November PCE came in slightly better than estimates at 0.1% versus 0.2% MoM and 2.4% versus 2.5% expected but higher than October’s 2.3%.
All told, the print took a little pressure off futures, which are still down about 0.5% as we approach the open. Note that ES has nearly reached our 5852 target.
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Stocks fell off a cliff yesterday after Jay Powell delivered an arguably hawkish rate cut. The market reacted particularly strongly to the revised outlook for 2025 wherein the number of rate cuts was reduced from four to two.
ES tumbled through our initial downside target at the 50-day moving average and is only just now hovering right below it.
The market finally accepted what we’ve been saying for months: inflation is not fixed, and in fact is on its way higher.
Wishful thinking has kept the market on the rise for over a year. It was further buoyed by post-election euphoria. All of that was unraveled by a 10Y which very conspicuously broke out of a falling channel.
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Futures are struggling after an overnight ramp job driven by VIX’s retreat from its 200-day moving average. Aside from the technicals, we see more and more analysts echoing our view that a rate cut makes little sense at this time.
Our charts indicate three distinct and very concerning tripwires for equity investors which, depending on what the FOMC decides, suggest substantial downside.
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While November retail sales gain of 0.7% beat expectations of 0.6%, sales excluding auto and gas came in well below consensus: 0.2% versus 0.4%. Markets are pricing in a 97% chance of a 25 bps rate cut tomorrow, but skeptics (like us) make a great argument that loose financial conditions and recent inflation increases suggest that the FOMC take a pause.
And, although Trump isn’t in the White House just yet, it seems likely that coming tariffs will combine with even looser financial conditions to boost inflation even more. Our inflation model indicates that December CPI (out Jan 15) will mark the 4th increase in a row: approaching 3% from the low of 2.44% in Sep.
Don’t look now, but the 10Y has reached our 4.4% target and is positioned for a potential breakout.
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Futures are up modestly ahead of this week’s Fed meeting and PCE print.
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Futures are up modestly after yesterday’s slide. The advance comes with an asterisk, though, as breadth continues to decline and interest rates continue to climb.
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There’s no sugar coating this morning’s PPI print for November. From the BLS:
The Producer Price Index for final demand rose 0.4 percent in November, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices increased 0.3 percent in October and 0.2 percent in September. On an unadjusted basis, the index for final demand advanced 3.0 percent for the 12 months ended in November, the largest rise since moving up 4.7 percent for the 12 months ended February 2023.
In November, nearly 60 percent of the broad-based rise in final demand prices can be attributed to a 0.7-percent increase in the index for final demand goods. Prices for final demand services moved up 0.2 percent.
The index for final demand less foods, energy, and trade services inched up 0.1 percent in November after rising 0.3 percent in October. For the 12 months ended in November, prices for final demand less foods, energy, and trade services advanced 3.5 percent.
The index for final demand goods moved up 0.7 percent in November, the largest increase since rising 1.1 percent in February. Eighty percent of the broad-based advance in November can be traced to prices for final demand foods, which jumped 3.1 percent. The indexes for final demand goods less foods and energy and for final demand energy both increased 0.2 percent.
While yesterday’s increase in CPI could be ignored by a dovish FOMC, today’s PPI print is a little more problematic. The YoY delta has gone from 2.0% in Sep and 2.6% in Oct to 3.0% in Nov. On top of the obviously very ebullient financial conditions, is this the type of environment in which the FOMC should cut rates again?
Futures, already off 10 points overnight, added only a smidge to their losses – thanks largely to the usual compensatory moves by VIX and currencies.
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Futures are up moderately after the November CPI print, which increased both MoM and YoY versus last month.
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Futures are flat on the eve of tomorrow’s CPI print.
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Futures are flat on low volume as we approach the open.
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