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Major U.S. stock indexes higher; Nasdaq up >1%
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Comm svcs leads S&P sector gainers; utilities weakest
group
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Dollar, crude dip; gold, bitcoin gain
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U.S. 10-Year Treasury yield ~flat at ~3.42%
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NAT GAS GLUT MAY HELP SHORT-CIRCUIT CPI (1215 EDT/1615 GMT) People were terrified last fall that a natural gas shortage would lead to higher electricity prices and even blackouts. That said, ultimately that shortage became a glut. Here is a weekly chart of NYMEX natural gas futures :
With this, Brian Reynolds, chief market strategist at
Reynolds Strategy, has been expecting this glut to weigh on
electricity prices, and now he says that Wednesday's CPI data
confirmed that conclusion, that electricity inflation is
starting to reverse.
He believes this shift alone could take 0.2% out of the
overall CPI this summer, with more to come.
As Reynolds sees it, there will be more declines in
electricity prices ahead for three reasons:
1) Electric rates are backward looking. Regulators allow
electricity providers to pass on their past costs. However, now
that costs are going down, electric rates should decline.
2) High natural gas prices spooked electricity providers
into entering longer-term contracts with gas suppliers just as
gas prices were peaking. As those contracts roll off, the lower
gas prices will come into play.
3) Seasonal factors. The use of natural gas by electric
generators bottoms in April, and then surges into summer months
as the demand for air conditioning surges.
Thus, utilities are at a point when their use of natural gas
is going to surge as natural gas prices hit new lows. The result
should pull down both the electric CPI and the overall CPI.
Reynolds' base case is that electricity rates this summer
will only go down by 10%, which is just a fraction of the
decline in natural gas prices because of the lagged effect.
"As electricity is about 2.5% of the CPI, that would imply a
decline of the CPI by 0.2% or 0.3%. However, if electricity
prices over time should follow natural gas prices, then we would
expect that interaction to lower the CPI by 0.5%," writes
Reynolds.
As for the stock market, Reynolds says bank deposit issue
and the debt ceiling issue makes him want to be a "better
seller" of rallies until there is clarity about the debt
ceiling.
"The likelihood of better inflation news continues to make
us want to be a better buyer of stocks on downward dislocations,
but only as a renter and not as an owner."
(Terence Gabriel)
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EXPECT CHOP, CHOP, AND MORE CHOP -CRESSET (1200 EDT/1600 GMT) 2022 was a year when markets reacted to higher rates. However, Jack Ablin, chief investment officer and founding partner at Cresset, believes 2023 and 2024 will be years when fundamentals, like economic growth and profits, will feel the effects of one of the most aggressive rate hiking programs since 1980. What does this mean for the market?
Ablin notes that the S&P 500 derives its value from earnings and interest rates. One-year-forward earnings is the denominator of the PE ratio and the 10-year, BBB bond yield drives the multiple. He adds that as 2023 dawned, investors anticipated earnings growth of a little more than 3% for the year. Since then, however, he says that the profit picture has deteriorated with analysts now penciling in a 2.3% fall in profit growth this year on weaker growth and margins. At the same time, the U.S. 10-year Treasury yield has retreated on similar concerns. Its yield has pulled back from around 3.8% to 3.4%, helping to offset the earnings decline. With this, he says that the market’s single-digit gain so far this year squares with Cresset's S&P 500 valuation model, begging the question: Where do we go from here? Ablin's answer is that "today's return is currently situated at our year-end target, suggesting sideways trading for most of the rest of the year." He adds that "the stock market's direction will depend on inflation, interest rates and earnings growth. From our vantage point, a choppy sideways market will likely characterize the remainder of 2023."
(Terence Gabriel)
*****
RIGHT SAID FED: PPI COOLS, JOBLESS CLAIMS RISE (1055 EDT/1455 GMT) A data duo from the Labor Department glided in like Fred and Ginger on Thursday, waltzing to the tune the Federal Reserve wants to hear - price growth is cooling and the tight labor market is showing some cracks.
Final demand (business-to-consumer) producer prices cooled more than expected in March. On a monthly basis, the producer price index (PPI) fell in March by 0.5%. Year-on-year, headline PPI shed a remarkable 2.2 percentage points to 2.7%. So-called core PPI - which excludes food, energy, and trade services - posted a nominal monthly increase of 0.1% from February and rose 3.6% year-on-year. That figure is nearly half the annual core PPI reading of March 2022, when Powell & Co fired the opening salvo in its war on inflation by hiking the Fed funds target rate for the first time since 2018. Digging deeper, a sizeable 0.6% monthly rise in food prices was offset by a whopping 6.4% decline in energy goods, and a welcome 0.3% drop in services. "Easing supply chain conditions and slowing momentum in demand have brought supply and demand into better balance, pushing producer prices sharply lower in March," says Matthew Martin, U.S. economist at Oxford Economics. "We expect the bite from the Fed's previous rate hikes will further reduce business and consumer demand, pushing producer price inflation lower throughout the rest of the year." Intermediate demand, or business-to-business PPI, showed monthly declines of processed and unprocessed goods of 1% and 5%, respectively. On an annual basis, intermediate PPI for processed goods was down 1%, while raw material prices plunged 17%. Coming on the back of Wednesday's steeper-than-expected cooldown of headline CPI and last Friday's wage growth data, March indicators are three for three - inflation is headed in the right direction, inching ever closer to Powell & Co's average annual 2% target: Next, the number of U.S. workers filing first-time applications for unemployment benefits ticked higher last week, rising 4.8% to 239,000. While this marks initial jobless claims' 10th week above the 200,000 level, the bottom end of a range associated with healthy labor market churn, it has yet to reflect the surge in announced job cuts in recent months reported by Challenger, Gray & Christmas. "(The data) chimes with the surge in layoff announcements recorded by Challenger; total layoffs announced in the first quarter were the highest since 2005, excluding the initial Covid hit and the financial crisis," writes Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics.
"Jobless claims lag layoff announcements, so we expect a further rise in claims over the next few months, helping to drive payroll growth to zero by mid-year," Clancy adds. Ongoing claims , which are reported on a one-week lag, edged 0.7% lower to 1.810 million, a hair below the 1.814 million consensus, but above the 1.7 million pre-pandemic level. Despite the Fed-pleasing data, financial markets are still pricing in a 25 basis point hike to the Fed funds target rate when the FOMC convenes next month, but it's less of a sure thing. There's still roughly a one-in-three possibility that the Fed will press the pause button, according to CME's FedWatch tool.
(Stephen Culp)
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US STOCKS RIPE FOR A SHORT SQUEEZE (1022 EDT/1422 GMT)
As U.S. stocks have climbed 7% from their March lows, some
stocks have become "more crowded and more squeezable," said S3
Partners.
On top of the list of S3's most squeezable U.S. stocks were
Coinbase , used car retailer CarMax Inc ,
videogame retailer and meme stock GameStop , bitcoin
investors and software company MicroStrategy and
theater chain AMC Entertainment .
Recent unrealized losses are the primary driver for a stock
to be squeezed, the analytics firm said.
Top 10 stocks on S3 Partners' list are:
Most squeezable US Short interest YTD %
stocks change
Coinbase $2.71 billion 91.7%
CarMax $1.80 billion 12.6%
GameStop $1.31 billion 20.6%
MicroStrategy $1.12 billion 128% AMC Entertainment $749.0 million 31.2% TG Therapeutics $591.7 million 69.7% Upstart Holdings $500 million 24% Carvana $485 million 95%
Marathon Digital $439 million 191% Riot Platforms $439 million 264% (Medha Singh)
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WALL STREET MOSTLY EDGES UP EARLY, LED BY NASDAQ (0950 EDT/1350 GMT) Major U.S. stock indexes are mostly higher in early trading Thursday, with Nasdaq leading the way up along with tech-related shares. The Dow is roughly flat. Investors are digesting the morning's economic data including a report showing the number of Americans filing new claims for unemployment benefits increased more than expected last week. A separate report showed moderating producer prices in March. Stocks ended lower on Wednesday after minutes from the last Federal Reserve meeting underscored concern about banks and liquidity. The S&P 500 communication services sector is up 1.5%, while S&P tech is up 0.6%. Here is the early U.S. market snapshot:
(Caroline Valetkevitch)
*****
S&P 500 INDEX: TRENDLINE MORE LIKE FLY PAPER (0900 EDT/1300 GMT) On Friday March 31, the S&P 500 ended slightly above the resistance line from its January 2022 record high. However, since then, that line has been acting more like flypaper:
The S&P 500 has ended seven of the past eight sessions above this line. However, the benchmark index has been unable to decisively pull away from it, one way or the other. On April 4, the SPX stalled and reversed upon pushing to a high of 4,133.13, which was just over 0.8% above the line. On April 6, after dipping to a low of 4,069.84, or just a bit more than 0.6% below the line, the index then recovered. On Wednesday, the SPX hit an intraday high of 4,134.37, putting it about 1.2% above the line. However, once again, the index stalled and reversed. After flirting with this line as support around 4,087, and hitting a low of 4,086.94, the SPX edged up to finish at 4,091.95. Thus, traders are watching closely for a more decisive thrust above or below this sticky line, which will be around 4,085 on Thursday, for clues into what direction more sustained momentum may kick in. Major resistance resides in the 4,195.44-4,203.04 area. This includes the Feb. 2 high and Aug. 26 (Jackson Hole) high. The 23.6% Fibonacci retracement of the March 2020-January 2022 advance is at 4,198.70. On a break of the April 6 low at 4,069.84, the next support is in the 4,050-4,030 area. This includes short-term channel support, the March 22 high (4,039.49), and the 50-day moving average, which ended Wednesday just shy of 4,032.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
