And I heard the cry of the wanton sea
And the moan of the wailing wind;
For love's sweet pain in his heart had he,
But the gray old sea had sinned.
The wind was young and the sea was old,
But their cries went up together;
The wind was warm and the sea was cold,
For age makes wintry weather.
So they cried aloud and they wept amain,
Till the sky grew dark to hear it;
And out of its fold crept the misty rain,
In its shroud, like a troubled spirit.
- "The Wind and the Sea" (excerpt) Paul Laurence Dunbar (1896)
Like a Beacon
The angry waves, topped with the white foam of the superfluous peaked higher, and then reached further than they had for some time. Those same waves heavy with the weight of foretold fiscal retribution then also pound the innocent sand as they had not for perhaps even longer.
What's that? A light. A beacon. A shift in hope? If not overt optimism, maybe a cap, or a limit on how ugly the impurities of a thousand, or hundreds of thousands of realities may turn. Alas, for the message is carried by a source not quite known for its accuracy. Still, the change, however mild and through whomever delivered, is not one of dread nor warning.
On Monday, the IMF (International Monetary Fund), in its revised "World Economic Outlook" upped its forecast for 2023 global GDP from 2.7% to 2.9%. Still down from 2022's 3.4% growth, but better than earlier feared, and better than a sharp stick in the eye while we're making comparisons.
Quoted at the Wall Street Journal, IMF Chief Economist Pierre-Olivier Gourinchas stated, "The year ahead will still be challenging, but it could well represent the turning point, with growth bottoming out and inflation declining."
Huh?
In the IMF report, global positives such as tight labor markets, resilient household spending, business spending and the warmer winter that has aided Europe's ability to adapt to its energy crisis are all cited as causes for the upward revision. China's reopening is also mentioned as cause for less supply-chain disruption, and increased manufacturing output. The IMF also sees Russia contributing to growth this year ever so slightly after last year's contraction as non-sanctioning nations have offset the lack of trade with nations that have imposed sanctions in response to the invasion of Ukraine.
The developed world is still expected to weigh on global growth, but perhaps less so. U.S. growth is seen at 1.4% for 2023, which would be down from 2% growth in 2022. That said, this is one of the most optimistic visions for U.S. growth I have seen.
At last glance, the United Nations sees U.S. growth at 0.4% in 2023 and the Conference Board has expressed a view toward growth of just 0.2%. Even the Fed's own dot plot has placed its median forecast for 2023 U.S. GDP at 0.5%. So, I dare say we view the IMF's updated opinion with some guarded optimism. The FOMC will not update their economic projections until March 22.
As for other mature economies, the IMF sees 2023 growth of 0.7% for the eurozone, which would be down from 3.5% last year, while also seeing outright economic contraction (-0.6%) in the U.K. Before we proceed with the backslapping and the high-fives, the World Bank still has 2023 global GDP at growth of 1.7% and 2023 U.S. GDP at growth of 0.5%.
For That Matter...
Here in the U.S., Retail Sales have contracted by more than 1% on a month-over-month basis for two consecutive months during the holiday season, as Industrial Production has contracted on a month-over-month basis for three straight months and for four of the past five.
Shall I proceed?
July was the last month that Capacity Utilization actually grew, as regional manufacturing surveys run by the Federal Reserve districts of New York, Philadelphia, Dallas, Richmond and Kansas City have just spent half a year in hell. All, while Existing Home Sales have contracted for 10 consecutive months.
It would appear that the FOMC, even if unsuccessful in significantly tightening actual monetary conditions, has certainly been successful in slowing economic activity. That said, the Fed steps to the plate on Wednesday, fully cognizant that year-over-year inflation has been moving almost rapidly in the right direction. They also see the expected (by the Cleveland Fed's Inflation Nowcast model) increase in month-over-month CPI at both the headline and the core for the month of January. The BLS will not put their actual print for January CPI to the tape until February 14. Happy Valentine's Day.
Does this make the FOMC more likely to get aggressive on the short end of the curve tomorrow? I don't think so. The FOMC will increase its target range for the Fed Funds Rate by 25 basis points on Wednesday, as expected, to 4.5%-4.75%. Remember, James Bullard, Loretta Mester, and Esther George, who have all been the Fed's ringleaders on the hawkish side of the ball, are all out as voters on policy this year. They have been replaced on the committee by Kashkari, Goolsby, and Logan, none of whom are currently seen as doves, but all can at times be thought of in that way.
Beyond those three slots, Collins of Boston is out, while Harker of Philadelphia is in. I see both as pragmatists who often make sense when they speak or vote, so I am thinking of this individual swap as well-balanced.
'What Is The Meaning of Marking Time?'
Every one of you who has ever stood upon the legendary yellow footprints (at Parris Island or San Diego) knows that question well. You also know that the answer is "To get your cover and alignment, Sir." Well, that's what the Fed is going to do on Wednesday. They are going to raise rates by a quarter of a point while trying to gain their cover and alignment by talking tough. They need to buy time while not losing (more) credibility.
The official statement will be released at 14:00 ET. On December 14, Paragraph 1, sentences 2-3, read "Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices and broader price pressures." Leaving these sentences alone will be seen as hawkish. Almost any change would signal a dovish shift.
Still, in December, Paragraph 3, Sentence 3 reads "The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time." That's the sentence right there. Left in place or even strengthened will cause further rejection of the S&P 500 at or near post-October 13, 2022 highs. Any softening of language there will open the door at the 4100 level that has now been shut on investors twice, thus setting the stage potentially for a double-top reversal, with a 3765 pivot.
Hence...
This is why on Monday, investors took profits on decreasing trading volume, and this is why Tuesday, though we are still many hours away from the opening bell, is shaping up in that way.
This is why defensive sectors led on Monday, with Staples ( XLP) being the only winner among the 11 sector-select SPDR ETFs. This is why five of the 11 sectors gave up a full percentage point or more on Monday.
Keep your helmets on. Buckle your chinstraps. I don't think Tuesday gets especially wild beyond some portfolio risk reduction ahead of the main event. That said, this is the kind of day where even seasoned traders can make careless mistakes.
Economics (All Times Eastern)
08:30 - Employment Cost Index (Q4): Expecting 1.1% q/q, Last 1.2% q/q.
08:55 - Redbook (Weekly): Last 4.6% y/y.
09:00 - Case-Shiller HPI (Nov): Expecting 6.8% y/y, Last 8.6% y/y.
09:00 - FHFA HPI (Nov): Expecting -0.4% m/m , Last 0.0% m/m.
09:45 - Chicago PMI (March): Expecting 45.1, Last 44.9.
10:00 - U of M Consumer Sentiment (March-F): Flashed 102.0.
10:00 - CB Consumer Confidence (Jan): Expecting 109.1, Last 108.3.
16:30 - API Oil Inventories (Weekly): Last +3.378M.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: ( CAT) (4.03), ( XOM) (3.28), ( MCD) (2.46), ( PFE) (1.04), ( SPOT) (-1.27), ( UPS) (3.59)
After the Close: ( AMD) (0.67), ( AMGN) (1.34), ( CB) (4.25), ( EA) (3.04), ( MDLZ) (0.70), ( WDC) (-0.13)
