December Inflation. The spot has been marked on the calendar for weeks.
As if it were some "X" placed long ago on a weather-beaten treasure map. As if some kind of strategic overlook, needed to be taken and held in order to control safe passage through an otherwise dangerous pass.
Today is that day. Rise. Check your gear. Check your team's gear. Water. Rations. First aid. Radio? No need. Radio silence. Bring socks. Always bring extra socks.
For this morning's clash of the titans has been foretold a thousand times over. You've seen it in your head. This is why you have spent hours practicing the ancient arts. You know you can. Sun overhead. Roar of the crowd. Echoes!! Suddenly nothing. Terrible swift sword. Carry me this day. Crush the serpent with thy heel. Tales of what happens here shall be told by the old ones. Our names in song. The young ones will know.
Tick, Tick, Tick...
The seconds pass into minutes and hours. 08:30 ET. December CPI.
Markets have traded of late as if they know the answers ahead of time. Treasury yields have come in. A stellar auction of $32B worth of U.S. 10-Year Notes followed one of the strongest auctions of U.S. 3-Year Notes ever. Who's buying? Foreign accounts are. That's who, after having been less aggressive for months. The U.S. dollar has paused as the euro has rallied significantly from long-ago (September) forgotten lows.
Then there are equities. The weak shall be strong. The strong shall be less strong. The January Effect? Maybe. Or maybe something even more significant is going on.
This morning, we will wait upon the Bureau of Labor Statistics to release the December CPI results. On a month-over-month basis, Wall Street is looking for headline inflation of 0.0%, though enough economists are thinking that this print hits the tape in a state of contraction. That has not happened since the height of the pandemic lockdowns in 2020. The core print is seen at 0.3%, but there will be talk of a "super core" rate that omits shelter as that segment's data is thought to be potentially out of date and likely incorrect.
As far as the year-over-year data is concerned, as this is really what we look at, expectations are for headline growth of 6.5% in a range of expectations spanning from 6.3% to 6.8%, down from 7.1% in November. The core print is seen at growth of 5.7%, down from November's 6.0%. For perspective, headline inflation apexed at 9.1% in June, while core inflation peaked at 6.6% in September.
Coming In Hot
Finally on Wednesday, the public heard from a Fed head who sounded like a sentient being. On Wednesday, Boston Fed President Susan Collins (not the Senator from Maine) said, "I think 25 or 50 (basis points) would be reasonable; I'd lean at this stage to 25, but it's very data-dependent. Adjusting slowly gives more time to assess the incoming data before we make each decision as we get close to where we're going to hold."
Though I think, economically, that the public might benefit from a Fed pause sooner rather than later, this is the kind of Fed talk that is actually helpful. Data-dependent. I didn't know that anyone at the central bank still understood the concept. Thank you, Ms. Collins. Someone who doesn't sound like a clone of whomever spoke last or whomever speaks next. Friends, we need to hear more from Boston.
By the way, as we work our way towards the hours when most working folks rise in the morning, I see that Fed Funds futures trading in Chicago are pricing in a 76% probability for a 25 basis point rate hike on February 1, followed by an 82% probability for at least a 25 basis point increase on March 22. That would take the Fed Funds rate to 4.75% to 5%, which is currently where these futures see the terminal rate.
According to what is currently being priced in, the rate stays at 4.75% to 5% through the September meeting (no meeting in October) and the first rate cut occurs on November 1.
How About That?
Maybe they checked the couch? Under the seat in the car?
According to lawyers for beleaguered crypto exchange company FTX, $5B in liquid assets have been identified in cash, securities and cryptocurrencies. (You did see Bitcoin surge over the $18K level, didn't you?)
However, the firm's restructuring team, led by chief executive John Ray, says that it still cannot figure out just what the shortfall is between what the company can sell and what it owes to creditors.
Interesting
Remember the trading volume that was missing during Tuesday's rally? It showed up on Wednesday. That's why I asked if somebody knew something.
All of your favorite equity indexes rallied for the day. The S&P 500 finally put a two-day winning streak together for the first time since December 12-13. That broadest of large-cap indexes has not rallied for three consecutive days since November 4-8.
The Nasdaq Composite already has a four-day winning streak under way, and regained its 50-day simple moving average (SMA) Wednesday. This could also be a contributory reason for the increased trading volume, which is likely representative of greater professional participation.
For the day on Wednesday, winners beat losers at the NYSE by roughly 7 to 2 and at the Nasdaq by about 9 to 4. Advancing volume took a 79.7% share of composite Nasdaq-listed trade and a 71.4% share of that metric for NYSE-listed names. For the session, all 11 S&P sector SPDR ETFs shaded green, with the REITs ( XLRE) up a whopping 3.63% and Discretionaries ( XLY) up 2.7%. Defensive sectors outside of those REITs tended to gather closer to the bottom of the day's performance tables, which has been a trend of late.
The interesting takeaway from the day's numbers was that trading volume. Big bets were placed on Wednesday that the December CPI would come in on the cool side. Aggregate NYSE-listed trading volume popped 11.7% on a day-over-day basis, while aggregate Nasdaq-listed trading volume increased 12.2%. That's huge. Trading volume increased across the S&P 500 and Nasdaq Composite as well.
There was one fly in the ointment, however.
While S&P 500-based trading volume did increase day over day, it was still lower than it was on Monday, which was a down day for that index. Nasdaq Composite-based trading volume, however, has exceeded the 50-day trading volume simple moving average for that index in three of the past four days, all up days.
Bad to the Bone
On the day I was born
The nurses all gathered 'round
And they gazed in wide wonder
At the joy they had found
The head nurse spoke up
Said, "Leave this one alone"
She could tell right away
That I was bad to the bone
The nurses all gathered 'round
And they gazed in wide wonder
At the joy they had found
The head nurse spoke up
Said, "Leave this one alone"
She could tell right away
That I was bad to the bone
- George Thorogood (1982)
Proxy Fight
The news broke last night. Activist investor Nelson Peltz (who I am a fan of) will likely launch a proxy fight to land a seat on the Board of The Walt Disney Company ( DIS) as soon as Thursday (today). It appears that back in November, after Disney reported those disastrous fourth-quarter results and former CEO Bob Chapek held that absurd post-earnings conference call, that Trian Fund Management (Peltz's firm) had accumulated more than $800M worth of equity in the entertainment giant.
According to the Wall Street Journal, Trian leadership met with Disney leadership, including current CEO Bob Iger on Tuesday as the two sides tried to avoid a proxy battle. Peltz was offered a position as a board observer instead and was asked to sign a standstill agreement, which he declined.
Trian wants to see a succession plan in place for when Iger re-retires in two years, and thinks that the Disney company has what the Journal calls excessive compensation practices, while lacking cost discipline. Trian has also been critical of some recent to semi-recent Disney deal-making, including the purchase of the assets of 21st Century Fox, which was an Iger deal and in my opinion is low-hanging fruit. I think it is obvious that Disney probably paid too much in that case.
Disney is not the first well-known firm to be taken on by Peltz and Trian. Prior proxy battles at Procter & Gamble ( PG) , DuPont ( DD) and General Electric ( GE) are well documented.
Let's not forget that Dan Loeb and Third Point LLC are still involved with Disney and that last year, Loeb had tried to get former Disney head Chapek to explore potentially divesting the company of sports programming network ESPN while purchasing the minority portion of Hulu that Disney does not already own.
Bottom line: DIS traded higher overnight. I'll be in this for this ride.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 216K, Last 204K.
08:30 - Continuing Claims (Weekly): Last 1.694M.
08:30 - CPI (Dec): Expecting 6.5% y/y, Last 7.1% y/y.
08:30 - Core CPI (Dec): Expecting 5.7% y/y, Last 6.0% y/y.
10:30 - Natural Gas Inventories (Weekly): Last -221B cf.
13:00 - US Thirty Year Bond Auction: $18B.
13:00 - Federal Budget Statement (Dec): Last $-249B.
The Fed (All Times Eastern)
07:30 - Speaker: Philadelphia Fed Pres. Patrick Harker.
11:30 - Speaker: St. Louis Fed Pres. James Bullard.
12:40 - Speaker: Richmond Fed Pres. Tom Barkin.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: ( TSM) (1.78)
