What we’ll be watching this week

Tue: Existing home sales. $AMZN MARS event kick-off. Earnings from $LEN $LZB

Wed: Powell testimony. Earnings from $WGO $KBH

Thu: More Powell. Markit PMIs. Earnings from $FDX $DRI $RAD

Fri: New home sales. $KMX earnings

Good morning contrarians! Concerns about recession are becoming more widespread. We had a brutal sell-off yesterday…

With little (okay, nothing) in the way of catalysts today and it being a summer Friday before a long holiday weekend in the U.S., one would normally expect things to be quiet. But these are not normal times.

How bad things get is still up for debate. It’s worth remembering that there is no such thing as a “mild recession” when you’re going through it. Those labels are added after the fact. (Source: Your author lived through the “mild recessions” of the early 1990s and early 2000s. They were certainly not mild at the time, in fact there was ample talk about the worst economic slowdown since the Great Depression. This talk resurfaced again in 2008, this time much more justifiably).

That doesn’t necessarily mean we’re going to see bread lines. But we don’t know where and when the dominos will fall. Therein lies the problem. Nothing ever really happens in isolation in global financial markets. The meltdown we’re seeing in cryptos (probably still in the very early innings) is in all likelihood going to be felt elsewhere. Once investors have to liquidate assets to raise cash, it can start a vicious cycle. Selling begets selling and then in asset classes thought to be immune — or at least somewhat protected.

More on this in today’s briefing and podcast, available here:

Good morning contrarians! Stocks are selling off again after the Swiss National Bank’s surprise rate hike…

We had the U.S. Federal Reserve yesterday hike interest rates by 75bps, more than the 50bps anticipated and the Fed’s first such move in more than a quarter century (1994 was the last time the Fed raised by this much). Markets took this surprisingly well and even rallied into the close.

That’s all gone now. This morning the Swiss National Bank came in with a surprise rate hike of its own, by 50bps, to combat inflation in that country. The Bank of England just saw the SNB and Fed and raised by 25bps, though this was in line with expectations.

Now come the inevitable concerns that higher interest rates will take their toll on economic growth, raising borrowing costs and leading to an increase in defaults — both personal and corporate. So no surprise, then, that markets are selling off this morning. Maybe the real surprise is why they rallied yesterday in the first place? Some theories on this that is discussed in the podcast (too much to type).

Speaking of the podcast get that along with the full briefing here:

Good morning contrarians! The Federal Reserve announces interest rate policy this afternoon. Cryptos are under pressure with bitcoin dropping below $21,000…

It’s clear the market is spooked by the prospect of higher interest rates. Whether it makes a difference if we get 50bps or 75bps is an open question. The Fed has no choice but to raise rates until they break inflation. They can potentially declare victory at some point, but they are going to need some kind of clarity that inflation is abating. We aren’t anywhere close to that right now and may not be for some time.

Yeah, we could get a relief rally if the Fed “only” raises by 50bps, but with inflation still high how much will that help? There will be further meetings (the next one after this is July 27) presumably with further rate hikes. All of that will make business conditions worse and eat into corporate earnings, among other things. That will keep a lid on stock prices.

Plenty of room to be contrarian here, but you know what they say about fighting the Fed…

More here:

Good morning contrarians! Stocks are looking to rebound ahead of the latest inflation data as the yield curve moves closer to inversion…

The Producer Price Index reading from the U.S. Bureau of Labor Statistics is out at 0830. This will provide us with some new data on inflation, with the hope that this brings signs that inflation is cooling. Remember that producers generally pass costs on to consumers, so the PPI is actually the leading indicator vis-a-vis the CPI. For whatever reason investors don’t always see things that way, and the PPI is a much smaller event than the CPI, with much less of a reaction by markets. Oftentimes even no reaction at all. Maybe this month will be different?

More on this in today’s briefing and podcast, available here:

Good morning contrarians! Stocks are pointing to a dramatic sell-off at the open as investors grapple with the reality of stubborn inflation and higher interest rates…

Bonds are selling off as well, with the yield on the 2-year up 14 basis points to 3.19% and the 10-year up 8bps to 3.23%, moving the yield curve back closer to inversion. Cryptos are taking it on the chin too, with bitcoin down 13% to $24,000.

This week will be all about the Federal Reserve, which starts its two day policy meeting tomorrow. The FOMC will announce interest rate policy on Wednesday afternoon. There is some debate on whether the Fed raises by 0.5% or 0.75%. We’ll deal with this in more detail tomorrow and Wednesday, but the important thing is that the Fed is hiking interest rates, and aggressively.

That simply doesn’t bode well for the economy.

The bottom line: Don’t fight the Fed.

To repeat: Do. Not. Fight. The. Fed. Once the Fed sets on a course for higher interest rates, it is only a matter of time before this cuts into economic growth.

More on this in today’s briefing and podcast:

Good morning contrarians! Markets are quiet ahead of the key CPI report at 0830, where even a slight deviation from the consensus estimates could lead to violent movement…

Today’s briefing and podcast focuses on what to expect from the CPI. It is free today so be sure to check it out here:

Good morning contrarians! Stocks are up a bit, but today should be another day of subdued volumes ahead of tomorrow’s inflation reading…

The European Central Bank decides on interest rates at 0745 EDT and initial jobless claims area out at 0830.

As for what to expect with tomorrow’s CPI, we get into that a bit in today’s briefing and podcast:

Good morning contrarians! Stocks are pointing to a lower open as crude oil rises to a fresh multi-year high…

There isn’t much in the way of upcoming data releases or earnings, so today’s podcast takes a look at the $TGT news about inventory build-ups and also addresses all the speculation that is received during slow weeks like this.

That’s available here:

Good morning contrarians! Stock futures are pointing lower, with not much in the way of catalysts for a second straight day…

The Fed is in a blackout period ahead of next week’s FOMC meeting so we won’t be hearing from any of them. Testimony by Treasury Secretary Janet Yellen will surely just be a grand show of political theater, but there may be something to come out of it that will move markets.

More on this state of play is discussed here: