Investors will try to get more clarity on market direction this week following the release of key inflation data on Valentine’s Day. While January consumer prices are forecast to climb 0.5% M/M for the first time in three months, the annual rate is expected to fall again to 6.2% Y/Y, continuing a decline that started in mid-2022. Keep an eye on the “core” rate as well, which strips out volatile energy and food prices, and is closely watched by Fed policymakers for its inputs on housing and other key parts of the economy.
SA commentary: “Inflation swaps, bonds, options suggest that CPI could come in hotter than expected,” writes Marketplace author Mott Capital Management, adding that the January CPI report could be a massive shock to the market. Others believe that the market is not living in fantasy land following the big rally in January, like contributor Eric Parnell, CFA. He says that while the Fed is likely to raise rates, and keep them higher for longer than expected, this is in fact positive for the long-term and investors are best served to remain fully allocated to equities.
Pick a side, but whatever you believe, intraday volatility has been significant on CPI days in recent months. Things could get even more complicated when factoring in the new weightings of the Bureau of Labor Statistics, which will now base consumer expenditure data on a single calendar year, instead of every two years. In addition, the “new vehicles” category will implement a methodological upgrade to factor in the most recent cyclical trends and short-term fluctuations.
Outlook: In recent weeks, Fed Chair Jerome Powell has stressed that there is still a long road ahead on dealing with inflation, rather than an instant on/off switch that would result in easier investing decisions. “The disinflationary process, the process of getting inflation down, has begun and it’s begun in the goods sector, which is about a quarter of our economy,” he said at The Economic Club of Washington, D.C. “But it has a long way to go. These are the very early stages. The reality is we’re going to react to the data, so if we continue to get, for example, strong labor-market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than is priced in.” (131 comments)
In light of the recent blowout jobs report, as well as developments on inflation, are you thinking:
· Hard landing (the Fed will overshoot)
· Soft landing (the labor market will prop up the economy)
· No landing (inflation risks return to the upside)
Take the survey and see the results here
Patrick Mahomes and the Kansas City Chiefs came away as the winners of Super Bowl 57, in a nailbiter that saw them defeat the Philadelphia Eagles 38-35 in the final minute of play. It was also a big game for K.C. Coach Andy Reid, who couldn’t win the big game during his time in Philly, but ended up beating his former team to earn his second Super Bowl ring. Billions of dollars in commerce flowed through everything associated with the Super Bowl despite a challenging economy that had some advertisers rethinking whether they wanted to shell out $7M for a 30-second commercial. Check out the wide variety of companies, including betting names, for which ads might provide an attention bump in the coming days. (12 comments)
The U.S. military has shot down another high-altitude object over Lake Huron in Michigan, marking the fourth such operation in eight days over North America. While not many details are available yet, the flying objects have been described as types of airships, and are believed to have had a payload either attached or suspended from them. Part of the reason for the repeated shootdowns could be a state of “heightened alert” as NORAD closely scrutinizes the airspace amid fears about an extensive Chinese military balloon program. Taiwan has already provided new insight about frequent flights, and while Japan and the Philippines have also observed balloon incursions into their airspace, China lashed out overnight saying that American balloons illegally flew over China more than 10 times since the beginning of 2022. Could the whole saga just be aliens? (10 comments)
BP’s (NYSE:BP) surprise announcement that it has scaled back climate targets and now plans to produce more oil and gas for longer has angered climate-focused investors, but the company’s stock price has gained nearly 20% in the four days since the news, reaching its best levels in nearly four years. “If you sat in any meeting in Europe in the 2019 period and talked about energy, there was one conversation: It was about energy emissions,” CEO Bernard Looney declared. “Today, on the back of a pandemic, on the back of a war, on the back of a cost-of-living crisis, on the back of an energy crisis, [it] has shifted to a much more balanced conversation.” RBC Capital’s Biraj Borkhataria also notes that, “it’s better to talk up oil when it’s at $80 a barrel, than $40,” while Shell (SHEL) said earlier this month that it would increase its cash-cow natural gas business and be cautious about ramping up spending on renewables. (71 comments)
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