Fed Jawbones Markets Higher

Yesterday we discussed in detail how the market was beginning to price in more aggressive rate hikes by the Fed following the hot CPI number. 🔥

Today’s data was more similar as the headline Producer Price index re-accelerated to 11.3%, driven by energy costs. Core PPI decelerated for the third month, but as we discussed yesterday, the market is not paying attention to the Fed’s preferred methods of reading inflation.

As a result, stocks sold off, the U.S. Dollar rallied, and the yield curve inverted further. 📉

That was until Fed Governors Christopher Waller, and Jim Bullard came to the rescue, essentially saying they both favored a 75 bp rate hike at the July meeting. 

Governor Waller said, “The markets may have gotten ahead of themselves a little bit yesterday.” … “We don’t want to make snap policy decisions based on some knee-jerk reaction to what happened in the CPI report.” 💭

After these comments spread, stocks, crude oil, and other “risk on” market areas rebounded sharply off their lows. While safe havens like the U.S. Dollar backed off their highs. 👍

Just when the market thinks it’s gotten it all figured out, you can always count on Fed officials to come out and add some confusion to the mix.

Whether or not this reversal sticks or not remains to be seen, but the market clearly has some anxiety around the Fed’s upcoming meeting on July 26th – July 27th. 😰

Meanwhile, several banks gave us a shaky start to the earnings season. The nation’s largest bank, JPMorgan, fell 3.5% today after earnings and revenues came in below analyst expectations. The 28% YoY profit decline resulted from its $1.1 billion provision for credit losses, comprised of a $428 million reserve build and $657 million in net loan charge-offs. 

The bank’s CEO, Jamie Dimon, expressed mixed sentiment, saying that the economy continues to grow, the job market is healthy, and consumer spending and balance sheets remain healthy. But, on the other hand, he did say the deteriorating data and challenging environment for businesses and consumers are very likely to negatively affect the global economy at some point down the road.

Given the bank’s actions in stepping up its reserves and writing down bad loans, it’s clearly taking a more cautious approach than it has in recent quarters. 

Meanwhile, the slowdown in global dealmaking caused Morgan Stanley’s profits to fall 30%, missing analyst estimates for the first time in nine quarters. 😬

Finally, U.S. initial jobless claims increased to an 8-month high, while continuing claims fell by roughly 3%. And European inflation forecasts continue to rise as their energy crisis rages on.

The market will remain fixated on inflation, economic growth, and interest rates until the data shows us a clearer picture. 🧭

Who needs a summer vacation when you can speculate on those three things all day? 🤷‍♂️