The pressure is on – NFP today, Fed Powell coming up next week

• The pressure is on!  JJ up next.

• Eco data favors ‘Sooner rather than Later’.

• But be careful what you wish for.

• Oil churns, gold struggles to hold the trendline and Bonds just breathing.

• Try the Summer Shepherd Salad – good all summer long.

So yesterday reminded me of Freddie Mercury & David Bowie’s ‘Under Pressure’ – originally sung in 1981, but then re-released in 1982 on the Queen Album -Hot Space…. becoming Queen’s second #1 hit and Bowie’s 3rd.   The song being described by some as a ‘Monster Rock track that stood out’ an ‘Incredibly powerful and poignant pop song.’  The song goes onto describe ‘the pressure’ that we all feel, causing a state of anxiety that comes from all the difficulties and efforts it takes to be (a central banker….) – Ok, I changed that part of the song…but it’s true…. because ‘the pressure’ for JJ is ON….…. What will he do? 

Recall - On Wednesday – the BoC cut rates by 25 bps, on Thursday both the ECB and the Riksbank (Sweden) cut rates by 25 bps. – leaving JJ – usually in the lead role in this drama – now in a ‘supporting actor’ position…..Will he definitively announce the long awaited rate cut or will he remain ‘coy’ defined as cute and playful, next week – leaving any cut ‘unclear’ as to timing, not whether it’s happening.  We all know that its coming, we just don’t know when….and that is what the speculation is all about – and if today’s data is weaker, then even I think he has the cover to move on rates this year…(and let’s not over think this….a 25 bps rate cut is NOT a 1% rate cut….and it still leaves us with 5% rates – historically normal)

A look at yesterday’s performance is non-committal – stocks stalled- with traders refraining from making any really big bets….(other than Roaring Kitty apparently)…– the Dow up 78 pts, the S&P down 1, the Nasdaq down 15, the Russell down 14, the Transports down 42 and the Equal Weight S&P was down 14.  

This week’s eco data now putting ‘more pressure’ on JJ and the FED while giving the ‘no rate cut narrative’ guys a run for their money (including me….).  Manufacturing PMI’s, Prices Paid, JOLTS report, ADP employment, Services PMI”s Prices Paid there as well, ISM Employment, Factory Orders, Durable Goods Orders all pointing to a slowing economy….., and then we got two more data points yesterday that I told you were the ones to watch…..Unit Labor Costs – came in 4% - down from 4.7% and below the estimate of 4.7% (bullish – because it speaks to the cost of ‘labor per unit’ – a declining number indicates that labor is becoming LESS expensive – and that speaks to the level of inflation) and then the all-important Challenger Job Cuts -which came in at a whopping -20.3 (which is really bullish as well – as it speaks to the potential of ‘planned future layoffs’ – a negative number seen as a positive because it suggests stability and LESS layoffs). (see yesterday’s note).  Both of these data points offering further proof of a slowing economy.

Now all of this newest data throws the whole ‘strong economy and higher for longer’ narrative into a ‘cooling economy,, sooner rather than Later’ narrative tailspin….but does not convince us yet that it is going to help the inflation story….recall the rise in PPI last month has the potential to keep the inflation story alive and well – or maybe not!.  Today though, just might be a deciding factor in what the newest narrative will be -when JJ presents next week – post the FOMC meeting that begins on Tuesday and ends on Wednesday.

There are some going way out on a limb – saying that he could surprise us and announce a cut on Wednesday! (Look for a story over the weekend or Monday next week from Nicky T of the WSJ – that will be the telltale sign).  My gut says June is NOT happening.   Could he intimate July? (5%– JPM and C supporting this), September? (5%), November? (35%) and December (35%) and a 2025 move? (20%).  (FYI – Futures markets are pricing in a 70% chance of a November cut and an 80% chance of a December cut).

Today is all about the May - Non-Farm Payroll Report – NFP – and there is A LOT riding on this data point this morning…. Questions include:  Will it support all of the other data points this week or will it stand alone?  Will payrolls grow by 180k jobs will they surprise to the downside? (or upside).  Will unemployment become a 4% number or not? (Expectations call for 3.9%, but remember JJ needs to see it rise while the Bidens want to see it decline) And finally – What happens to Avg Hourly Earnings, m/m and y/y? – Will they come in inline, or will they be weaker (or hotter)?

Now if the job creation number is higher – say a 2 handle – would that necessarily kill the rate cut idea?  Usually, it would, but according to the ‘data’ - wage growth IS cooling, so even if job creation is rising – wage growth tells us that employers are taking back control, that they are happy to employ you, but we’re not getting crazy on wages….in a kind of ‘take it or leave it’ option…. Which again speaks to trying to ‘time the markets vs. time IN the markets’ for long term investors.

And if the job creation number is weaker – does that force the FED to go into panic mode and cut in a knee jerk reaction?  Remember what we discussed – a panicked rate cut – sends a very different message to the markets… so, my guess is they will not ‘panic’…. But let’s see what next week’s CPI and PPI have to say. 

Oil remains below the trendline but has recouped about 4.5% of its recent losses…trading at $75.60 and remains in the $70/$80 trading range.

Gold also continues to churn in the $2300/$2400 range…this morning it’s right in the middle -at $2355 down $36 – as it too remains in a tight trading range.

Bonds did nothing really after a rather busy week…saw the TLT and TLH rally by 5+%.  We may see more action today after the NFP report – a weaker number surely supporting the cut narrative while a slightly stronger number (~200k) is not expected to cause any concern…. I would argue that a number higher than the low 2’s will cause us to remain on pause for another month.

Now futures this morning. are flat…. Dow down 11, S&P’s unchanged, Nasdaq +25 while the Russell is unchanged.  Besides the NFP report – Roaring Kitty is back on the scene – hosting a LIVE YouTube session today – during the trading day……and the MEME stocks are going absolutely ballistic…GME is up 34% in the pre-mkt – which would make him a billionaire IF his positions are real…(that is to be verified today). AMC + 11%, HOLO + 16%, BB +6%, FFIE +22%, CRKN +13%. 

There are all kinds of chatter at E-Trade and the SEC (and I’m sure at Robinhood as well) about what to do with Roaring Kitty – is he breaking any laws?  Is he forcing people to trade these stocks?  Is he not allowed to trade his money?  Is he not allowed to disclose his positions?  Every institution does – all you have to do is look it up on Bloomberg…. Vanguard owns 36 mil shares, Blackrock owns 22 million shares, State St owns 8 million shares even Northern Trust (a really stoic investment firm) owns 2 million shares.

Are you buying stocks based on what they do?  So, what is the issue?  If you choose to mimic him – then YOU choose to mimic him….No one is holding a gun to your head….It’s all about ‘risk and reward’ and that is up to YOU – trading is for ‘big boys’ (boys being used in an all-inclusive way), ….You either know what you’re doing or you don’t.….  I just don’t see how anyone can ban him or fine him for being a YouTube personality that people follow.  It is the world we live in today…Have you heard of TikTok?  Come on, man!  Is the industry worried about lawsuits from inexperienced ‘traders’ that will need to blame someone if they go belly up? – Then don’t let them trade without the proper education.  The industry brought this on themselves….by democratizing the process…. This is just one of those ‘unintended consequences.  They could talk about this all day – and I suspect they will.

European markets are all a bit lower (think profit taking) after their rally yesterday on the expected ECB rate cut – even in the face of ‘nagging inflation’.  Germany reports that their economy expanded only by 0.3% - below the prior estimate of +0.4% all while inflation ticks slightly higher.  Markets across the zone are down between 0.4% and 0.8%.

Yesterday the S&P lost 1 pts…. after making a new 2024 high…. Today’s eco data will certainly drive the action in the broader market…. Roaring Kitty will drive the action in the MEME stocks.  

Next week is another big week for eco data…. CPI is due on Wednesday along with the FOMC announcement.  PPI is out on Thursday – post the announcement.

The S&P and Nasdaq continue to hug and kiss the 70 lines on the RSI chart – suggesting an approaching overbot condition….and that usually suggests a pullback is near…. Again, while we are not knocking on ‘deaths door’ – so there is no reason to panic…. Evidence is building though that the economy is starting to slow – Let’s see what today brings.

Summer shepherds salad

This is easy to make and works well with any summer dish.

 For this you need – Cherry tomatoes (sliced in half), cucumbers, red onions, avocado, feta cheese, a splash of olive oil, s&p and a squirt of lemon.

Cut the cucumbers in half and then in half again. Now slice into small bite size pieces.  Mix the sliced tomatoes, cucumber and diced red onion.  Add in the sliced avocado.  Season with s&p and a splash of olive oil. Now add in the crumbled feta and place in the fridge.  Remove 10 mins before you want to eat it.