Tuesday, February 14, 2023

Morning Note: CPI, Sticky Car Inflation, Beware the BOJ and This Time is Different

So, inflation in December, per this morning's CPI report, came in just a titch hotter than consensus estimates:

  • Headline - month-on-month: +0.5%, vs +0.4% consensus estimate.
  • Headline - year-on-year: +6.4%, vs +6.2% consensus estimate.
  • Core (ex-food and energy) - month-on-month: +0.4%, vs 0.3% consensus estimate.
  • Core (ex-food and energy) - year-on-year: +5.6%, vs 5.5% consensus estimate.

In terms of equity market reaction, well, frankly, once the cash market opens it'll be all about whether or not this 0DTE (zero days to expiration) options craze (we've discussed on recent videos) is set to continue... Suffice to say that if those who are gaming this trade sniff sufficient short interest coming into today's CPI number, they're likely to pore into 0DTE calls and attempt to create yet another single-day rip your face off rally... Be very very careful (in terms of reading, and trading) with that one folks!!

As I type (pre-market) US equity futures are flat, but the VIX (tracks the cost of implied volatility in SP500 options contracts) is down a not-small 5.01%... The VIX and stock prices typically (but not every day, mind you) move in opposite directions... Hmm...

Here are three interesting snips from yesterday's perusal of all things macro:

Automobile inflation is looking sticky right here (per Bloomberg):  emphasis mine...
"It’s a sea change from the business model that defined car
manufacturing for decades: Run plants at full tilt and then use
deep discounts to move the metal. In the US, automakers
customarily carried 60 to 100 days of inventory. These days,
manufacturers are targeting about half that much to lower overheads and keep prices high.

“We’ll never go back to the inventory levels that we were
at in the past,” GM Chief Executive Officer Mary Barra told
investors last year.

Her rival, Ford CEO Jim Farley, has said he doesn’t want to
pay for billions of dollars in inventory or offer discounts and
other incentives to offload it. Toyota Motor Corp. and Nissan
Motor Co. have vowed to attempt the same strategy.

“You’re not going to see most manufacturers go back to
where it was three or four years ago,” Judy Wheeler, vice
president of US vehicle sales for Nissan, said in an interview. “We’ll keep that supply and demand in a level state.”"
The Bank of Japan could, like in December, shock the world if/when they ease up on their aggressive monetary easing... Actually, it's, frankly, a will and a when, in terms of a policy shift... Suffice to say that a lot of Japanese capital sits outside Japan; repatriation of that capital would likely be disruptive:

Per the following BCA Research chart, this time is different... The Fed continues to raise its benchmark rate (green line), amid what, per industry sentiment, is a recession in the manufacturing space... 

Suffice to say, the setup right here for equity prices remains precarious:

Asian stocks leaned slightly green overnight, with 9 of the 16 markets we track closed higher.

Same for Europe so far this morning, with 10 of the 19 bourses we follow trading up as I type.

US equity averages are down to start the session: Dow by 204 points (0.60%), SP500 down 0.55%, SP500 Equal Weight down 0.57%, Nasdaq 100 down 0.62%, Nasdaq Comp down 0.66%, Russell 2000 down 0.91%.

The VIX sits at 19.73, down 3.00%.

Oil futures are down 2.68%, gold's down 0.33%, silver's down 1.23%, copper futures are down 0.07% and the ag complex (DBA) is up 0.10%.

The 10-year treasury is down (yield up) and the dollar is down 0.06%.

Among our 36 core positions (excluding options hedges, cash and short-term bond ETF), 7 -- led by AMD, Mexico equities, long-term treasury bonds, Brazil equities and Albemarle -- are in the green so far this morning. The losers being led lower by Dutch Bros, oil services stocks, silver, Vietnam equities and Disney.

“The stock market is a giant distraction to the business of investing.”

--Jesse Livermore

Have a great day!

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