Coffee With Greta: Are We Already In A Recession?
DJIA Futures: -313 (-1.1%) SPX Futures: -49 (-1.3%) NASDAQ Futures: -182 (-1.6%) Good morning friends! Futures are dropping, reversing most of Wednesday’s big rally. Let’s get right to it! Final Revision Confirms Q2 GDP Contraction The Commerce Department’s final revision of second-quarter GDP confirms the U.S. economy contracted in the first half of the year. The revision was unchanged at -0.6% as expected. Consumer spending was revised higher while exports were revised lower. The revision also showed higher inflation pressures in the quarter with the PCE price index rising 7.3% vs 7.1% previously and the core PCE price index up 4.7% vs 4.4% prior. That marks two consecutive quarters of contraction after the economy shrank 1.6% in Q1 which is considered a technical indicator of a recession. Weekly Jobless Claims Tumble to 5-Month Low Weekly jobless claims dropped last week to the lowest level since late-April. The Labor Department reported 193,000 Americans filed initial claims for unemployment benefits, down 16,000 from the previous week. That beat expectations for an increase to 215,000. Continuing claims fell by 29,000 to 1.35 million in the week ending September 17. Bed Bath & Beyond Slips After Earnings Bed Bath & Beyond (BBBY) shares are down 4.2% ahead of the open after reporting a wider loss than expected in fiscal Q2. Here’s how the retailers results compared with analysts’ expectations: Adjusted loss per share: $3.22 vs $1.85 expected Revenue: $1.44 billion vs $1.47 billion Total sales plunged 28% year over year with comparable sales down 26%> Bed Bath & Beyond expects comparable sales to decline about 20% in the second half of the year and reiterated its full-year outlook. CarMax Tumbles On Huge Earnings Miss CarMax (KMX) shares are tumbling 17.1% in premarket trade after sharply missing fiscal Q2 expectations. Here’s how the used-car dealer’s results compared to analysts’ expectations: EPS: $0.79 vs $1.39 expected Revenue: $8.1 billion vs $8.5 billion expected The company’s expenses rose 16% year over year to $666 million due to increased staffing, higher wages, and investments in technology. But CarMax’s comparable-store used vehicle unit sales dropped 8.3% as “inflationary pressures, as well as climbing interest rates and low consumer confidence” caused affordability problems. CarMax is dragging down Carvana (CVNA) ahead of the open as well with the stock falling 9.9%. Peloton Announces Partnership with Dick’s Peloton (PTON) shares are up 1.6% ahead of the open after announcing a retail partnership with Dick’s Sporting Goods (DKS). Dick’s will become the first brick and mortar retailer to sell the Peloton equipment outside of its namesake stores. Dick’s will sell the Peloton Bike, Bike+, Tread, and Guide as well as some accessories. The companies did not unveil a launch date for the partnership but said they aim to have Peloton products in more than 100 Dick’s stores before the holiday shopping season. Prices will not vary between Peloton’s direct sales and products sold at Dick’s. Peloton’s senior vice president of global direct sales said, “This partnership [with Dick’s] is a natural fit for our brand and our Member acquisition goals.” In Case You Missed It Pending home sales fell by 2% in August vs expectations for a 1.4% decline. It was the third straight monthly drop reported by the National Association of Realtors. Contract signings fell by double-digits in all 4 regions across the country as mortgage rates shoot higher. This was the ninth drop in pending sales in the past 10 months.
Continue Reading -->Coffee With Greta: Bank of England Steps In
DJIA Futures: +175 (+0.6%) SPX Futures: +17 (+0.5%) NASDAQ Futures: +10 (+0.1%) Good morning friends! Futures are once again attempting to rebound after failing to rally on Tuesday. Let’s get right to it! Bank of England Steps In to Stabilize Bond Market The Bank of England announced today it will buy long-dated government bonds to stabilize the financial market following the collapse of the pound. The bank said it will buy as many as needed between now and October 14. The B of E is also delaying the start of its program to sell down the bonds it already holds, which was set to begin next week. Following a sharp increase in U.K. bond yields on Tuesday, the bank said, “Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.” Yields on the U.K. 30-year and 10-year gilts dropped by more than 30 basis points after the announcement. U.S. Treasury Yields Cool The stabilization of the U.K. bond market is also cooling U.S. Treasury yields today. The 10-year yield is down 8 basis points to 3.87%, after topping 4% for the first time since 2008 overnight. The 2-year yield is down 18 basis points to 4.11%. The volatility in the U.K. bond market was weighing on an already volatile U.S. bond market as investors prepare for more large rate hikes from the Fed. Mortgage Demand Slides Further Mortgage demand tumbled again last week as rates rose following the Fed’s latest fed funds rate hike. The Mortgage Bankers Association says overall application volume was down 3.7% last week. That was led by an 11% drop in refinance applications, which were down 84% year over year. Purchase applications fell 0.4% weekly and 29% annually. The drop came as the average 30-year fixed contract rate rose to 6.52% from 6.25%, the highest since mid-2008. According to Mortgage News Daily, average rates have since crossed 7%. Oil Prices Stable Amid Production Outages Oil prices are higher again today as production remains shutdown in the Gulf of Mexico as Hurricane Ian bears down on Florida. West Texas Intermediate crude futures are up 1.9% to $80 bbl while Brent crude futures are up 1.4% to $87.50 bbl. About 190,000 barrels per day of production is currently shutdown in the Gulf, about 11% of the region’s total daily production. The American Petroleum Institute reported crude inventories rose by 4.2 million barrels last week while gasoline stockpiles fell by 1 million barrels. The Energy Information Administration reports official supply levels later today. Coming Up: August Pending Home Sales The National Association of Realtors reports pending home sales for August at 10:00 a.m. ET. That’s expected to show pending sales declined 1.4% last month after a 1% drop in July. Pending sales represent contracts signed during the month with those sales expected to close in 30 to 60 days. In Case You Missed It U.S. home price growth cooled at the fastest pace in the history of the S&P Case-Shiller Index in July. The national index rose 15.8% year over year, down 2.3% from June. The 20-city index rose 16.1% annually, down 2.6% from June. And the 10-city index rose 14.9% annually, down 2.5% from June. Consumer confidence rose to a 5-month high this month as gas prices fall. The Conference Board’s consumer confidence index jumped to 108 from 103.6. That was higher than expectations for 104.5. The six-month expectations index rose to 80.3 from 75.8, the highest level in seven months.
Continue Reading -->Coffee With Greta: Stocks Bounce, Bond Yields Dip
DJIA Futures: +331 (+1.1%) SPX Futures: +53 (+1.4%) NASDAQ Futures: +191 (+1.7%) Good morning friends! Futures are up as the market bounces back from a severe sell-off. Let’s get right to it! Chicago Fed President Nervous About Going Too Far Chicago Fed President Charles Evans told CNBC today that he’s a bit nervous about going too far, too fast on interest rate hikes. He said he’s still “cautiously optimistic” the U.S. can avoid a recession through the Fed’s battle against inflation. His comments come after the Boston Fed President, Atlanta Fed President, and Cleveland Fed President all spoke at different events on Monday. They all signaled the Fed will continue prioritizing aggressive action on inflation even if it causes pain for the economy. Evans said he is “a little nervous” the Fed is not waiting long enough to assess the real impact of its interest rate hikes so far. He said, “There are lags in monetary policy and we have moved expeditiously. We have done three 75 basis point increases in a row and there is a talk of more to get to that 4.25% to 4.5% by the end of the year, you’re not leaving much time to sort of look at each monthly release.” Treasury Yields Take a Breather While stocks are bouncing higher, U.S. Treasury yields are pulling back. The 2-year yield is down 6 basis points today to 4.24%, after hitting a fresh 15-year record on Monday. The 10-year yield is down 9 basis points to 3.83%, after soaring to the highest level since 2010 on Monday. Durable Goods Orders Dip U.S. durable goods orders fell less than expected in August, dipping for the second straight month. The Census Bureau reported durable goods orders fell 0.2% last month to $272.7 billion. That was smaller than economists’ expectations for a 0.5% decline. Durable goods are products manufactured in the U.S. that are meant to last three years or more. Transportation equipment led the overall decline, dropping 1.1% to $92 billion. Excluding transportation, new orders rose 0.2%. Excluding defense, new orders fell 0.9%. Oil Bounces From 9-Month Low Oil prices are bouncing back after hitting a 9-month low on Monday. West Texas Intermediate crude futures are up 1.6% to just under $78 bbl while Brent crude futures are up 1.8% to over $85.50 bbl. The jump comes as oil production in the Gulf of Mexico has been shutdown as Hurricane Ian approaches Florida. Prices are also getting support from expectations that OPEC+ will cut its supply targets when it meets next week. Coming Up: Home Price Data, New Home Sales, Consumer Confidence The upcoming economic data of the day is focused on the slowing U.S. housing market. The S&P Case-Shiller U.S. home price index and the FHFA U.S. home price index for July will both be out just after 9:00 a.m. ET. The pace of home price growth has slowed dramatically in recent weeks as mortgage rates surge, putting pressure on The Census Bureau will then report August new home sales at 10:00 a.m. ET. That’s expected to show the pace of new home sales slowed to 500,000 units last month from 511,000 in July. The Conference Board releases its September consumer confidence index at 10:00 a.m. ET. That survey is expected to show an improvement to 104.5 from 103.2. In Case You Missed It The Dow Jones became the last major index to officially close in a bear market on Monday. The index closed 1.1% lower at 29,260.81, down more than 20% from its most recent record high. It’s the first bear market for the blue-chip index since March 2020. The S&P 500 meantime, notched a new closing low for the year dropping more than 1% to close at 3,655.04.
Continue Reading -->Coffee With Greta: Surging Dollar Squeezes Stocks
DJIA Futures: -131 (-0.4%) SPX Futures: -19 (-0.5%) NASDAQ Futures: -37 (-0.3%) Good morning friends! Futures are tumbling as the U.S. dollar continues to surge. Let’s get right to it! Dollar Surges Higher The major indexes are all set to slide further at the open as the U.S. dollar continues to surge higher. The British pound plunged to a record low against the dollar overnight following the U.K. government’s announcement of new tax cuts last week. It hit an all-time low of $1.0382 but has since recovered some of those losses. The euro also hit the lowest level against the dollar since 2002. Morgan Stanley’s chief U.S. equity strategist said in a note, “Such U.S. dollar strength has historically led to some kind of financial/economic crisis. If there was ever a time to be on the lookout for something to break, this would be it.” Traders are watching the S&P 500 for any break below its low close for the year of 3,666.77. The Dow Jones is expected to officially fall into a bear market today after closing just above that threshold Friday. Bostic Says the Fed Can Lower Inflation Without Killing the Economy Atlanta Fed President Raphael Bostic expressed optimism about the bank’s battle against inflation in a “Face the Nation” interview Sunday. While he admitted the Fed’s efforts will likely cause job losses, he said, “there is a really good chance that if we have job losses it will be smaller than what we’ve seen in other situations.” Bostic said he sees “positive momentum” in the U.S. economy. “We’re still creating lots of jobs on a monthly basis. And so I actually think that there is some ability for the economy to absorb our actions,” he said. Bostic is among several Fed officials speaking at public events today. The Boston Fed President, Dallas Fed President, and Cleveland Fed President are all scheduled for speeches throughout the day as well. Fed Chair Jerome Powell speaks at events on both Tuesday and Wednesday. More Fed officials will speak at events throughout the week. Surging Dollar Beats Down Oil Oil prices are falling as the strength of the dollar weighs on the market. West Texas Intermediate crude futures are down 0.7% to $78 bbl while Brent crude futures are down 0.9% to $85 bbl. The recent drop in oil prices has been caused by the strength of the dollar, triggering fresh fears of a recession. Commodities are dollar-denominated assets, meaning they are more susceptible to large swings caused by the movement of the dollar. Housing Data Ahead This Week Traders will get more data on the U.S. housing market this week, as buyer activity has slowed sharply due to surging mortgage rates. The latest home price index will be out tomorrow morning followed by August new home sales tomorrow as well. On Wednesday, the National Association of Realtors reports pending home sales for August. The housing market has ground to a halt in recent weeks as average 30-year mortgage rates topped 6% for the first time since 2008. GDP, Inflation Data On Deck This week also includes some key economic data for traders. The Commerce Department releases its second revision of Q2 GDP on Thursday morning. Then the Bureau of Economic Analysis releases the August Personal Consumption Expenditures (PCE) Price Index on Friday. The Core PCE Price Index is the Fed’s preferred measure of inflation. Economists expect that index to show core prices rose 0.5% monthly and 4.7% annually in August, up from 0.1% and 4.6% in July, Inflation has been holding steady and even pushing higher despite the Fed’s three 0.75% rate hikes in a row.
Continue Reading -->Are We Oversold Enough Now?
We have mixed markets around the world as Europe is flattish and Asia is broadly lower. Lots of currency moves are adding pressure to equities. The Fed funds ceiling forecast is now 4.75%, higher than the Dot Plot. Some think the BOE needs to do a pre-meeting hike to calm things down. SPX futures are -21 and we’ll see if the market is oversold enough to hold the 3636-3647 area this week. The active bearish sequence continues. The hot CPI brought some pressure, and then last Wednesday there was a Red Dog Reversal sell around the $386.25 pivot. Can the SPY hold $362-$363.29 to attempt an oversold bounce? We shall see. The Oscillator is -100 so it’s hard to short, but you can’t blindly buy either. Now let’s go through the major tech names I’m watching today: AAPL did a Red Dog Reversal sell on Fed day to get most long out around $158. It hit a low near $148.50 Friday. It will be important over the next day or so. It will be hard for SPY and QQQ to break the June lows if AAPL holds that spot. If it breaks and closes below, the bears will growl. TSLA played downside catch-up fast. It broke $305 and then $290 to lose any upper support. Now see if it can hold the $272 area for a day or so. If not, $265 is support below, MSFT led the tape lower over the past week or so. We’ll see if it can hold $235.20 for a tactical bounce. AMZN is in no man’s land. It’s not special, but it’s not at the lows of the year. $112ish is Friday’s low to use for today. Maybe it tries to go red to green. Positions Disclosure
Continue Reading -->Coffee With Greta: Is the Fed Overdoing It?
DJIA Futures: -389 (-1.3%) SPX Futures: -53 (-1.4%) NASDAQ Futures: -162 (-1.4%) Good morning friends! Futures are tumbling as traders fear the Fed may be overdoing it with rate hikes. Let’s get right to it! Goldman Sachs Cuts S&P 500 Price Target Goldman Sachs (GS) slashed its end-of-the-year price target for the S&P 500 as the bank sees the Fed’s tightening policy ending in a “hard landing”. Goldman cut that target by about 16% to 3,600 points. Analyst David Kostin said, “Based on our client discussions, a majority of equity investors have adopted the view that a hard landing scenario is inevitable and their focus is on the timing, magnitude and duration of a potential recession and investment strategies for that outlook.” The major indexes are all set to open lower today and log large losses for the week amid fears the Fed is overdoing it and will cause an economic downturn. The Dow Jones is on track to open well below 30,000. Treasury Yields Continue Surge U.S. Treasury yields are marching higher today with the 2-year hitting a fresh 15-year high. The 2-year yield is currently up 8 basis points to 4.21% after hitting a high of 4.266% earlier this morning. The 10-year yield is up 5 basis points to 3.78%, trading around its highest levels seen since 2011. FedEx Announces Price Hikes, Cost-Cutting Measures FedEx (FDX) shares are down 3.2% ahead of the open after announcing price hikes and cost-cutting efforts. The shipping giant said its Express, Ground, and Home delivery rates will all increase by 6.9% on average while Freight rates will rise by 6.9%-7.9%. The company also intends to save between $1.5 billion and $1.7 billion by parking planes and reducing its flights. Other cost-saving moves include closing some locations, suspending some Sunday operations, reducing vendor use, and deferring projects. The CEO said, “We’re moving with speed and agility to navigate a difficult operating environment, pulling cost, commercial, and capacity levers to adjust to the impacts of reduced demand.” For fiscal 2023, FedEx expects total cost savings of $2.2 billion to $2.27 billion. Costco Tops Fiscal Q4 Expectations Costco (COST) shares are slipping 2.2% in premarket trade despite beating fiscal Q4 expectations on the top and bottom line. Here’s how the retailer’s results compared with analysts’ expectations: EPS: $4.20 vs $4.17 expected Revenue: $70.8 billion, in line with expectations Same-store sales: +13.7%, in line with expectations Costco’s full-year profits and sales were also in line with consensus estimates. But traders soured on the stock as the company’s margins contracted in the quarter. Gross margins came in at 10.1%, down 74 basis points year over year. Costco said it is continuing to see pressure from higher wages, commodities, and transportation costs. The CFO also announced Costco would not be raising its membership fees at this time to help pad those thin margins. Oil Prices Tumble on Recession Fears Oil prices are falling today as recession fears take over the market. West Texas Intermediate crude futures are down 3.3% to under $81 bbl, while Brent crude futures are down 2.8% to under $88 bbl. The Fed’s plan to stay aggressive on rate hikes has increased the chances of a recession in the U.S. economy. For the oil market, a recession comes with lower demand. In Case You Missed It The Conference Board’s leading economic indicators index fell for the sixth month in a row. The index dropped 0.3% in August, which was higher than economists’ expectations for a 0.1% decline. Most components of the index declined, except for new jobless claims and the interest-rate spread. But the measure of current economic conditions rose by 0.1% while the lagging index rose by 0.7%.
Continue Reading -->Webinar Replay: My #1 Earnings Strategy
After you watch the webinar replay, go here to lock in 61% savings on Sami’s Earnings Engine bundle. As a reminder, with this deal, you get: $129 Value: Strategic Swing Trader Newsletter $295 Value: Sami’s Earnings Engine Education Course $424 Total Value Just $167 for You! Go here to check out =>
Continue Reading -->Coffee With Greta: Rate Hike Hangover
DJIA Futures: +72 (+0.2%) SPX Futures: +3 (+0.1%) NASDAQ Futures: -10 (-0.1%) Good morning friends! Futures are attempting to rebound after the steep selloff following the Fed rate hike on Wednesday. Let’s get right to it! Fed Lays Out Future Plans The Federal Reserve hiked the federal funds rate by 0.75% as expected on Wednesday, putting base interest rates in a range of 3% to 3.25%. But the market’s focus was on what the Fed plans to do moving forward. The Central Bank’s projections show the FOMC planning to hike rates to 4.4% by the end of this year and peak at 4.6% in 2023. That would mean another 0.75% rate hike in November, 0.5% in December, and 0.25% at the first meeting of 2023. The Fed also sees unemployment rising to 4.4% next year as those rate hikes take hold. That’s up sharply from the current 3.7% unemployment rate, which is likely to cause a recession. Chairman Jerome Powell said, “The FOMC is strongly resolved to bring inflation down to 2%, and we will keep at it until the job is done. The Fed’s dot plot does not show any rate cuts beginning until 2024. Yield Curve Inversion Widens U.S. Treasury yields are up this morning following the Fed rate hike on Wednesday. The 2-year yield is hovering just above 4.1%, its highest level since 2007. The 10-year yield is still hovering around 3.56%. The inversion between the two has deepened in recent weeks which is seen as a warning sign of an impending recession. Bank of England Hikes Rate By 50bps The Bank of England voted to raise its base interest rate by 50 basis points today to 2.25%. That was lower than the 75bps hike most traders were expecting. The U.K. saw 9.9% headline inflation in August and 6.3% core inflation. The BOE forecast inflation will peak at just under 11% in October, down from its previous outlook for 13%. The bank said it believes the U.K. economy is already in a recession, forecasting Q3 GDP would contract by 0.1%. This is the seventh consecutive rate hike and the highest rate since 2008. Salesforce Announces New Profitability Goals Salesforce (CRM) shares are up 2.8% after hosting an investor day event Wednesday. The software maker’s CFO unveiled new long-term profitability goals at that event. The company is aiming for 25% adjusted operating margin in 2026. That’s up from the 20% operating margin goal for the 2023 fiscal year. The CFO said efforts to hit that goal will include new acquisitions and more efficient spending. Salesforce is aiming to push adjusted sales and marketing spending below 35% of revenue by 2026. Weekly Jobless Claims Rise Weekly jobless claims rose for the first time in 6 six weeks last week. The Labor Department reported 213,000 Americans filed initial claims for unemployment benefits. That was up by 5,000 from the previous week and just below economists’ expectations. Continuing claims fell by 20,000 to 1.38 million in the week ending September 10. The Fed is looking to see signs of weakness in the labor market as it hikes interest rates to tackle inflation. Oil Prices Rise on Fresh Supply Fears Oil prices are rebounding today as supply fears overtake demand concerns. West Texas Intermediate crude futures are up 1.7% to over $84 bbl while Brent crude futures are up 1.6% to over $91 bbl. The Energy Information Administration reported U.S. crude stockpiles rose by 1.1 million barrels last week vs 8.8 million expected. Gasoline inventories rose by 1.6 million barrels with production estimated at 9.5 million barrels per day. In Case You Missed It The National Association of Realtors reported existing home sales fell 0.4% in August to a seasonally adjusted annual rate of 4.8 million units. That was the 7th monthly drop in a row and sales were down 19.9% compared to a year ago. There were 1.28 million homes for sale at the end of August, representing a 3.2-month supply.
Continue Reading -->Coffee With Greta: How Much Pain Will the Fed Cause?
DJIA Futures: +153 (+0.5%) SPX Futures: +20 (+0.5%) NASDAQ Futures: +51 (+0.4%) Good morning friends! Futures are rising as focus turns to today’s Fed rate hike decision. Let’s get right to it! Fed Decision Day The Federal Reserve releases its latest rate hike decision at 2:00 p.m. ET today, followed by Chairman Jerome Powell’s press conference at 2:30 p.m. And although traders are anticipating another big move, what the Fed says about the future may be more important. CME Group’s FedWatch Tool shows the market pricing in an 82% chance of another 75 bps hike. But how much higher rates will go and how long they will stay there are of main concern now. The FOMC statement includes futures projections for the Fed funds rate, inflation, and unemployment. Powell has previously said Americans will have to experience some “economic pain” in order to lower inflation, which includes higher unemployment. Fed officials are predicting rates to stay elevated through at least the end of 2023. General Mills Beats Expectations, Hikes Forecast General Mills (GIS) shares are up 2.4% ahead of the open after beating fiscal Q1 expectations and raising its full-year outlook. Here’s how the food company’s results compared to analysts’ expectations: Adjusted EPS: $1.11 vs $1.00 expected Revenue: $4.72 billion, in line with expectations Across North America, retail sales rose 10%, foodservice sales rose 21%, and pet sales jumped 19%. That strong growth helped offset a 30% drop in international sales. General Mills now expects year-over-year adjusted earnings growth of 2% to 5%, up from flat to 3% previously. Mortgage Demand Rises for First Time in 6 Weeks Mortgage application volume increased last week for the first time in six weeks. The Mortgage Bankers Association reported purchase applications rose 1% weekly but were still down 30% year over year. Refinance application jumped 10% weekly and were down 83% annually. The increase came even as mortgage rates continued to rise. The average contract rate on a 30-year fixed mortgage rose to 6.25% from 6.01%. Oil Prices Jump As Ukraine War Intensifies Oil prices are rising today amid fresh supply concerns after Russian President Vladimir Putin announced a new military mobilization in Ukraine. West Texas Intermediate crude futures are up 1.5% to $85 bbl while Brent crude futures are up 1.5% to $92 bbl. Putin signed a decree mobilizing more troops on Wednesday. He claims he is defending Russian territories and that the West wants to destroy the country. Meanwhile, the American Petroleum Institute reported a smaller-than-expected increase in crude stockpiles last week. U.S. oil inventories rose by 1.035 million barrels vs 2.321 million expected. The Department of Energy released 6.9 million barrels from the Strategic Petroleum Reserves last week. The Energy Information Administration reports official inventory levels today. Existing Home Sales Expected to Fall The National Association of Realtors reports existing home sales for August at 10:00 a.m. ET. The report is expected to show sales declined to a seasonally adjusted rate of 4.68 million units last month from 4.81 million in July. The U.S. housing market has seen a dramatic slowdown in buyer activity as mortgage rates surge. In Case You Missed It Ford (F) suffered its worst day in more than 11 years on Tuesday, tumbling 12.3%. The drop came after the automaker warned Q3 costs will be about $1 billion more than previously forecast. The company has been struggling with inflation and continued supply chain issues. Ford projected Q3 EBITDA will be between $1.4 billion and $1.7 billion, far below analysts’ expectations of $3 billion.
Continue Reading -->Coffee With Greta: The Fed Countdown Is On
DJIA Futures: -191 (-0.6%) SPX Futures: -27 (-0.7%) NASDAQ Futures: -90 (-0.7%) Good morning friends! Futures are slipping today as the Fed is set to kick off its two-day policy meeting. Let’s get right to it! Fed Meeting Begins The Central Bank begins its policy meeting today with the rate hike decision due at 2:00 p.m. ET on Wednesday. CME Group’s FedWatch Tool shows the market sees an 84% chance of another 75bps hike and a 16% chance of a 100bps hike. CNBC’s September Fed Survey shows the market is anticipating a 0.75% rate hike and expects the fed funds rate to peak at 4.26% in March 2023. That’s up 40 basis points from the expected peak in the July survey. Respondents expect the Fed to keep rates at that peak level for nearly 11 months. But there is also continued fear the Fed will cause a recession. The survey shows a 52% probability of a recession in the U.S. over the next 12 months with a 72% probability in Europe. Treasury Yields Surge Further Treasury yields are surging again today in anticipation of that rate hike. The 2-year yield is up 6 basis points to 3.98%, a fresh 15-year high. The 10-year yield is up 7 basis points to 3.57%, its highest level since 2011. Sweden’s Central Bank approved a 100 bps rate hike today, pushing its main policy rate to 1.75%. The bank warned “inflation is too high” and said it is “undermining households’ purchasing power and making it more difficult for both companies and households to plan their finances.” Housing Starts Rebound, Building Permits Fall U.S. home construction rebounded more than expected in August. The Census Bureau reported housing starts jumped 12.2% to a seasonally adjusted annual rate of 1.575 million units vs 1.445 million expected. That unexpected surge came as July starts were revised down to a SAAR of 1.404 million units from the previous 1.446 million. Single-family starts rose 3.4% while multi-family starts surged 28.6% as demand rises for apartments with homebuyers being squeezed by high mortgage rates. But the rebound is not expected to last as building permits fell sharply. The number of permits authorized in August dropped 10% monthly to a SAAR of 1.517 million units vs 1.62 million expected. Single-family permits fell 3.5% while multi-family permits tumbled 18.5%. Ford Warns of Higher Q3 Costs Ford (F) shares are down 4.7% ahead of the open after warning investors on Monday it expects to incur an extra $1 billion in costs during the third quarter. The automaker said those costs are the result of inflation and continued supply chain issues. Parts shortages have impacted roughly 40,000 to 45,000 vehicles during the quarter, mostly trucks and SUVs, that have been unable to reach dealers. Ford said those vehicles will be delivered to dealers in Q4 and reiterated its full-year guidance. Oil Prices Rise Slightly Oil prices are up slightly today as OPEC+ countries continue to produce less than their quotas. West Texas Intermediate crude futures are up just 0.1% at $86 bbl while Brent crude futures are up 0.4% at $92 bbl. A new document from OPEC+ shows the group fell short of its output target by 3.538 million barrels per day in August. That reignited supply concerns in a market that’s been focused on demand fears in recent days. Both contracts are on track for their largest quarterly percentage drops since the beginning of the pandemic. In Case You Missed It Homebuilder sentiment tumbled for the ninth month in a row. The National Association of Homebuilders sentiment index dropped 3 points this month to 46. That’s the lowest reading since May 2014, excluding the plunge at the start of the pandemic. It was also lower than expectations for 47 with anything under 50 considered negative. Builders blamed higher mortgage rates for falling sentiment as labor and construction costs remain high. Nearly 25% of builders reported lowering the price of homes in September, up from 19% in August.
Continue Reading -->