right?
Oil – PINK $2.40 or 2.7% to end the day at $90.50/barrel……up 6% from last week….. (from the low of $85.73) – the rally is a direct result of optimism around improving crude oil demand (so I guess the demand destruction story is out of fashion for now)…. and the idea now that the Saudis are fed up with falling prices….down 24% from June highs….OPEC’s new secretary general told Reuters that OPEC+ could CUT or increase production at the September meeting…which leads me to ask: isn’t that like saying stocks could go up or down? I mean – it’s unnecessary….and vague – that’s exactly what they want…. This morning, oil traders take profits knocking them down $1 to $89.50 as the media revives the recession scare story.
Gold is under pressure – ending the day down $3.70 at $1,773 an ounce…. the main headwind being the continued strength of the dollar – which is fueled by the idea that the FED will remain aggressive – in raising rates and giving the dollar another boost. The dollar up 40 cts to $107.88. Earlier in the week I said that if gold doesn’t rally back to $1,800 an ounce, we could see $1,770…and that’s what we’ve seen…. Expect the lack of clarity (continued confusion) to move gold. This morning, gold is still down $3 as the debate continues over what the FED will do – and more pressure on gold continues to suggest the FED will move 75 basis points in September.
US futures are down this morning… Dow down 200 pts, S&P down 35, Nasdaq down 130 and Russell down 20 pts. The algo reacts to the chorus of Fed members calling for a more aggressive Fed. And that will be the game for the next 5 weeks… Will they, or won’t they? It reminds me of the vintage Clairol ad from 1957 – ‘Is she, or isn’t she? Only her hairdresser knows for sure! “.
Today is also the monthly options expiration – and it’s estimated that we’ll see $1 trillion in options activity…and while that’s dramatic – it says nothing about the direction. what the market is taking… all it’s saying is that volumes will increase not because of a change in mentality, but only because of expiring contracts. There is NO economic data today – so action will be driven by continued FED speculation.
In Europe – stocks are down…. investors there are also trying to decipher what’s next… UK retail sales and German producer prices are on the agenda for today. Rising inflationary pressures are pushing the BoE and ECB to remain vigilant – think hawkish…. think higher rates… at 6:30 a.m. – all markets in the zone are down between 0.5% and 1%.
The S&P ended the day at 4283 up 10 on the day…. That’s down from the high we tested on Monday at 4325…as we kissed resistance and pulled back. This morning – futures are lower…. true support will not be found until we hit the trendline at 4100 – not a level I suggest we are heading to today, but a level I think we will test over the next few weeks . Anyway – I think we are going to have more chop in the coming weeks…September and October tend to be volatile months and the last two weeks of August tend to be lower volumes , causing exaggerated movements in both directions. We remain in a wide trading range – 4100/4325.
Pan-fried halibut with lemon, butter and capers
For this you need: 1 pound fresh halibut, peeled and cut into 2 equal portions, ½ stick butter, olive oil, kosher salt, black pepper, 3-4 slices Meyer lemons, 2 tsp finely chopped fresh garlic, ¼ cup white wine, 2 tablespoons lemon juice, 2 tablespoons drained capers, 2 tablespoons chopped fresh flat-leaf parsley.
Salt the top of the fish with kosher or sea salt and black pepper.
Place ¼ stick of butter and a drizzle of olive oil in a medium to large skillet or sauté pan and heat over medium heat.
Swirl the butter and oil around and once it starts to brown slightly, add the fish upside down. Sprinkle the side facing up with the remaining salt and pepper. Cook for five minutes then gently flip.
Add the lemon slices to the pan while the fish cooks and cook the fish for about 3-5 minutes longer. You want to stop cooking just before it’s fully cooked – It will continue to cook on the outside of the pan.
Remove the fish and place it on a platter with the cooked lemon slices.
Maintain the heat on medium and add the garlic and cook for one minute. Add the wine and evaporate. Then add the lemon juice, capers and parsley. Cook for a minute then remove from the heat and stir in the remaining 2 tablespoons of butter and stir to make the sauce.
Return the fish to the pan and cook for 30 seconds then remove.
Serve each portion with a slice of cooked lemon and a little pan sauce. A side of steamed green beans and a mixed green salad work well with this.
