Takin’ it slow. Stocks ended their winning streak yesterday as traders pondered trade war impacts and Fed policy. With very little news to consume, investors relied on China policy and twitter to drive the market.
MY TWO CENTS
- Twitter is the new tape. Yesterday was a light news day and the Federal Reserve will meet next week to discuss and vote on monetary policy, so surely that would make it a good day to start bullying… via twitter of course. The President took to the tweet-waves yesterday to complain about the strong dollar putting the US at a disadvantage and the “too high” target rate. Oh, and there was “ridiculous quantitative tightening” in there somewhere as well. If it isn’t clear, the President would like to see rates lower. Lower rates would most likely weaken the dollar which in turn would make US produced goods cheaper to foreign buyers. In theory, the move would shrink the trade deficit, which is a good thing. However with the deficit representing less than 2% of GDP, a slight decline in the current account deficit would have a minimal impact on overall economic health. Lower interest rates would be good for consumers and producers who rely on debt to finance their purchases, while retirees who rely on bonds for current income would prefer rates to be higher.
- What inflation? If you weren’t convinced that inflation is under control, yesterday’s number might help a bit. The Producer Price Index tracks the prices of goods as they leave their place of production. That means the prices of goods before they move through the retail channel and get marked up, making it a good early gauge of inflation. Yesterday’s PPI release showed that Producer Prices climbed by +1.8% year over year compared to last month’s +2.2%. The number was lower than the expected +2.0%. While it is not the Fed’s preferred gauge for inflation, the number will certainly be carefully weighed by the FOMC next week. Today, we will get Consumer Price Index and that is expected to come in at +1.9%. WHILE YOU SLEPT, the President tweeted “VERY LOW INFLATION, a beautiful thing” leaving many to speculate that he got an early look at the numbers, which may surprise on the downside. In any case, the tweet was most likely intended for the Fed as low inflation clears the path for rate cuts.
Yesterday’s low volume session started off positively on news that China was going to provide economic stimulus to offset pressure from the trade war. As the day wore on the rally faded as investors began to weigh the strength of recent gains. A superlative of the most recent market action is Beyond Meat which went public last month at $25. The stock soared as high as $168 in the weeks that followed despite many skeptical voices who noted that they missed earning estimates by -510% in the first quarter. Yesterday was a reality day for the company as the stock fell by -25% after a downgrade by JP Morgan. Stocks limped to the close with the S&P 500 closing off by -0.3%, the Dow Jones Industrial Averages selling off by -0.05%, the Russell 2000 slipped by -0.29%, and the NASDAQ 100 climbed by +0.16%. Bonds advanced slightly and ten-year treasury yields were unchanged at 2.14% leaving the front end of the yield curve inverted.
– Year over year CPI is expected to come in at +1.9% compared to last month’s +2.0%. Excluding volatile food and energy the figure is expected to remain at +2.1% year over year.
– US Oil Inventory is expected to have declined by -713,360 barrels. The number is important as crude is just above a critical support level after having fallen in recent months.
Please call me if you have any questions.