The Fed Continues To Steer The Boat

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In his Daily Market Notes report to investors, Louis Navellier wrote:

The market nervously awaits the CPI print on Thursday.

Fed Steers Boat

The Fed continues to steer the boat. Fedspeak continues to insist their plans are for higher Fed Funds rates and for longer than the market seems to be anticipating. Yesterday, such comments took the wind out of a strong rally where the S&P had hit 3,950 only to close down slightly at 3,892.

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Today, Fed Chairman Powell commented that "price stability is the bedrock of the economy", and that "restoring price stability with high inflation can require unpopular policies''.

The upshot of this is that if CPI cools more than expected – current forecasts are for December y-o-y to drop from 7.1% to 6.5%, and y-o-y Core CPI to drop from 6.0% to 5.7% – expectations are for the Fed to increase Fed Funds by another 50bps in February if CPI is at or above expectations and only 25bps if it comes in softer.

Anticipating CPI

Market bulls see lower inflation numbers, a soft landing, and rate cuts before the end of the year. Bears expect the Fed to carry through with their "threats" to raise another 75bps before they're done, a hard landing, and no rate cuts until 2024 at the earliest.

This is making Thursday's premarket CPI announcement likely to be a powerful bit of data resulting in high volatility. At the same time, uncertainty is also high regarding earnings expectations which will kick off with the major banks on Friday.

Keep Powder Dry

The market is cautious as the big news approaches, opening slightly higher and falling slowly to modestly lower, and then bouncing back into the green. Interest rates are climbing off their recent pullback, both here and abroad and the US dollar index has shifted from hovering around 104 to 103.

Crude oil has drifted back to below $75/bbl and natural gas is back to its 52-week low of $3.55. Gold and crypto are flat on the day.

The uncertainties dictate caution. Keep the bias to steady earners, and plenty of dry powder until the earning season establishes a clearer vision of which way the economy is headed.

Coffee Beans

Beachgoers were forced to cut short their dips at Australia's Mullaloo Beach after the 2.5 meter-long (8ft) tiger shark was seen just meters away from oblivious swimmers enjoying the water.

Tiger sharks have been known to attack and even kill humans – second only to great whites in the number of humans they are known to have attacked. Source: Sky News. See the full story here.