In his podcast addressing the markets today, Louis Navellier offered the following commentary.
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The Labor Department on Tuesday announced that the Consumer Price Index (CPI) rose only 0.1% in November and 7.1% in the past 12 months. The CPI was lower than economists’ consensus expectation of 0.3%.
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The core CPI, excluding food and energy, rose 0.2% in November and 6% in the past 12 months. Energy prices plunged 1.6% in November (as gasoline prices declined 2%), while food prices rose 0.5%.
Stubborn Rental Prices
Used vehicle prices declined 2.9% in November and has fallen 3.3% in the past year, so the 40% inflation in used vehicle prices early this year has been entirely eliminated. The CPI component that remains problematic is owners equivalent rent that rose 0.6% in November, so even though home prices are falling, rental prices remain stubbornly high.
Syncing Markets
The 10-year Treasury bond yield is now 3.47%, down from over 4.24% in late October. The 2-year Treasury note now yields 4.15%, down from over 4.7% in early November.
As I have said many times, the Fed never fights market rates, so I remain confident that the Federal Open Market Committee (FOMC) will pause after Wednesday’s 0.5% key interest rate hike since the Fed will finally be in synch with market rates.
As soon as Wall Street learns that the Fed will be hitting the “pause” button, we can expect another rally.
The next big component after the FOMC meeting is the retail sales report and to make sure that retail sales are still healthy. The key is for retail sales to grow faster than inflation. That is going to be an easy hurdle now that inflation is only running at 0.1%.
Strong Latter December
We're about to finish a year on a strong note and there is a lot of optimism. I do want to remind everybody December is a seasonally strong month and the second half of December is a lot better than the first half.
There is a growing consensus that the Fed will be able to engineer a “soft landing” where economic growth slows, but the labor market remains healthy. Furthermore, Treasury Secretary Janet Yellen said on 60 Minutes that inflation would cool in 2023 and painted a relatively upbeat economic outlook, despite acknowledging a risk of a recession.
Rising Natural Gas Prices
It is now cold in much of Europe and the U.S., so natural gas prices are rising. Furthermore, crude oil inventories have plunged in recent weeks, so the decline in crude oil prices for the past several days is expected to be short-lived. However, a glut of gasoline should insure that the prices at the pump will likely remain low until demand picks up in the New Year.
The jury is still out on the G7’s $60 price cap on Russian oil. All I can tell you is my tanker stocks “gapped” up on Monday, so I suspect crude oil transportation is picking up. The LNG business is also now robust, now that a cold front enveloped Europe and natural gas demand is soaring.
The easiest way for Russia to get around the G7 $60 price cap is to just sell crude oil to China, India, Saudi Arabia & UAE, who can refine the Russian crude and sell it as refined products, like diesel, heating oil and jet fuel.
The electric vehicle (EV) industry is getting ready for consolidation. Rivian was first shunned by Ford after discussing a joint venture. Now Rivian has canceled its plans to build vans in Europe with Mercedes-Benz, just three months have the joint venture was announced. The EV industry is still struggling with high battery costs and supply shortages.
I should add that my family’s Audi e-tron is still “dead” with only 23,095 miles and it has now been almost 5 months since we took the e-tron in to be fixed under warranty. Two new battery cells for the e-tron have arrived, so it will be interesting if the e-tron works and will resume accepting a charge.
The fact that the older EVs have to have their batteries replaced from time to time, will undoubtedly exasperate the EV battery shortage.
Coffee Beans
Only two nations have managed to win back-to-back titles at the FIFA Men’s World Cup since its inception in 1930: France in 1938 and Brazil in 1962. France could be the third as they are only two wins away from defending their title at the FIFA World Cup in Qatar this year. Source: Statista. See the full story here.
